Health insurance renewal time can bring unexpected surprises for small businesses. This is especially true now, in the light of new changes brought on by health reform.
But one silver lining is that small businesses (with fewer than 50 employees) are not subject to the ACA's employer mandate. Because of this, small businesses have more options for offering affordable health insurance.
The most popular "alternative" is pure defined contribution healthcare - offering employees an allowance for health insurance instead of offering a traditional group health insurance plan.
This article takes a look at the three biggest group health insurance renewal problems small businesses face, and how these problems can be permanently solved with a defined contribution approach.
Small Business Renewal Problem #1: The Premium Rate Increase Just Blew Up Our Health Insurance Budget
It's a common phone conversation with small business owners: "Help! Our premiums just increased 10%.. 20% .. 60%... over last year. We want to offer health insurance, but we simply can't afford this."
Businesses in this situation have a few options:
-
Pay the increased premiums. This usually means both the business and employees pay more per month for the same coverage.
-
Switch plans. Work with your health insurance broker to research quotes for new plans, including plans with lower coverage levels (and higher deductibles) to save money.
-
Drop group coverage and allow employees to shop for their own coverage. This means eligible employees will have access to the individual health insurance tax credits (discounts on individual health insurance). The business can help employees with the cost by offering defined contribution healthcare allowances. With this type of arrangement, the business uses the defined contribution health plan to reimburse employees for their individual health insurance premiums.
Why Defined Contribution Permanently Solves this Problem:
Small businesses are tranistioning in masses to a defined contribution approach. That's because defined contribution permanently solves the problem of unpredictable annual renewal cost increases. With defined contribution:
-
The small business designs the defined contribution plan, and sets exactly how much to contribute to the plan monthly.
-
Defined contribution allowances can be given evenly to all employees (ex: $200/month). Or, provided by class of employee (ex: $250/month for managers and $150/month for associates).
-
There are no annual renewal fees or increases. The cost of the defined contribution plan only changes if the small business decides to change allowance amounts. Cost is controllable and predictable.
-
Unlike a group health insurance plan, there are no minimum contribution amounts. If the small business wants to contribute any amount, they can afford to offer defined contribution allowances.
-
The business can use their defined contribution software to monitor real-time utilization of allowances to track actual cost and liability 24/7.
Small Business Renewal Problem #2: Our Plan is Being Canceled
You were happy with your group health insurance plan. The cost was reasonable, and employees liked the network of doctors. But it didn't meet new health reform requirements and is no longer being offered by the carrier.
Businesses in this situation have two main options:
-
Work with your health insurance broker to research quotes for similar plans that fit the business's budget and employees' preferences.
-
Drop group coverage and allow employees to shop for their own coverage. The business can help employees with the cost by offering defined contribution allowances, as discussed above.
Why Defined Contribution Permanently Solves this Problem:
When a business transitions to a defined contribution approach, they get out of the business of health insurance. In other words, the business removes them self from the selection of the health insurance. Instead, employees maintain the direct relationship with the insurance carrier (often with the help of a broker), and the employee (not the business) owns the health insurance policy.
For many small business owners with limited staff and resources, this is a huge relief.
With a defined contribution health plan, the small business's role is to work with a broker or defined contribution provider to set up the defined contribution plan, enroll/terminate employees, and add approved reimbursements to payroll.
Small Business Renewal Problem #3: I Don't Have Time to Deal with This!
At very small businesses, it's often the owner who manages health insurance. The annual renewal process takes time and resources, taking away from the business owner's ability to run and grow the business.
Even when the renewal is straight forward, there is siginificant time spent working with your broker and insurance company, filling out paperwork, researching other quotes, deciding on a plan, and educating employees about benefits for the year.
Why Defined Contribution Permanently Solves this Problem:
A good defined contribution software provider reduces plan administration to 5 minutes per month, and automates plan renewals. Look for a cloud-based defined contribution provider that:
-
Has automated annual plan renewals.
-
Allows plan changes to be made at any time online and updates plan documents electronically without additional charges.
-
Does not charge annual renewal fees or plan document change fees.
What other challenges are small businesses facing at renewal time? Leave a comment below and we'll expand on the article.
