Let’s do a quick word association game. When I say “benefits,” what’s the first thing that comes to mind? If you’re like most people, you said “health insurance.”
Health insurance is the single most popular benefit offered by businesses both large and small. If you’re looking for ways to attract top talent and make sure your best people stick around, health insurance is one of the “stickiest” benefits you could offer.
Unfortunately, it’s also the most expensive.
Managing the High Costs and Headaches of Small Business Health Insurance
According to PeopleKeep’s 2024 Employee Benefits Survey, health insurance is the most popular benefit, with 92% of employees rating it as a key reason they would accept or stay at a job. (Dental insurance and paid leave came in second and third.)
It’s easy to see why health insurance is so important. Even among insured individuals, 47% say it is “very or somewhat difficult” to afford healthcare costs, and 74% say they are “very” or “somewhat worried” about being able to afford unexpected medical bills.
Offering health insurance is one of the best ways business owners can show that they care about their people – but that display of empathy does not come cheap.
The Bureau of Labor Statistics reports that health insurance is far and away the most costly benefit, comprising roughly 26% of all employee benefit costs, more than Social Security and Medicare combined.
Of course, if you’re a business owner, none of this is news to you.
The Many Factors of Small Business Health Insurance Costs
The amount of money you and your employees pay for health insurance depends on a number of factors, including:
- Ages of people in your plan
- The location of your employees
- Amount and type of coverage
- Deductibles
- Tax credits
Several other factors can come into play as well, but these are the primary ones. As you look at that list, it becomes evident that there isn’t much you can do as a business owner to impact your health insurance cost. Or is there?
How Can You Keep the Cost of Small Business Health Insurance Down?
While some factors remain beyond your control, there are several levers business owners can pull to help keep health insurance costs down.
1. Education, Education, Education
Education is your absolute best defense against the rising costs of health insurance plans. While many companies offer things like wellness programs and apps, without a deeper understanding, these offerings tend to be misunderstood and under-utilized, which defeats the purpose of offering them in the first place.
The truth is that Americans are pretty bad consumers of healthcare. That’s surprising when you consider how much research we’ll do on cars, dishwashers, and TVs before buying one. But for some reason, when it comes to a doctor or surgeon, one referral is all it takes – especially if that referral is from another healthcare professional you trust.
But here’s the thing: Not all healthcare is the same. If your doctor refers you somewhere for an MRI, it’s because they have some connection to that particular institution. Maybe it’s in their health system, or they know someone who works there, or they’ve heard good things about it. It’s not necessarily because the MRI provider does the best job or is the most cost-effective option.
With most things in healthcare, a little bit of research will yield a lot of money-saving alternatives that will still give you the same results. Depending on where and when you go, an MRI can cost $300 or $3,000.
The cost of your small business health insurance program is directly related to the cost of the claims your people submit. If someone gets the $300 MRI, you stand to save money. If they get the $3,000 MRI, the opposite will occur. Now multiply that decision by everyone at your company, and you understand why you stand to save (or not save) a lot of money.
But what can you do about it? After all, you can’t tell your employees where to go for healthcare.
However, you can teach them how to do their own research and connect them with tools that will help them explore their options.
With the example of the MRI, there are advocacy groups on the state and national levels whose goal is to help people explore their options to ensure they are getting quality, affordable care. In addition, there are several apps available that allow you to search by procedure, location, and provider to find the best option for you. When it comes to prescriptions, make sure they know about options like GoodRx or CostPlusDrugs.com.
If your company has a self-funded insurance plan, that’s even better. You can start collecting data on the best options for a variety of providers and procedures. Then the next time someone needs an MRI, you can tell them exactly where to go to get the best, most cost-effective treatment. Again, you can’t force them to go somewhere, but nine times out of 10, if you tell someone how they can save money without sacrificing quality, they’ll take your recommendation.
The bottom line is this: When you educate your people, they can get cheaper healthcare. When they get cheaper healthcare, your costs stay down. When your costs stay down, you can invest your money in your people in other ways.
I’ve seen this with my own eyes. I’m proud to say that by doing this at Ellerbrock-Norris, we have been able to add more benefits every year, yet we haven’t raised employees’ out-of-pocket cost in four years.
2. The Three C’s of Healthcare for Small Business
The healthcare decisions you make have a huge impact on the people who work at your company and your bottom line, so you want to approach these decisions from the right perspective. We like to use the three C’s to help companies think it through:
Cost
- Where can you get the best deal?
- What tradeoffs can you make to help keep costs low without sacrificing quality of care?
Compliance
- What laws must your company’s health insurance program comply with (e.g., Affordable Care Act)?
Culture
- How can you make sure your health insurance program matches your company’s culture?
Culture often gets overlooked in healthcare decisions, but it has a huge impact on what works (and doesn’t work) for your company.
For instance, wellness tracking apps may be popular with a younger workforce, but may go largely unused by older employees. Along those same lines, if you change the prescription delivery system to save money, remember that you may be changing how some of your people have accessed literally life-saving medicine for years. For some employees, that may be a bridge too far.
3. Make Strategic Health Insurance Decisions
Lastly, it’s incredibly important that you always consider the long term when it comes to making changes in your small business health insurance options.
For instance, if a couple people on your team keep requesting a specific addition to your company’s coverage, be sure to do some research first. You could end up adding it and then in a couple years find that not enough people use it to justify the cost, leaving you in a worse place than when you started. Removing coverage can do more damage to morale and employee retention than never having offered it in the first place.
On the other hand, you may choose to add certain coverage now that will help increase retention or hiring rates, which could be worth it in the long term even though it may cost you more in the short term.
As a business owner, you need to understand how making decisions today aligns with the long-term goals of your company. That could be as simple as adding benefits or as complex as changing how you finance healthcare – for instance, making the decision to go self-funded.
I would argue that the area of employee benefits requires more long-term strategic thinking than probably any other facet of running a small business. Too much, and you end up losing money. Too little, and you end up losing people. Cancel a benefit and you run the risk of hurting morale and losing people. Proceed with caution.
Small business health insurance plans are an essential part of any growing company. And if you take the right approach, you can help keep the costs low – for you and your team.
If you’re looking to expand employee education around your benefits plan, we’re here to help. Connect with us today and we’ll get the process started.
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