Top issue for small businesses: Employee health insurance
Owners of privately held small and midsize companies said providing health insurance for employees is a top financial pressure, according to a recent survey.
Enterprise Bank & Trust (EBT) released a Think Tank survey of 230 businesses that found most small and midsize businesses (SMBs) worry about being able to provide health insurance for their employees.
“Companies that are smaller — 15 and [fewer] employees — their biggest concern in our survey wasn’t the cost [of health insurance], wasn’t was it going to hurt their profitability, it was feeling pressure to provide,” said Jeff Friesen, EBT president for the Arizona region. “Those smaller companies are currently having a difficult time already providing that benefit.”
These are the top three business concerns related to the cost of providing health insurance:
1. The cost of employee health insurance could negatively impact the company’s profitability
2. Potential increases in premiums could make employee health insurance unaffordable
3. Health insurance costs limiting the company’s ability to award bonuses or give raises
Health insurance is often a top line-item expense next to payroll, but it’s the only expense they don’t have significant control over.
“It can be quite frustrating to see cost increases that are two to three times the rate of inflation and feel like there’s not much you can do about it,” Bryon Shultz, MJ Insurance principal, told EBT.
According to Friesen, the most interesting thing about the survey results is that businesses don’t seem to be taking the proper steps to ensure they’re saving money when providing health insurance.
“We do a lot of these Think Tank deals periodically; this one to me was the most insightful one that we’ve had, mainly because of some of those percentages where it looks like people aren’t doing what they need to help lower the cost,” Friesen said.
According to EBT, there are three “big levers” to reducing costs: benefits plan design, preventive care incentives and cost.
Benefits Plan Design
There are ways to reduce premiums.
First, self-funded insurance can lower the premiums for employees while possibly saving companies money through reduced operational costs. However, this option comes with the risk of acquiring a huge bill should something happen to an employee, so companies should look closely to determine if they are able to absorb the cost if necessary, according to EBT.
Shultz said there are creative options for midsize companies with more than 50 employees, such as aligning a risk-financing funding platform that allows the company to mitigate high claims while still capitalizing when overall claims are affordable.
“This is the only way for these types of companies to change their five-year health care trend,” he said.
A third option is choosing a narrow network insurance plan that offers low out-of-pocket costs and monthly premiums for a smaller provider network.
“An increasingly popular choice is to move to a High Deductible Health Plan (HDHP) which lowers premiums by increasing deductibles over a traditional plan. An HDHP makes insurance more affordable for both the employee and the company and tends to be popular with companies who have more young, single employees without spouses and children,” EBT wrote.
If a company has an HDHP, setting up a Health Savings Account, or HSA, can also help the company save costs.
Money deposited in an HSA is not subject to federal income tax and is deposited tax-free to be applied to qualified medical expenses.
“Only 42 percent of companies we surveyed offered an HSA. That told me that companies aren’t doing what they need to do…to help lower costs providing health coverage,” Friesen said. “That told me that companies aren’t doing what they need to do and looking over their plans and figuring out what items they can control to help lower costs within providing health coverage.”
Preventive Care Incentives
Many in the health care community are beginning to shift focus to wellness and preventive care, and more than 50 percent of American businesses offer wellness programs to their employees, according to EBT.
Preventive care programs include regular checkups, screenings, smoking-cessation programs and health education training, while wellness includes practices that promote mindfulness, such as meditation or yoga.
“We are all likely going to experience a wellness issue at some point in our lives,” said Michelle H. Schmidt, owner of PACE Nutrition Coaching. “When this happens, healthy habits can stack the deck in our favor for lowering our risks and aiding in recovery. Employers have the ability, through a comprehensive health and wellness program, to contribute notably to their employees’ well-being.”
According to EBT, 93 percent of survey participants said employee well-being is critical to their bottom line, but only 22 percent offered a wellness program.
The last, and perhaps simplest, way to reduce health insurance costs is to know exactly what things cost.
“I think [smaller companies] need to do their research,” Friesen said. “[Companies] really just need to make sure they’re proactive. It starts at the time when they’re designing their plan — not being afraid to negotiate when they’re designing those plans — make sure that they’re asking a lot of questions and implementing the things.”
According to research, prescription drugs are one of the biggest health care expenses. In the Think Tank survey, the statement “pharmacy coverage is more of an issue than health care coverage” was ranked fourth.
For example, employees might be eligible for Patient Assistance Programs (PAP), which means the employer is no longer paying for prescriptions but rather the drug manufacturers’ foundations pay.
The second cost companies can usually save is in the medical bills themselves, because many times there are errors or opportunities to renegotiate discounts.
“[Small businesses] don’t think about trying to get into the weeds and trying to manage those costs,” Friesen said. “There some larger buy-in groups that they can be a part of. There are a lot of good brokerage companies out there that deal with helping companies work through this process and providing them with the best solutions possible.”