For decades, traditional group health insurance was the standard health care coverage option for businesses of all sizes. In recent years, however, a growing number of small businesses have struggled with the costs, administrative burden, and inflexibility associated with big group plans. In fact, just 29 percent of businesses with fewer than 50 employees offered group health insurance in 2016.
There are several reasons why traditional group health insurance isn’t always the best choice for small businesses with fewer than 50 employees. In this post, we cover the top five reasons group health plans don’t always work for small businesses—as well as an affordable and flexible alternative to group health plans.
Your business can’t afford group health insurance
When you run a small business, you tend to have a smaller workforce and a smaller pool of resources compared to medium- and large-sized businesses. In many cases, pricy group health plans are a cost small business owners simply can’t fit in their budget. The inability to offer health benefits can be crippling for a small business, as it makes it harder for them to hire and keep top talent.
As we wrote in our post about the cost of health insurance for small businesses, the price tag for group health plans has increased significantly over the past few years. In 2016, for example, the average yearly cost for single coverage was $6,429. For an employee with a family, the annual cost was $17,546. This is a jump of 19 percent since 2012, and one that many small companies were unable to make.
Your business doesn’t have time to administer group health insurance
In addition to being expensive, group health insurance tends to be complex and unwieldy to administer. In past discussions, we’ve talked about the administrative cost associated with group health coverage. On average, small businesses spend about 13 hours every month administering group health plans—the equivalent of $13,000 each year. When you think about how much you can do with $13,000 every year, it’s hard to justify the cost.
Businesses that choose traditional group health benefits must keep up with regulatory changes and time-consuming renewal requirements. They must also play middleman between the insurer and their employees. When time, money, and resources are already stretched, the added administrative hassle of group health insurance is often too much for small business owners to handle.
Your business can’t meet a group health policy’s participation requirements
Group health policies are one-size-fits-all, and many insurers require businesses to satisfy minimum participation requirements before they can offer a group plan to their workers. Laws vary, but in most states, at least 70 percent of a business’s workers must agree to enroll in the group health benefit or receive coverage from another source, such as a spouse’s health insurance, before a business can offer group health insurance to its employees.
Minimum participation requirements can be a challenge for small businesses, which often experience unpredictable turnover rates and unexpected growth spurts. Additionally, ample evidence shows that today’s employees value flexible, personalized health benefits.
You can’t find one policy to fit all of your employees’ health needs
In the modern workplace, it’s not unusual for employees to span five different generations: baby boomers, generation X, millennials, generation Y, and perhaps even some members of the silent generation who have opted to work into their 70s. With such a broad range of ages and health care needs, it’s clear that the one-size-fits-all approach to health insurance is outdated.
Employees place increasingly high value on flexible benefits, including health plans that tailored to their needs. In a survey cited by the Harvard Business Review, “better health, dental, and vision insurance” topped the list of most desirable employee benefits, with 88 percent of workers saying they would give this benefit “some or heavy consideration” before accepting a job.
You have several employees who work in different states
According to a Global Workplace Analytics and FlexJobs report, telecommuting has jumped by 115 percent over the past decade. Today, about 3.9 million American workers are remote employees—around 3 percent of the total workforce.
Hiring remote workers can be a boon for small businesses, as it gives them an opportunity to hire from a bigger talent pool. Instead of confining their search to a local area, they can tap workers in other states and sometimes even other countries.
However, out-of-state workers can pose a problem when it comes to group health insurance. As we noted in our post about health insurance solutions for employees in multiple states, state-specific minimum participation requirements and varying multistate rules in the SHOP marketplace can make it impractical or even impossible for businesses to offer group health insurance when their workforce is scattered across state lines.
The solution? Personalized benefits through the QSEHRA
There are a variety of hurdles that can stop small businesses from offering group health insurance. Fortunately, there is an alternative that can benefit employers and employees alike. Sometimes referred to as the Small Business HRA, the qualified small employer health reimbursement arrangement (QSEHRA) is a personalized health benefits that allows businesses to set their own contribution budget while giving employees the flexibility to choose the policy that suits their needs—regardless of where they live.
The QSEHRA also comes without minimum participation requirements. And for businesses that use automation software to administer their personalized benefits, the QSEHRA involves negligible administration time.
Because of these advantages, we believe that one million small businesses will abandon traditional group benefits for a personalized benefits model like the QSEHRA by 2025.