As health insurance costs continue to increase, employers are faced with the difficult choice of whether or not they should offer health insurance to their employees.
According to the 2013 Employer Health Benefits Survey conducted by the Kaiser Family Foundation/Health Research & Educational Trust, which included more than 2,000 small and large employers across the United States, the annual premiums for employer-sponsored family health coverage increased 4% compared with 2012, averaging $16,351 per family per year. The cost of individual employer-sponsored health insurance costs also increased 5% from 2012 to $5,885 annually.
Although these premium increases might seem fairly moderate, during the past decade, the cost of health insurance has increased by 80% while annual income has only increased by 31%.
“It used to be that health care wasn’t a big deal. Nobody argued about it, because it didn’t cost that much,” Tony Wickman, CTPO, owner and chief executive officer of Freedom Fabrication Inc. in Havana, Fla., told O&P Business News. “These days, employers are confronted with the fact that the cost of benefits is nibbling on your bottom line, or in some cases, taking huge bites out of it.”
But even with the steep costs of health insurance, it is a necessary and important benefit for employees.
“It is probably the most important benefit a company can offer,” Rob Benedetti, controller for De La Torre Orthotics and Prosthetics Inc. in Pittsburgh and a consultant for Promise Consulting Inc., said. “It is critical for a company to offer a decent health insurance program in order to retain employees, foster goodwill and attract new employees.”
Navigate the market
Small business owners face several challenges when trying to find an affordable insurance plan. They typically experience higher costs than large business owners, which can deter owners from buying policies.
“For years, small businesses have been telling us that access to health care is one of their top concerns,” Meredith Olafson, senior policy advisor for the Small Business Administration (SBA), told O&P Business News. “And we know that small businesses currently pay as much as 18% more than their larger competitors.”
In addition to high costs, the health insurance market also can be difficult to navigate, especially for small business owners who likely do not have dedicated human resource representatives to handle insurance negotiations. Wading into the realm of insurance policies can be daunting, and researching the differences between an HMO, PPO, POS or CDHP policy may seem like studying a foreign language. However, a good grasp of the details is crucial to find an affordable plan.
An HMO plan is a managed plan that requires beneficiaries to visit physicians and specialists within the network of preferred providers. These plans typically have lower up-front costs, low or no deductibles and minimal copays for beneficiaries, but they are more expensive for the employer.
A viable alternative to HMO plans are preferred provider organizations (PPOs) and consumer directed health plans (CDHPs). PPOs operate similarly to HMOs, but the beneficiary is usually required to pay a deductible. PPOs also typically have larger networks and enable easier access to out-of-network care, so it might be a better option for employers with multiple office locations in different cities.
CDHPs involve pairing a high deductible health plan, typically a PPO, with a tax-advantaged account, such as a health savings account (HSA) or health reimbursement account (HRA), which employees can use to cover their medical expenses. These plans are often good choices for small business owners because they allow the employer and employee to share the cost of health insurance.
“We have found that to be a good alternative as far as balancing the amount of burden that the employee should assume for their health care insurance and how much the company should assume,” Benedetti said about HSAs, which De La Torre began offering several years ago after the premiums on their existing PPO started increasing.
“A lot of people are iffy about it, but it is easy to administer, and it gives employees a chance to manage some of their own money,” Benedetti said.
Similarly, Friddle’s Orthopedic Appliances, S.C. decided to switch to an HSA plan because it was more affordable.
“We switched about 4 years ago, and with premiums going up, this seemed like a more economical option,” Rachel Friddle-Johnson, CPO, president of Friddle’s, said. “It’s a high deductible, but we did help fund everybody’s HSA in the beginning when we made the change.”
Friddle’s initially provided each employee with $2,000 to put into their HSA account to help deter some of the costs while they transitioned to the new plan.
“Even with seeding the HSA, it was less than the way that premiums were heading,” Friddle-Johnson said.
And unlike a flexible spending account, HSAs roll over to the next fiscal year, so any money placed in the account will not be lost if it is not used.
Arizona AFO in Mesa, Ariz. has a partially self-funded policy, where the employer provides insurance with its own funds and assumes the risk for payment of the claims for benefits, which can be beneficial.
“It has helped with expenses and gives us information about how insurance is being used by our employees,” Don Pierson, CO, CPed, vice president of Arizona AFO, Inc., said. “We get a report that shows all of the doctor visits and prescriptions and different medical expenses that our employees have had.”
Reports such as these can help employers reduce premium costs, because employees can be educated about the best ways to minimize costs, such as using mail-order prescriptions or visiting an urgent care clinic instead of an emergency room.
“We can take a more proactive stance by communicating with our employees,” Pierson said. “We can show them statistics and keep premiums down by employees chipping in and doing what they can. We have found that educating our employees on how insurance works has been valuable for us.”
Similarly, wellness incentives can also provide an outlet for potential cost savings. According to the Kaiser survey, 35% of employers surveyed said that wellness programs were an effective strategy for controlling the costs of premiums. These programs could include financial incentives, such as lower deductibles or larger contributions to tax-preferred savings accounts for employees who participate in approved programs, discounts on gym memberships and wellness facilities or organized fitness programs conducted through the office. Insurance companies may also offer discounts directly, so employees should be encouraged to research any potential cost-saving options.
Work with a broker
One of the easiest ways to find an affordable plan is to work with an insurance broker. Although it may cost more than self-brokering a plan, the knowledge and expertise of a broker can outweigh the costs.
