(FORTUNE Small Business) – Unfortunately, some small businesses are not able to find a way to cope with rising health costs. They are left with no alternative but to drop their health benefits altogether--something of a trend for small businesses. In 2003 only 65% of firms with three to 199 workers offered any kind of health benefits, down from 71% in 1999, according to the Kaiser Family Foundation. Four years ago Don Jansen, owner of Automated Health Systems, a medical billing company in Bellingham, Wash., faced the double hit of higher payments and the loss of a big client. He saw no choice but to drop the HMO for his six-person staff. "As new employees have come on, we say, 'Hey, we just can't afford health insurance.' They're not happy, but they understand," says Jansen, 57. "Fortunately, there are enough people looking for employment in our business." Many employees have been covered by a spouse's plan, and Jansen has also found a steady stream of local university students looking for part-time work. For himself, he signed up for a traditional plan that covers his family of four, at $1,000 a month.

Patricia Daughrity has also had to forgo health insurance--for her company and her family. The owner of wholesale bakery Farm & Garden Foods in Ripley, N.Y., Daughrity, 32, saw her HMO's premiums double in two years, to $600 a month per employee. She had already chosen the highest deductible, $1,000, she had switched plans, and she had shopped around, but she couldn't come up with an affordable alternative. So in 2002 she canceled.

Daughrity, along with her husband and 4-year-old daughter, is feeling the loss. She's expecting a baby this year and is paying all the medical costs out of pocket. "We're budgeting $20,000. We just hope we're way over the mark," she says. "With the monthly premiums and co-pays and other expenses, I don't see what the allure is for insurance. We're learning to live without it." (She recently checked prices; her old insurer now charges $900 a month. What's more, the insurance company considered her pregnancy a preexisting condition and so wouldn't cover the bills.)

But she didn't want to leave her employees with nothing. She gives her four employees medical discount cards, bought through a small-business advocacy group. The cards can be used to help pay for prescriptions and chiropractor, dental, and vision bills. Her cost is $200 a year, plus $140 per card. "It's not insurance," she says, "but it is something."