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Joleen Jernigan
Joleen Jernigan

4 Sad Truths About Small Business Health Insurance (that Insurance Companies Won't Tell You)

Updated:
November 3, 2022

It’s hard out there for a small business these days! Running a small business means being constantly on the go, spending time and energy to recruit and keep the best talent, working on growing or sustaining the business, and managing the day-to-day goings on. Wow, that’s a lot.

One of the best ways to attract and retain a solid team is to offer company-sponsored health insurance. It’s a benefit most potential employees look for when seeking a new job and one benefit that current employees appreciate the most.

But small businesses often get the short end of the stick when it comes to healthcare costs. This story delves into why small employers have a more challenging time finding good group health insurance plans.

Sad truths about small group health plans

Here are some sad truths about small business health insurance and some ideas to help.

1. Small businesses almost always have to pay more than large employers for group health insurance.

This is an unfortunate fact about benefits, particularly health insurance. Due to having smaller numbers of employees, and, therefore smaller purchasing power, health insurance coverage often costs more per employer and plan member for small businesses vs. large companies. Even with tax credit incentives, small businesses are still commonly offered unaffordable plans with  skyscraper high deductibles (masked as a cost-saving incentive) or coverage options that are not health insurance (and therefore carry many risks).

It’s a conundrum and just one reason employers look outside the box for better health insurance and benefit solutions. Working with a PEO like Decent can help lower those costs for employers, by an average of 35%, especially with Decent’s $0 deductible model with unlimited primary care visits.

2. Premiums have risen faster than salaries.

Health insurance costs have risen 4x the rate of wages over the last 20 years. The increasing cost of employee premiums combined with health plans that carry very high deductibles makes health care coverage increasingly inaccessible for employees who want health insurance.  

According to KFF, in a November 2021 article, “Since 2011, average family premiums have increased 47%, more than wages (31%) or inflation (19%).” The same source also states that workers at companies with fewer than 200 employees face plan deductibles approximately 70% higher than the deductibles of those working for large companies.

3. 2023 will likely see even higher premiums.

It is no surprise that experts are observing and predicting an even bigger rise in health insurance premiums in 2023 over 2021 and 2022. The Society for Human Resource Management (SHRM) reports that the average estimated increase per employee will be 5.6%, up from 4.4% in 2022. Texas health insurance rates appear to be between 4-10% for small-group plans. Such a rate hike in a year where inflationary costs have hurt all business areas will be challenging for small employers to absorb. Another conundrum for the small business, if enrollment goes down, costs make go up. Adjusting healthcare coverage to keep costs down for the employer and employees may mean switching group health plans. We have written a quick guide to switching health plan providers here.

4. Most health insurance companies focus on large employers.

Yes, size does matter when it comes to health insurance. More employees mean more members, which means more money for the insurance company. With a larger group of employees, the risk to the insurance company (of high-cost claims per total employees) also goes down.

As USA Today put it, “Insurance is designed to spread risk among large groups, especially those with plenty of young, healthy people paying premiums for services they don’t use.” The same article in USA Today noted that, as of 2017 data, more than 50% of all small business owners were over 50 years old, and another 33% were between ages 35-49. The employee group age range varies by industry, but in any case, insurers make their money through quantity, thereby taking on less potential risk by dividing it among big groups of employees vs. investing in insuring a small business.

Why offering health insurance for employees is still important

The same KFF article states that roughly 56% of small businesses (with fewer than 50 employees) offer some kind of healthcare coverage plans for their employees. It makes sense that to stay competitive, an employer who offers insurance can better attract qualified applicants. Not only that, it helps the bottom line.

Here are just a few reasons employers should offer health insurance plans:

  • Increases competition: By offering insurance plans, a business is better able to compete for the most qualified workers. And in a tight labor market, health insurance options may make all the difference to a candidate.
  • Tax advantages: Employer-provided insurance costs are primarily deductible. Other tax credits may apply for group coverage, particularly for small businesses under 50 employees.
  • Improved employee health + more productivity + better morale: It stands to reason that when employees are in better control of their health and have affordable health insurance, they will stay healthier in general and be more productive. Employees are happier, too, when they know their employer has invested in them to take the financial burden of being self-insured off of their backs.

SHRM confirms this in a recent survey by American Health Insurance Plans. (See the full results here.) The  survey shows that:

  • 56% of U.S. adults with employer-sponsored health benefits said that whether or not they like their health coverage is a critical factor in deciding to stay at their current job.
  • 46% said health insurance was either the deciding factor or a positive influence in choosing their current job.

Apart from tax benefits, employee job satisfaction, and more competitiveness in recruiting talent, the average ROI for a business providing health insurance is 47%. (Learn more about improved ROI here.)

Many small businesses in Texas are finding out that Decent offers big savings to small employers with its exclusive health insurance plans built from the ground up. Curious to see how much you could save? Get a quick online quote or contact Decent at support@decent.com.