Small businesses didn’t always have to provide health insurance as a benefit. However, that time is long in the past. The impact of health benefits on recruiting and retaining employees cannot be ignored any longer. It’s a must-have in these times of tight labor.
And yes, it’s costly. But here are some strategies that can help you offer healthcare affordably.
Pay For It Gradually
First, if you can’t afford to pay for health insurance, at least make it available.
People have a hard time purchasing health insurance on their own. Employers often get better rates on insurance coverage than individuals because they can work with a business association or as part of a group. If you can afford to pay for some of the premiums, try and do it, even if it’s a low amount.
I have a few clients that do this gradually. They make employer contributions that are contingent on tenure. For example, if an employee is with the company for more than three years, the employer pays 25% of their health insurance. After five years, they’ll pay 50%, and so on. That way you incentivize employees to stay at your company. Plus, if you’ve got someone with you for more than three years, you probably won’t mind helping out with their health insurance if it means not losing them.
Get an HSA
If you have a group health insurance policy with a high deductible—even if you’re not contributing to employees’ premiums—you should still make sure to set up a Health Savings Account (HSA) for your employees.
Workers love this. They can contribute up to $3,850 pre-tax individually (or $7,750 for a family) in 2023. They can then use the money in their account to pay for things that your health insurance policy doesn’t cover, like eyeglasses, acupuncture or some generic pharmaceuticals, in addition to using the money toward medical bills and prescriptions.
HSAs are different than Flexible Spending Accounts (FSAs). If there’s anything left over at the end of the year in the HSA, it’s not lost. If an employee leaves your company, they can take their HSA money with them. The savings can also be invested, kind of like a 401(K) plan. Offering an HSA is a good way to help your employees reduce their healthcare expenses, even if you’re not paying for it.
Raise Less, Contribute More
Here’s another tip: In 2023, pay less toward salary increases and more towards health insurance.
We all know that the Great Resignation has caused millions of workers to change jobs, and compensation has increased to keep up with inflation. Unfortunately, with inflation continuing to run high, you’re going to be expected to bump salaries more in 2023.
But you don’t have to. You can give some salary increase and pay the difference towards the employee’s health premiums. Why? Because if you just give a salary increase, both you and the employee pay taxes on that increase. If you contribute more towards their health plan, that contribution is non-taxable to both of you.
Consider a Captive Insurance Program
Another trend I’m seeing this year is captive insurance programs. A “captive” is an entity that is owned by a multitude of companies. The entity is run by a management team (usually a healthcare benefits consulting organization), and the purpose of the entity is to spread the medical loss risk among all the owners.
It’s a form of self-insurance. Everyone contributes to the entity and the entity goes out and negotiates insurance rates. A captive insurance program can significantly reduce the volatility of your healthcare premiums due to unforeseen medical events. This helps keep your premiums consistent year to year.
With a captive program, you can also potentially get more coverage and access to expanded networks. On top of this, the cash that the entity receives is invested, with returns used to further offset health insurance costs.
Captive insurance was once a thing for big companies, but now that the benefits industry has advanced, there are more opportunities for smaller companies to participate.
If you don’t want to participate in a captive insurance entity, you can still go it alone with a level-funded plan. These plans work in various ways, but the concept is the same: You self-insure at the lowest level before your group policy takes over. So, for example, you make a steady monthly payment to cover:
· Costs for administration
· Claims payments
· Stop-loss insurance
An administrator pays your workers directly for their medical claims up to a specific amount. Then, any stop-loss claims (definition: big claims!) are paid by your group insurance policy. Things get trued-up at the end of a period and future monthly payments are adjusted up or (hopefully) down, based on usage.
These plans are popular with companies that have a younger demographic and a good health history; why pay for everyone’s group health insurance when only a few people are actually using it? With a level-funded plan, you pay only for what you use. If something catastrophic occurs, the group policy—which now costs less because you’re self-insuring at the low end—has you covered.
Consider an HRA
Finally, you might want to consider Health Reimbursement Accounts (HRA) for your company. With an HRA, you can contribute pre-tax money for each employee and they can then use that money to go out and pay for certain qualified medical expenses or buy health insurance on their own.
HRAs have become very popular among my clients over the past few years. It gives them control over what they spend on healthcare, it removes the headache of administering and negotiating new plans every year, and it relieves them of privacy or confidentiality concerns regarding their employees’ health histories. Some employees can even use HRA money to find better rates on the healthcare exchanges. You can also provide a list of recommended health insurance brokers who can help.
Healthcare is a critical benefit for your employees. Even if you can’t afford it, you have to provide some type of solution. Ignoring this employee benefit will certainly cost you talent.
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