In light of the public health crisis and an ever-more competitive labor market, it’s crucial for small businesses to attract top candidates with benefits, including health insurance. While larger corporations typically provide employer-sponsored coverage, there have been hurdles for smaller businesses. As the lifeblood of the American economy, small businesses employ more than 60 million people, which is 47 percent of the U.S. workforce. Healthcare insurance for these workers is vital to their overall health and productivity.
Unfortunately, the Affordable Care Act is not always affordable. And while the ACA does not require businesses with fewer than 50 employees to offer healthcare, those businesses may risk losing their best workers to companies that do.
So, how should you offer your employees these critical benefits? If so, what is the best way to do so?
How Important is Healthcare to American Workers?
Americans have relatively high obstacles to healthcare compared to other developed countries. The costs of both insurance and provider services tend to be steep. If people perceive healthcare to be less accessible, they are more likely to put off preventative care or treatment for illnesses. This not only decreases their quality of life but also indirectly affects your business.
Stressed, sick employees are rarely good employees. Studies have shown that happy and healthy employees are far more productive and loyal. The fact is that if you don’t offer coverage, people will be forced to either choose an overpriced ACA plan or seek a different employer. According to the strategic consulting firm Fractl, 84 percent of employees name health insurance as their top-desired benefit.
If you do offer coverage but the benefits are insufficient, workers may leave for a better opportunity. Even some mega corporations offer pitiful coverage, especially for their part-time employees. If the insurance doesn’t make healthcare more accessible, it’s not an enticing perk of employment.
And by the way, 50 percent of small businesses with only 3-9 workers now offer health insurance. That percentage only rises as the workforce grows. So if you’d like to stay competitive, you must provide (good) healthcare coverage.
What Are My Options for Small Business Health Insurance?
There are two main types of healthcare plans: fully-funded and self-funded.
Fully funded health insurance plans are the traditional coverage options used by big businesses. The problem is that they tend to be quite expensive — more than many small business owners can afford.
The carriers (e.g. Blue Cross Blue Shield, Human, United) set the rates. While they assume all risks and administer the plan, there is a caveat: rates could skyrocket when you renew. Based on the number of claims made in any given year, the cost of providing your employees with coverage could significantly increase next year. And in the COVID era, carriers are boosting their rates even more.
Self-funded health insurance plans leave it up to you to administer the plan and payout claims. This isn’t necessarily a bad thing, though. First, while costs may vary month-to-month, you’ll never be caught locked into a sky-high rate. You can budget an average cost, then pay claims as they come in. On lower-claim months, set aside those funds for potentially higher-claim months.
The overall rates for self-funded plans tend to be lower, too. As with anything, if someone else performs the service, expect to pay a markup. While administering your plan may seem like an extra task, consider the time-cost of doing that as compared to paying a major carrier’s high monthly rates.
Finally, consider level-funded health plans, which include stop-loss insurance. If a catastrophic claim comes in, you won’t be on the hook for an enormous payout. The insurance kicks in. Some plans even offer a rebate if you end up with lower claims than expected.
The Benefits of Self-Funded Health Plans
If you’re relying on a third party to process and payout all claims, it puts you in an odd position if your employees use their benefits. The more claims made, the more the carrier may charge you in subsequent years.
By contrast, self-funded plans tend to break even. Some months, e.g. the winter season, may have more claims as people go to the doctor more often. But those are balanced out with healthier periods where claims are minimal. And so, no one feels strained about using or paying out their healthcare coverage. If an employee has a serious accident or illness that results in a high claim, that can certainly create tension if the carrier would raise your rates across the board. With the level-based self-funded plan, both you and your employees can be protected from a rainy day.
Self-funded health plans also allow some flexibility for your employees. Many traditional coverage options are all-or-nothing: you pay a fixed rate for a package deal, and your employees don’t get to choose their plan type, premium or deductible, or even their doctors. With self-funding, you can leave it up to them: boosting their happiness, health, and loyalty!
Choosing the Best Health Insurance Plan for Your Small Business
Fully-funded plans can work for some small businesses. But given that you have less wiggle room than big corporations, it’s usually better to choose the flexible option. Take the time to research different insurers and the options you could offer your employees. Do your homework!
Next, weigh the costs to both yourself and your employees. If you have workers on the lower end of the earning scale, consider that high premiums may be out-of-reach for them. If your business is in a high-risk industry (e.g. construction, manufacturing), consider choosing a plan with lower deductibles and more options for specialist coverage. Check for local coverage as well: there is no point in offering a plan if no doctors in your city accept that insurer.
Then, determine what your monthly cap would be and how much your employees would be expected to cover. Remember that all employees on the same level (e.g. all FTE workers) must be offered the same benefits.
Offering the best healthcare coverage is a balancing act. But once you get it right, both you and your employees can reap the benefits:
- Greater employee satisfaction and loyalty
- A boost in productivity
- Fewer sick days and time lost to stress
- Better employee retention
- The ability to attract and keep amazing workers
Healthcare coverage is no longer an optional perk. It is increasingly expected during the COVID era and current labor rights struggle. And the good news is that you no longer have to pay steep rates or spend tons of time dealing with convoluted carriers. There are plenty of sustainable, customizable options, so you can create a happier, healthier workplace and offer your employees the health insurance benefits they deserve.
Need more guidance? Contact our friendly professionals today for help finding the best plan for your small business.