An increasing number of reports show that offering health insurance benefits is integral to a small business’s success. In light of this, many entrepreneurs are wondering how they can comfortably work group coverage into their strategy. Photo from Storyblocks.
The Ultimate Job Draw: Employer-Sponsored Health Insurance
Between mixed and misleading financial reports, a staggering rise in basic living costs, a tedious post-COVID job market, and unprecedented medical inflation rates, it’s safe to say that the state of the American economy is wearing on everyone. Among the most affected groups have been small business owners. With offices and storefronts seemingly closing on every corner, it’s never been more critical for America’s entrepreneurs to take stock of their goals and manage their expenses mindfully.
Sponsoring employee health insurance is one of the major expenses small businesses shoulder. In a study by JPMorgan Chase, companies with less than 100 permanent employees can expect to pay somewhere between 7.1-11.8% of their annual revenue on their staff’s health insurance premiums (based on 2023 figures). With these numbers in mind, if you have a small business that makes $600,000 a year, you will spend $71,000 on employee premiums alone.
To complicate matters, there is significant danger in failing to offer health insurance benefits to employees. In this article, the U.S. Chamber of Commerce claims that 88% of employers and employees alike consider health insurance benefits to be the single most important factor in attracting and retaining a talented, loyal, and diligent workforce. Whether or not a person accepts a position and stays with a company is heavily dependent not on retirement savings, leave, or even salary, but on the robustness of its healthcare offerings. An overwhelming majority of professionals these days will not consider applying for a position unless some form of major medical benefit is provided.
With these cards in play—skyrocketing medical costs across the board, as well as a demand for employer-sponsored healthcare—what options do small business owners, have to help foot the bill?
How To Secure Affordable Health Insurance For Employees
The cost of small business health insurance can be significantly reduced if a company qualifies for federal tax credits. The Small Business Health Care Tax Credit is an incentive provided by the IRS that will pay 50% of the company’s premiums if they meet specific requirements. In order to see if a business qualifies, its owner will need to enroll in the Small Business Health Options Program, otherwise known as SHOP. The SHOP Marketplace is an extension of the ACA that is specifically engineered to help small businesses find and implement quality plans for a fraction of the cost, as well as grant them access to tax advantages.
A small business may also opt for a Health Reimbursement Arrangement, or HRA. HRAs allow companies to reimburse employees for their premiums without offering sponsored group health insurance. The owner would need to work with each employee on an individual basis, document the process to meet federal standards, see that they have signed themselves up for a health plan (either using the ACA or a private company), and then arrange to reimburse the individual whatever their monthly premium amount is. The benefit of these arrangements is that the employer can contribute to their employee’s health and well-being without jumping through the hoops of managing a group plan. Additionally, reimbursements are not subject to taxation.
A third option would be to connect with a Professional Employer Organization (PEO). PEOs are third-party companies that handle human resources, payroll, taxes, and benefits administration for other businesses. Basically, they’re HR departments for hire. Because PEOs can contract to work for lots of small businesses at once, they have the ability to pool employees from multiple companies to secure group health coverage at an all-around lower cost. The larger the group is, the cheaper the premiums will be for everyone involved.
To all the business owners out there, here are three additional best practices you should try.
- Assess the healthcare needs of your employees. That way, you can pick plans that offer exactly what they need verses those with expensive wide-net services that won’t be utilized. You can save a lot of money on premiums if you know your employees well and cater to their circumstances.
- Shop around. Don’t be afraid to spend some time shopping and becoming informed. It’s true—the pressure is on for small businesses to offer health benefits. Failing to provide healthcare repels talented workers and quickly gives would-be loyalists wandering eyes. That said, it’s important that you don’t settle for the first quote you get. Be selective and discerning, learn everything you can, carefully compare potential solutions, and seek out professional guidance.
- Consider contributing rather than paying premiums in full. If you can’t afford the financial burden of paying for everyone’s healthcare premiums 100%, working out an agreement with your employees where you pay a fraction of their costs is an effective retention (and attraction) strategy. Offering some help is better than no help!
Takeaways
Providing affordable health insurance to employees isn’t impossible for small business owners. There are so many effective ways to mitigate the overall expense whilst giving hires (and potential hires) a powerful incentive to invest their time and talents into their companies for the long haul. By mindfully educating oneself on what is available, seeking out potential tax credits, and paying careful attention to employees’ wants and needs, employers can offer healthcare solutions that support both their staff members and their business’s financial well-being.
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