Small and medium businesses (SMBs) are the heart of the economy, accounting for 54 percent of all U.S. sales and 66 percent of all new jobs. However, SMBs have a significant challenge compared with large corporations. Only half (54 percent) of companies with fewer than 200 employees offer traditional health benefits, compared to nearly all (98 percent) of companies with more than 200 employees. This is problematic for attracting and keeping the right talent.
Then, enter the Affordable Care Act (ACA). The ACA has significantly changed how employers and employees purchase health insurance. New health benefit models available under the ACA open up affordable health insurance alternatives to SMBs. But, new options can also leave business executives with more questions than answers.
As you begin to evaluate and shop for health benefits, use these five tactics to simplify the process and help your business achieve its health benefit goals and budget.
1. Understand the value of health benefits.
The value of employee health benefits is largely intrinsic. As employers, we all feel like we "should" offer health benefits. We all "know" employees value them. The good thing is there are measurable advantages to your business.
First, health benefits help your business recruit and retain the best workers. Health benefits are an enticing component of a total compensation package and a valuable tool to acquire the best talent in your industry.
Health benefits also help you retain valued employees. According to MetLife's 2014 U.S. Employee Benefit Trends Study, employees who are very satisfied with their benefits are almost four times more likely to be very satisfied with their jobs.
When the cost of losing valued employees is so high (up to 213 percent of annual salary for high-earners), an investment in health benefits can pay off quickly.
2. Set a budget.
Yes, health benefits are valuable. And yes, they can have a positive ROI on your operating budget. But, cost is a major barrier, especially for small and micro businesses.
Which is why, before you begin to shop for health benefits, you should set a budget and evaluate your ability to absorb annual fluctuations in cost.
Why? Health benefits products vary in price and pricing structure. Some options can be expensive, or have unpredictable costs, so determine what your budget will allow.
For example, traditional employer-sponsored health insurance costs fluctuate annually, both for the employer and employees. From 1999 to 2014, premiums for employer-sponsored health insurance increased 191 percent for a family plan. That is an average increase of 13 percent a year.
An alternative is to create a fixed-cost health benefits program, or a defined contribution health plan. With this model, your business sets healthcare allowances for employees to cover the cost of individual health insurance premiums. This model sends employees to the individual market to purchase their own health insurance, and creates a predictable and controllable benefits cost to the employer.
3. Are you on the hook for the ACA employer mandate?
As you shop for health benefits, evaluate if you are on the hook for the employer mandate and employer shared responsibility fees.
Under the ACA, employers with 50 or more full-time equivalent employees are mandated to provide health insurance to at least 95 percent of their full-time employees and dependents up to age 26, or they will incur a fee if/when an employee purchases subsidized coverage. Businesses with fewer than 50 employees are not mandated to provide health insurance to their employees.
As your business evaluates and shops for health insurance, it is important to know the various rules you need to abide by. For example, is your business mandated to provide health insurance? If yes, what are the potential fees if you do not offer traditional health insurance?
4. Evaluate your options.
You've done the legwork. Now it's time to evaluate options.
While employer-provided health insurance can be a good option for larger companies, you may have a smaller business that is not mandated to provide coverage. If so, a stipend plan or health reimbursement plan may be a better fit for employees.
If you offer a stipend to employees for their healthcare premium, the ACA requires that you treat it as taxable income. A tax-free solution is a Health Reimbursement Plan (HRP). An HRP is like a business expense account for healthcare, where the employer reimburses employees' insurance premiums instead of contributing to a group health insurance plan. HRPs are designed to give employees control over their healthcare. For example, employees get to select any health insurance plan, choose their doctors, and take their insurance with them if and when they separate from their employer.
Kaiser Family Foundation found that 75 percent of employees working for small employers not currently offering health benefits would prefer $2/hour more in wages than health insurance. This research suggests employees value this approach to health benefits just as much, if not more, than a traditional approach.
From a budget standpoint, individual insurance plans are more affordable than group health insurance premiums, and on top of that, employees may qualify for premium tax credits depending on their household income. Understanding the tax credits available for individual insurance policies may help clarify which benefits model makes most sense for you.
5. Determine which type of plan works best for your business.
Depending on how the ACA impacts your business and your health benefits objectives, you may find that one type of health benefit outweighs another. When you have finalized your research and evaluated your options, select and implement the plan of your choice.
SMBs face unique challenges in offering health benefits. However, new opportunities in the individual market give SMBs new options for offering employees comprehensive health benefits. Forward thinking business owners are adopting individual health insurance and a defined contribution model of health benefits.