“They have a lot more knowledge and information at their disposal, and it’s helped us a lot to do that,” Pierson said. “It’s gotten more and more complicated, and rather than just listening to a sales pitch from an insurance company, we are able to have an independent broker sit down with us. We can ask questions and he guides us through the process.”
Wickman agreed that working with a broker simplifies the process of finding an affordable plan.
“We have a broker we have known for years who will shop different policies,” Wickman said. “Every year, he will go out and see what he can find.”
Especially for small companies with limited manpower to spend on researching plans, a broker can ease that burden.
“Often, they can find programs or insurance companies you can’t find or work with a company in a way you can’t in order to get a good and cost-efficient plan,” Benedetti said.
However, Benedetti warned it is important to find the right broker who will have your company’s best interests in mind when negotiating a deal.
“If you’re not happy with how your costs are increasing or you feel that you are not getting a good plan design, it might be time to switch brokers,” he said.
The health care industry is currently experiencing an overhaul due to changes created by The Patient Protection and Affordable Care Act (ACA), which was signed into law in March 2010.
The main aim of the law is to create affordable and available health insurance for all citizens. Although some provisions have already been implemented, such as coverage regardless of pre-existing conditions and dependents maintaining eligibility on a parent’s insurance plan until age 26 years, more revolutionary changes are still to come.
These changes include the implementation of the individual mandate that requires all individuals to obtain an insurance policy or pay a fine, the expansion of Medicaid eligibility and the creation of health insurance marketplaces. Most of these changes will not take effect until 2014, but their consequences could have a significant impact on how business owners provide insurance.
One of the major changes created by the ACA that will be implemented in 2014 is the creation of the Small Business Health Options Program (SHOP) marketplace.
“For the first time starting in 2014, small businesses will be able to comparison shop for coverage for their employees and may qualify for an expanded tax credit for this coverage,” a spokesperson from CMS told O&P Business News. “These marketplaces will give small businesses the ability to meaningfully choose from a selection of qualified health plans across varying coverage levels. SHOP works with new insurance reforms and tax credits to lower barriers to offering health insurance that many employers face today.”
These marketplaces will be eligible for employers with 50 or fewer full-time employees who offer insurance coverage and will allow employers to make side-by-side comparisons of health plans online.
“It is their first opportunity to make apples to apples comparisons among different private health plans, and small businesses will be able to pool risks, just like the large businesses have been able to do,” Olafson said.
Depending on an employer’s location, marketplaces will be operated by an individual state or by the Department of Health and Human Services (HHS).
“Small business employers and individuals will both be able to compare different insurance options, get answers to questions, find out if they are eligible for tax credits and enroll in health plans that meet their needs,” a representative from CMS said. “Details, costs and all other information will be readily and publicly available, and an employer can choose what share of the premium cost to cover.”
These exchanges could provide an ideal solution for businesses with minimal employees, because individual employees also will be able to access the marketplace and find a plan that works for him or her.
“You could give the employees a set amount of money every year and say, ‘Here is the money we are going to give you, now go out and purchase your own plan,’ which is the intent of the exchanges, or part of the intent,” Benedetti said. “So while we don’t know the answer to that, we are certainly interested in what that might look like. Because a young male who is not married and has no dependents and good health might be able to go out and get himself a cheaper plan by himself and use our money to pay for it vs. being slotted into a tiered approach.”
Businesses participating in the marketplaces may be eligible for the small business tax credit, which is currently offered to employers with 25 full-time employees earning an average of less than $50,000 per year. The tax credit is worth up to 35% of an employer’s contribution to employee’s insurance, but it will increase to 50% in 2014.
The ACA also will enforce an employer mandate requiring companies with 50 or more full-time employees to offer health insurance or face a penalty, but the start date was postponed until 2015 to give employers more time to prepare for the new regulations.
In an effort to ready employers for the new provisions, HHS created a dedicated call center specifically for employers interested in enrolling in a SHOP marketplace, and the SBA launched a series of educational webinars to help employers make informed decisions regarding health insurance.
“It’s really important for small business owners to look at the facts and cut through some of the misinformation surrounding the law,” Olafson said.
Open enrollment for the marketplaces began on Oct. 1, and coverage is expected to begin as early as Jan. 1, 2014 for enrolled beneficiaries. SHOP marketplaces are also expected to open up to employers with more than 100 employees in 2016.
With these impending developments, the nature of the insurance market is guaranteed to change, but it is uncertain what that means for small business owners.
“I don’t think anyone really knows yet what is going to happen,” Wickman said. “I am hoping that if these exchanges come through, we may have access to less expensive policies, but I think it’s anyone’s guess at this point.”
Benedetti concurred. “We’re interested in what is going to come out of the marketplaces, how it’s going to work and if other companies do it. If it is a pool, that can help the employee and us, but it has to be something that is a positive result for both the employee and the company.”
Regardless of what type of plan an employer offers, health insurance is an important aspect of a business model that ensures the well-being of its employees.
“We are pleased that we are able to offer health insurance. There are all kinds of business constraints, and for the time being, we’re happy to be able to do that, because we feel without it, a lot of our employees would be in a hard spot to provide it on their own,” Pierson said. “Other than customers, our employees are the most valuable to us, so we strive to be fair and provide everything we can within reason.” — by Megan Gilbride
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Disclosure: Bennedetti, Friddle-Johnson, Olafson, Pierson and Wickman report no relevant financial disclosures.