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Evaluating Small Business Group Health Options

Renewal season feels like it’s always around the corner. Which means it’s the perfect time to evaluate your small business’ group health options.

This renewal season, you’re likely going to be in one of two camps. If your company has done well this year—even with the pandemic—then you’ve probably already allocated a certain amount of cash for that expected increase in monthly premium costs. Since you don’t know what else to do, you’re planning to bite the bullet. After all, it’s expected—more like required—by your employees. 

Worse than that, you don’t have any other choice but to reach out to your broker again and say, “Any chance you happened to find a random discount that wasn’t there before?” But no, as much as we’d want that, that never happens. Small business benefits have simply gotten out of hand.

Nonetheless, it’s time for your annual checkup. That is, evaluating small business group health options. If you’re a leader struggling with what to do, this is a simple guide for you. You can use it to make sure you’re not making any blind decisions or simply going with the flow.

It’s time for you to take control of this process instead of it just barreling you down once again.

1. Why Employers Offer Group Health

Before we try to evaluate all of our options, we should try to understand how we got to where we are right now. After all, if we better understand the path that brought us here, won’t we better know how to approach where we should go moving forward? At this point, we’ve somehow gotten to a place where small business group health benefits are entirely obligatory, even while they’re almost completely inaccessible due to cost and administrative burden on the employer.

So let’s take a quick trip back to the year 1942 when President Roosevelt signed an executive order. You see there was a significant labor shortage due to so many of the able-bodied workers being enlisted for service in World War II. Employers had become increasingly unable to recruit and retain employees because bigger companies—perhaps even in better areas—were able to pay more to gain better people.

The executive order, however, froze the wage levels for all companies. This meant that they could no longer offer more pay to gain better talent for their team. This led employers to become more creative to be more competitive. Thus the marriage of “pay plus benefits” was formed. So much so that nowadays, employers can hardly get by interviewing anyone—let alone recruiting online—without explicitly declaring and advertising what else they’re offering. 

What if I told you there was a way for you to compete for talented people using health benefits? You’ve probably never imagined that health benefits could be used as a competitive advantage for the same sort of labor shortage that we are seeing today

2. Option A: Traditional Group

Our first primary option is the classic “traditional group”. This is the model that you’re most likely familiar with. The concept is simple: the employer pays for, or puts money toward, a group plan. Then employees are given the chance to contribute toward and participate in that plan. Seems easy enough, right?

Not exactly. In the past 20 years or so, the costs for group health plans have gone up by 368%. Deductibles have more than doubled. (In case you’re wondering, the deductible is what the individual has to pay first before the insurance company starts to pay out anything for them.) There is an obvious disconnect here with the “benefit” we are talking about. 

We would never sit idly by with any other vendor and simply keep paying them more and more, all while they do less and less for us. Think about this example of small business benefits as being one of your employees: you’d fire them immediately if they acted the same way as your group health plan! So why don’t we find something better?

The good news is that necessity is the mother of all inventions.

3. Option B: Managed Individual

This brings me to the other option, something called “managed individual”. This concept officially started back in 2015 when the IRS deemed this method as both compliant and available to employers. Since that time, it’s taken off so much that the Department of Labor has suggested nearly 1,000,000 employers will change over to this delivery model of health benefits in the next 3 to 5 years. Talk about a good investment trend!

With “managed individual,” instead of the employer offering one group plan to every employee, they simply provide the same money that was already being spent directly to the employees for them to spend on the health benefits of their choice.

One of the most predominant benefits of “managed individual” is the lower average cost that employees have to contribute in comparison to the traditional group method. More money put back into the pockets of the employees means that you are providing more competitive small business benefits. On average, employees will pay half of what they would have paid for traditional group benefits when an employer switches over to managed individual. If you think about it, that’s an actual raise in pay!

4. Pensions vs. 401(k)s

Retirement benefits are used as a competitive advantage. You’ve probably heard stories of people giving decades of their life to a company simply because they wanted the pension. Unfortunately, pension plans simply became too expensive. Plus, employees didn’t like the fact that their employer had to invest money in the same way for everyone. An employee who is 25 years old would never want their money invested in the same way that an employee who is 55 would.

Thus entered the 401(k) delivery method of retirement benefits. Individual ownership of each employee’s benefit made a lot of sense and paired well with the growing American consumerism of the post-war economy. As adoption increased, the returns on investment increased as well. This meant that dollars started to go further and benefits started to get better! What happened next was what anyone would expect. Pension plans started to die off and 401(k) plans started to take over.

This example illustrates exactly what is happening in the world of small business group health benefits. “Managed individual” is the 401(k) of health benefits!  

5. Group Health Cheat Sheet

I want to make sure to give you a small business benefits cheat sheet to help you as you swim through these uncharted waters.

When deciding on health benefits for your small business, there are two main things you need to consider: cost and coverage. 

The question of cost is simple. How much are you paying and how much are your employees paying? The question of coverage is a whole other thing. Ultimately, coverage determines how much your employees will pay on actual medical bills above and beyond the cost of the premium. This is where the rubber meets the road because over 66% of all bankruptcies are due to medical bills

As we mentioned before, the costs for managed individual are substantially lower than in traditional group.

What this further means is that employers now have the margin to go above and beyond just the cost of the monthly premiums and start making a dent in one of the scariest statistics of all about bankruptcy.

Yes, when you—the employer—save money by switching to managed individual, you can take some of your savings and give it back to your team in the form of medical dollars (such as HSAs or HRAs, etc). So when they have medical needs, they’ll have medical dollars! Health benefits that benefit me when I need them most sound like what we’ve all been wanting. Thankfully, it’s early enough in the game that you can start this. You don’t have to be first, but don’t be last and lose employees to other companies because you aren’t being smart with your small business benefits.

While you are evaluating small business group health options, keep an eye on this cheat sheet. You can make a dent in both the cost and the coverage while providing the most competitive and satisfying small business benefits available in your locality and industry.

Health Benefits Analysis—Try Before You Buy

Blind decisions are bad decisions that cost you time and money. As a small business, you don’t have enough of either to just waste on trying new things. 

Good news—our exclusive Health Benefits Analysis is here so you can get a 360° view of every option available as you are evaluating small business group health options. Pair this along with feedback from your team to find out what they want and spend where it matters most.

With our HBA, you can learn how to provide truly competitive benefits tailored to your organization’s needs. Go to remodelhealth.com/analysis today to start your analysis. 

Important Notice:  Remodel Health does not intend to provide specific insurance, legal, or tax advice. Remodel Health always recommends consulting with your own professional representation to properly evaluate the information presented and its appropriate application to your particular situation.