The number of small-business employees with health insurance coverage in Maryland dropped slightly last year as health care costs drove up insurance prices, according to a state report released yesterday.

The number of employees with insurance fell 2.76 percent, from 468,687 in 2000 to 455,762 in 2001.

During that time, the average cost for employees who signed up for the state's basic insurance plan increased 9.9 percent, from $3,244 annually to $3,565.

For employees who bought add-ons to their plans - to help lower deductibles or add coverage - the cost rose 11.78 percent, from $3,925 annually to $4,387.

Officials with the Maryland Health Care Commission, which monitors the small-business insurance program and released the report, said Maryland has faced the same rise in costs that most states have.

"Although the rise may be difficult to handle for a small employer, it's what we're seeing around the country," said Enrique E. Martinez-Vidal, the commission's deputy director of performance and benefits.

State law forbids small business rates from exceeding 12 percent of the average salary of a state resident. The rates remained below that level - $4,599 - last year.

Martinez-Vidal attributed the higher costs to a general increase in costs for health care and prescription drugs, and to a tight labor market with fewer businesses offering insurance.

The General Assembly passed legislation in 1993 that requires insurers to offer standardized health benefits to businesses with two to 50 employees. The legislature was prompted to act because insurance companies had been turning down smaller companies or charging high premiums for policies they regarded as risky and unprofitable.

Many small businesses say the plan has improved coverage, but some business advocacy groups are beginning to ask whether changes should be made.

Ellen Valentino, the Maryland director for the National Federation of Independent Business, said many of the state's 6,000 member businesses are reporting cost increases that exceed the 9.9 percent noted in the report. Some businesses are complaining about 22 percent increases, she said.

"I don't think we're saying reform hasn't been effective," Valentino said. "I think what we're saying is, we're at a crossroads. Maybe we need to take a second look at reform and make some adjustments."

Valentino said the federation plans to conduct a survey on health-care costs in the fall.

For now, the commission said, it doesn't plan major changes in the small-business health-care package.

In a briefing earlier in the week, Barbara Gill McLean, the commission's executive director, said the commission might look at lowering deductibles in the future.

There are also plans to promote the package better, including the creation of a small-business Web site.