How Health Insurance Costs Impact Small Businesses

Historically, health insurance has cost small businesses more per person than larger companies. The administrative costs are also considerably higher. The reason for this imbalance is due to the nature of insurance underwriting. Larger risk pools allow insurance companies to offer lower rates. Administrative costs are often as difficult and costly to handle for a small company as a large firm. The costs are mostly fixed, and smaller firms must spread them across fewer workers.

The economy is slowly recovering from the mortgage fiasco, and you might want to wait and see what happens in the 2012 presidential election before committing to group medical insurance. Small companies that pay lower wages often cannot meet the mandatory employee enrollment requirements of group plans. However, health coverage offers substantial benefits that small firms should investigate.

Benefits of Employee Health Insurance

Despite these expenses, more employers are offering health coverage simply because employees consider it one of the most important benefits of a job. Talented workers give small companies a competitive edge, and insurance coverage makes your company more desirable to potential workers. Other substantial benefits of health plans include the following.

• Healthier employees are more productive, and health plans make it easier for workers to afford preventive care.
• Group health plans allow coverage of individuals with pre-existing health problems.
• You will qualify for tax breaks to help finance insurance for your employees, if you have fewer than 25 employees.
• You only need two employees to qualify for group health plans, which are more affordable than individual plans.
• Training new employees might involve great expense. The best strategy in tough times is to retain your employees by making the most of the benefits you offer. Health insurance leads the list of benefits that keep employees from changing jobs.

Taking Control of Health Plan Costs

You want to offer essential benefits to loyal employees without undue financial strain. Careful research is the key to finding out what your employees need. The best way to investigate the options is by choosing an administrator to investigate the hundreds of plans available. Price comparisons include benefit levels as well as price.

Choosing the right plan makes sound economic sense. If you find that most of your employees are covered by their spouses’ policy, then individual coverage might be the best option. Group coverage is less expensive, but it might require a certain participation rate before insurance companies will underwrite a group policy.

Strategies to reduce costs include some of the following methods small businesses use to offer their employees health insurance:

• You might be able to join an exchange to create a larger risk pool, reducing both premium rates and administrative costs.
• You can choose among fee-for-service plans and various managed care plans. Health maintenance organizations, preferred provider organizations, and point-of-service plans offer flexibility for various levels of coverage at lower prices than traditional indemnity insurance.
• High-deductible medical insurance offers lower premiums, but it provides protection against catastrophic illness.
• High-deductible plans can be combined with health savings accounts to cover deductibles and routine medical costs.
• Employers must pay 50% of costs for each enrolled employee, but they need not pay for family coverage.
• Paying 100% of employee premiums might seem like a good idea, but it could add redundant coverage at great company expense. If you pay all of the premiums, insurance companies will require that you cover every employee. Many employees might be covered by their spouses’ policies, so you should consider paying less than 100%, so your employees could choose whether to enroll.
• Sometimes, employers pay health premiums based on claims made in the past by workers who are no longer employed. You could reduce premiums by finding a new plan based on your current employees.

Consumer-Directed Health Plans

Employers enjoy considerable savings by encouraging their workers to become more involved with their medical care. You, as an employer, will realize significant benefits by sponsoring consumer-directed health plans (CDHPs). Advantages include the following employer and worker benefits:

• Employees make informed decisions about medical care, and they learn to spend wisely, cutting program costs.
• High-deductible plans cost employers less. The money employees contribute reduces FICA and FUTA employer taxes.
• Employees choose only the coverage they need.
• Workers explore the benefits of living healthier lifestyles, making them more productive.

Employee Involvement

Involving employees in the decision-making process will encourage greater participation. People worry about their families’ health and their own futures. Keep workers involved to identify the most economical solution.