Healthcare Costs Hurt Small Businesses – 5 Ways to Lower the Cost
By: Christina Merhar (Zane Benefits) February 2015
All over the nation, healthcare costs are hurting small businesses. So much so that only 54% of small and medium sized businesses offer traditional healthcare to their workers today. The cost of healthcare is a huge small business challenge, leaving owners desperate for ways to lower the cost while still providing a health benefit to employees.
Is there any silver lining? Yes. Compared to a decade ago, you have new options to lower healthcare costs.
In a recent article, CNBC explored the topic of rising small business healthcare costs and provided five unorthodox ways to lower costs. In the article, Zane Benefits founder Paul Zane Pilzer was interviewed to weigh in on why small businesses should convert to individual plans (No. 3 below). But, I’m getting ahead of myself.
Here’s a review of CNBC’s suggestions on how to lower healthcare costs, including what I think are the pros and cons of each option.
5 Ways to Lower Healthcare Costs
1. Negotiate Your Rates
According to CNBC, one way to lower healthcare costs is to negotiate your group health insurance premium. Small businesses can talk with the insurance company or work with a skilled broker during the annual renewal.
Pros – For small businesses with a small group health insurance plan, negotiating the premium at renewal time could help lower the annual cost of healthcare without disrupting how healthcare is offered.
Cons – Negotiating rates is temporary. In my opinion, there comes a time for most small businesses when the cost of group health insurance is no longer affordable, or when employees will be able to get better, less expensive coverage on the individual market.
2. SHOP Exchange
The SHOP exchanges provide small group health insurance plans, and provide access to the small business health care tax credits. Some states offer “employee choice” plans where a small business can define the amount of money it wants to contribute to premiums and allow employees to select from the health and dental plans.
Pros – Small businesses who qualify for the small business health care tax credits may be able to save on healthcare costs, compared to a traditional small group plan. Additionally, small businesses may be able to provide employees more choice as compared to a single small group health plan.
Cons – The small business health care tax is limited – only some small businesses qualify, and it can only be used a maximum of two years. Also, many small businesses will find very limited plan choices in their state.
3. Convert to Individual Plans
According to CNBC, another way to save on healthcare costs is to convert to individual plans. To still offer employee benefits, employers can reimburse employees for their premium.
“Every employer with under 50 employees should be offering money to buy individual plans vs. group plans,” according to Paul Zane Pilzer, author of the book “The End of Employer-Provided Health Insurance: Why It’s Good for You, Your Family, and Your Company,” and founder of Zane Benefits, a firm in Murray, Utah.
“Employers can do this by giving a raise or stipend or setting up a reimbursement plan under current federal rules, said Pilzer. The reimbursement plans operate under the premise, “Buy health insurance; show me the receipt; I’ll pay you.”
Pros – As I talk a lot about on this blog, individual health insurance is now better, and less expensive than group health insurance. It’s now guaranteed-issue, portable, and covers essential health benefits. Additionally, employers can set up a reimbursement plan or stipend to help with the costs – where they set any amount they can afford. No negotiations with the insurance company. No minimum contribution requirements. No unpredictable increases. This gives employees access to quality health insurance, and gives employers complete cost control and predictability.
Cons – The shift away from group health insurance can be hard for some employees, who have come to depend on getting insurance through work. However, a little education goes a long way here. In fact, many employees will pay less out of pocket for the same or better coverage – compared to a group health insurance plan.
4. Direct Primary Care
According to CNBC, a growing number of primary-care physicians are partnering with employers to deliver affordable preventative and primary care on a fixed-monthly membership model, in what is known as direct primary care.
Pros – This approach provides a benefit to employees, and gives them access to care.
Cons – Direct primary care isn’t comprehensive coverage and will not help much during a catastrophic illness, such as cancer. Also, employees will still need health insurance coverage to satisfy the Affordable Care Act’s requirement that all individuals have health insurance.
5. Health Care-Sharing Ministries
As CNBC notes, the Affordable Care Act offers members of a recognized “health care-sharing ministry” exemption from the penalty to have health insurance coverage. By definition, a health care sharing ministry is a non-profit organization that facilitates sharing of health care costs between individual members.
The basic concept is that members donate a monthly amount, and then are able to apply for a grant (or access “shares”) when a medical expense is incurred. There is often a threshold to apply for assistance (for example, a medical expense must be more than $300 to apply for assistance).
Pros – This approach provides a benefit to employees, and gives them access to care. Membership in a health-care sharing ministry exempts individuals from the individual shared responsibility fee.
Cons – A health care sharing ministry is not health insurance. It is a donation to an organization that then grants assistance for medical care. As such, the benefit is limited. Additionally, the health care-sharing ministries are faith-based organizations and will not be a fit for every employer.
Conclusion
From negotiating rates to converting to individual plans – and a few things in between – small businesses have new opportunities to lower their healthcare costs.
