Today, more than 2.7 million U.S. small businesses do not offer traditional health insurance coverage. The primary reasons they don’t? Cost. Yet, most established small businesses want to offer health benefits to recruit and retain quality employees. Which is why many small businesses are looking to nontraditional approaches to health benefits.
In this article, we’ll outline five nontraditional approaches to health benefits and why they can be effective alternatives to offering traditional health insurance coverage.
5 Nontraditional Health Benefit Approaches
When group health insurance is not a viable option because of cost, participation requirements, or administrative resources, there are five nontraditional approaches to consider. These nontraditional approaches are:
Individual Health Insurance Reimbursement (a “Pure” Defined Contribution Model)
Informally Increase Salaries to Help Employees with Health Insurance
Nontraditional Group Health Insurance Coverage (ex: SHOP or Co-Op)
Boost Other Employee Benefits and Perks
Let’s summarize each of these approaches.
1. Individual Health Insurance Reimbursement (a “Pure” Defined Contribution Model)
The first nontraditional health benefits approach small businesses are adopting is a defined contribution model, where the business gives employees a set allowance (“contribution”) toward their health insurance premium.
With this approach, the employer sets up a formal, tax-advantaged reimbursement plan. Employees purchase individual coverage and are reimbursed by the health reimbursement plan for qualified premiums.
This approach can be effective because it feels a lot like a traditional health benefits program and has the same tax advantages as traditional health insurance. However, unlike traditional health benefits, employees are in the driver's seat with selecting their own insurance - a benefit to employees who want more control over their healthcare.
2. Informally Increase Salaries to Help Employees with Health Insurance
The second nontraditional approach is to increase employees’ wages to help them with health insurance. In other words, give everyone a boost in salary or annual bonus to help cover the cost of health insurance.
Providing this type of taxable stipend is easy to set up and manage, but because it is a more informal arrangement some small businesses run into problems. For example, will employees actually spend the money on health insurance? Will your business lose desired, top job candidates to employers with formal health benefits in place? These are important questions to consider with this approach.
3. Nontraditional Group Health Insurance Coverage (ex: SHOP or Co-Op)
A third health benefits approach to consider is a spin on traditional group health insurance. Nontraditional group health insurance options include the SHOP Marketplace or co-op health insurance.
These types of plans provide new ways to offer traditional health insurance coverage and can give your small business increased purchasing power. For example, a co-op exists to increase buying power and spread the risk among a larger group. Each co-op is structured differently, so the co-op may offer better insurance rates than a group policy or a SHOP plan depending on regional insurance underwriting laws and the co-op itself.
4. Wellness Initiatives
The fourth nontraditional approach to health benefits is to invest in wellness initiatives. Small businesses don't have to invest a lot of time and resources to create a wellness program; there are many low-cost wellness ideas for small businesses to adopt.
Wellness initiatives many not feel like formal health benefits to employees, however they can be effective in building a healthy, productive workforce.
5. Boost Other Employee Benefits and Perks
Similar to wellness initiatives, the last nontraditional approach to health benefits is to boost other employee benefits and perks.
To make this approach effective, find out what benefits and perks your key employees value and direct your resources to those benefits. Yes, this approach means you’re not offering health benefits, but you’re offering other benefits and perks to create a desirable and healthy workforce.
When it comes to employee compensation, small businesses want to provide competitive health benefits to recruit and retain the best employees. However, traditional health insurance coverage is not always in the cards.
As such, small businesses evaluate nontraditional health benefits such as helping employees with individual health insurance, new group health insurance options, wellness initiatives, and boosting other employee perks.
What nontraditional health benefits are you seeing small businesses adopt? What questions do you have about these nontraditional approaches? Join the discussion with a comment or question.