How Much Employer Health Insurance Should I Offer My Employees?
Many SMBs find that offering healthcare coverage is an investment in their staffers and their business’ future. As an employer, you may be wondering how much coverage to provide.
When it comes to employee benefits, the number one requested offering a company can provide to attract and retain talent is health insurance coverage. Employers know how critical this benefit is to hold on to existing staffers, and how much easier it is to recruit new hires when a comprehensive healthcare benefit plan is in place.
The challenges for many small and medium-sized businesses are the cost and administrative duties providing such coverage entails. When it comes to the price point, SMBs are right to be concerned about costs. The Kaiser Family Foundation reported it can cost an employer over $7,000 per year to offer single coverage and over $20,000 to offer family plans for each employee in 2019. On average they found employers typically foot 77% of the bill for coverage options.
The price tag for health benefits may seem daunting, but employers will need to consider how much talent they’re losing by not offering healthcare coverage as part of their overall benefits and compensation package. How much of an increase would you see in sales and productivity if you had a broader, more talented applicant pool from which to hire?
Benefits of offering healthcare
In addition to increases in sales, many companies find that when they offer healthcare benefits, they see:
- reductions in absenteeism
- presenteeism (coming to work sick and infecting others)
- tardiness
- production and service errors
On balance, many find healthcare coverage is an investment in staffers and their business’ future.
If you’ve decided to start offering healthcare coverage, the next question may be how much should I provide? If you polled employees, they’d likely ask for the top-of-the-line Cadillac coverage. The bottom line will probably dictate something a little more reasonable. When determining how much coverage to offer, look for cues from the marketplace, employees, and carriers.
What’s going on with the competition?
If you’re finding you consistently lose candidates and staffers to competitors in the area, you might want to research what they’re offering to try to keep pace. Obviously SMBs can’t compete with mega-corporations when it comes to health and wellness perks, so look for clues from businesses that more closely mirror your own size, revenue, and headcount. If they’re offering basic coverage, you’ll be more competitive doing the same. If they’re upping the ante to more comprehensive offerings, you may have to, as well.
Are employees willing to share the burden?
A pre-COVID-19 survey revealed 55% of workers said they would trade a portion of their wages for a better healthcare plan. You may find your own staffers agree. Whether they’d be willing to take a reduced salary or if you factor that cost into the wages of new hires, the tradeoff can be beneficial.
A pre-COVID-19 survey revealed 55% of workers said they would trade a portion of their wages for a better healthcare plan. You may find your own staffers agree.
Forty-hour a week workers who take a $1 per hour pay cut would see wages reduced by less than $2,100 per year: in exchange they would reap a benefit worth more than triple for single coverage alone. If staffers are currently willing to give up a portion of their pay, can you negotiate lower annual increases to help offset the cost? Get creative — if your employees are asking for coverage, be candid with them that costs can be prohibitive, and work with them to come up with ways to make it work for everyone.
Another consideration may be to allow employees to find their own healthcare coverage and provide them with a Healthcare Reimbursement Account (HRA). These employer-funded accounts allow workers to find coverage (often through ACA exchanges) and purchase it on their own. The business provides a predetermined amount into the fund, which employees can use to pay premiums or to pay for other qualified medical expenses.
Find healthcare coverage that fits budget and need
There are many options available to provide coverage for employees (and yourself). Individual carriers can provide quotes on rates and levels of coverage available based on your group size and price point. Third-party providers can offer a variety of options from different carriers that let you comparison shop. They often provide much needed administrative assistance, as well. For example, Zenefits simplifies benefits for small businesses by creating an easy-to-use, transparent, affordable, and modern experience. On Zenefits’ Health Plan Shopping platform, leaders can have transparency around pricing and identify the true cost of benefits. The Affordable Care Act Exchanges are another good way to look for options and pricing.
Starting points for pricing may be the most basic of coverage — essentially coverage that provides protection only in the most catastrophic of health situations. Additional options —like annual checkups, prescription drug assistance, and more — can be offered, too, depending on need and budget. It’s a best practice to look at as many options as possible to assure you’re finding the best coverage available in your area.
Healthcare coverage is a small business tax write-off
Remember that costs for employee healthcare premiums are a tax write-off. All employer contributions are a legitimate business expense you may use to reduce your overall tax burden. If employees contribute to their plans, both the worker and the business enjoy additional tax benefits. A reduction in salary based on healthcare premiums deducted lowers taxable wages — which lowers taxes for business and employees.
