The Prospect of Benefit Pools Excites Small Businesses

Small businesses give much of their budget to healthcare costs. However, this proposed bill on benefits pools could help them compete with large companies.

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According to recent insurance industry data, only 56% of companies with 200 employees or less provide some healthcare benefits to staff members. For small businesses, with 3 to 9 staff members, healthcare is provided for less than half. Compared to large companies, 98% of whom offer the benefit, small to mid-sized businesses are challenged to compete in the marketplace. Cue the prospect of benefit pools.

For many small businesses, the cost of healthcare is a top line item. Failing to provide the benefit costs many employers top talent: while offering it can significantly impact profitability. It’s estimated family coverage per employee neared $20,000.00 in 2018: with 75% of that cost paid by businesses. In Virginia, State Senator Jill Holzman Vogel has proposed new legislation aimed at driving down the cost of coverage for smaller business through benefit pooling.

What is SB1712?

A new bill, proposed in Holzman Vogel is aimed at leveling the playing field for small businesses in her state. SB1712  would allow “sponsoring organizations,” like trade associations or local chambers of commerce to participate in multi-employer benefit pools. These pools could help reduce the cost of providing insurance to staff members at smaller firms who are paired with employees from other small companies. By allowing groups of employers to pool together, they form a larger group, where risk can be reduced along with costs.

The bill requires a sponsoring organization must have been established and in existence for at least 10 years to qualify. The organization must be a nonprofit, have a minimum of at least 5 members, and have been formed for purposes other than pooling insurance costs. If passed, the bill could allow Virginians that are self-employed or who own small businesses to get lower-cost access to healthcare coverage for themselves and their employees or reduce the cost of coverages they already incur.

What are benefit pools?

The possibility of “pooling together” to buy healthcare coverage for small businesses can be highly advantageous. Big companies are able to negotiate price more aggressively with insurance carriers because their “group” is so large. The more people within the group, the more easily the carrier can spread the risk of coverage around. The higher costs experienced by less healthy members of the group are offset by lower expenditures on those who are healthy, driving down costs overall for the business and employees. For small companies, with a smaller group, risk is not easily offset, leading to higher prices.

Benefit pools are not new. Through 2009, almost 30 states authorized these types of insurance buying cooperatives, either by state law or regulation. But many were fraught with fraud and problems, while others were closed with the advent of the Affordable Care Act. Association Health Plans (AHPs), as they were called by the ACA, were not new, but under the Affordable Care Act, new regulations were applied to protect consumers and expand the reach of these groups.

In June of 2018, the Trump administration expanded AHPs further, to provide more access for small businesses and individuals. Associations can now be made up of members from across the country (not just in the same state) if they work in the same industry, individuals may join plans, and the group no longer needs to have a purpose beyond providing health coverage.

How would benefit pools help small businesses?

For many small businesses, the cost of healthcare coverage for employees and their dependents is prohibitive. The same insurance industry study found monthly premiums for single coverage averaged $574 in 2018: $1,634 for family coverage. It’s estimated that costs will rise by about 5% for the sixth year in a row in 2019.

If small businesses and the self-employed can join a benefit pool, savings could be significant. For businesses buying coverage through ACA, small groups are defined as 1-100 employees, depending on the state. Their group rates under the ACA are based on a set of factors: location, ages of the enrollees, and in some areas, tobacco use. Once those are calculated, the rates are the same no matter which carrier is chosen. For large businesses, over 100 employees, different regulations may apply. This, along with the ability to distribute risk, can give the larger company more leverage to negotiate lower pricing by allowing carriers to compete for their business. The overall savings can be substantial.  

Benefits attract and retain

For most job seekers, access to employer-sponsored benefits is second only to salary when it comes time to look for or accept a job.  When a small business can offer a competitive benefits package, they may be better able to attract top talent that might otherwise go to larger organizations.  In a 2016 survey, 60% of job seekers revealed they would accept a lower salary if it meant a better benefits package. Another 16% admitted they turned down an offer or quit a job because of the benefits. In today’s market, with unemployment at record lows, healthcare coverage on its own could be a tipping point when attracting potential hires.  

While some younger workers may be carrying coverage under their parents’ plans, in line with the rules of the ACA staying eligible until age 26, eventually they will need to be on their own plan. Staffers that are about to age out of their parents’ plans may have no alternative but to find another job if they aren’t offered coverage with their current employer.

Holding on to employees in today’s tight market is critical. One of the top reasons (third in their list) employees quit is for better benefits, according to a recent survey. Twenty-nine percent of workers admit a better benefits package was their reason for resigning. With unemployment so low and talent shortages being seen across all industries, retention is top of mind for businesses large and small.

Reducing “presenteeism” thought through benefit pools

We’ve all heard that happy people work harder, but healthy people work harder as well. When employees have access to healthcare resources, they tend to be, well, healthier. They don’t put off doctor appointments when they’re sick, get the medicines they need and return to work faster and healthier. For employees without access to health resources, presenteeism is often the norm. The opposite of absenteeism, presenteeism occurs when employees come to work sick. In addition to infecting the rest of the team, these employees are hardly working at their best. Some estimates put the cost of these low productivity work days at $226 billion per year to US employers.

Being able to offer healthcare benefits is important to large and small businesses. Legislation like the law proposed in Virginia, could give small companies access to more affordable plans, helping them compete in the larger talent market. It’s a win/win for employers and staff members.

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