The good news about healthcare costs in the United States is that they have decreased from 6-7% per year to just around 4%. The bad news is that health care costs continue to rise faster than workers’ incomes. For small businesses, this is a recipe for disaster. They are caught between increased costs for employer-sponsored health insurance and the need to offer better wages to attract and retain employees.
More than half of small businesses (those with 200 or less employees) offer health insurance. That number has declined since implementation of the Affordable Care Act, but it appears to have recently leveled off.
Small businesses are hit particularly hard by increased healthcare costs because they tend to be engaged in lower-wage enterprises like food and clothing retail. The average policy cost to an employer for a family of four is around $12,000 per year. For a job that pays minimum wage, this is a significant addition to the total cost of the employee.
Employers, both large and small, have been coping with rising costs by shifting them, in part, to employees through increased premiums, co-pays, deductibles, and uncovered services. Over time, however, this approach exacerbates the overall problem for employers because it amounts to a pay cut.
A more effective approach that some businesses have used is insurance plans in which services are limited to narrow networks of providers with whom prices are pre-negotiated. This provides for lower premiums paid by both the employer and employees. The downside, of course, is the restriction on provider options, but this is proving to be the lesser evil when compared with nearly unaffordable costs.
Another approach for small businesses is to stop offering insurance to their employees and instead shift the insurance costs into higher wages. This idea works because of the ACA’s insurance marketplace. Employees may be able to go to the marketplace and purchase insurance tailored to their particular circumstances and still have some of the extra money left over. In addition, lower paid employees may qualify for federal subsidies that reduce premium costs. In the end, the small businesses reduce their employee costs by taking advantage of federal health care subsidies.
As holistic lawyers for your business focused on the overall success of your endeavors, we can support you to evaluate the best way to provide health care benefits to yourself, your family and your team members during a LIFT Start-Up Session or comprehensive LIFT Business Audit. Contact us, when you are ready for more creative support to grow your business.
This article is a service of Gratia P. Schoemakers, Creative Business Lawyer® One of our primary services is a LIFT Start-Up Session,™ in which we guide you through the right choice of business entity, location of business entity, start up agreements, intellectual property protection, employment structuring, insurance, financial and tax systems you need to start your next business and succeed right out of the gate. Call us today to schedule a time to get started!