Over the last few years, the Affordable Care Act has had quite the impact on the way you offer health benefits to your small business. Options such as premium tax credits and SHOP have made it possible for you to provide affordable healthcare to their employees, yet did you know that some small businesses are actually shrinking? Which begs the question, will small businesses limit their hiring because employer benefits are too expensive? According to a survey conducted by Grand Valley State University (GVSU), the answer is yes.
In fact, the survey found West Michigan businesses have hired 1,000 fewer workers, too. But, what is to blame for this? This article is a brief overview which incorporates the findings of the GVSU’s survey into the possible reasons why small businesses are shrinking even with affordable health insurance options available.
46 Percent of Small Firms Consider Reducing Hiring
Before delving into the subject, has the number of companies who offer health insurance to employees actually been decreasing over the years? Think of this: In 1979 63.3% of jobs for new high school grads came with health insurance, and as of 2012 only 28.8% did. It’s safe to say that, yes, companies are offering employees health insurance much less now than in the past.
Additionally, according to the GVSU survey, 46 percent of small firms are considering reducing hiring. But, there must be a cause. What about the high cost of group health insurance?
High Cost of Group Health Insurance
Group health insurance, historically, has been on the rise for years. Since 1999, group health insurance plans increased by148% (for family coverage). However, the Affordable Care Act (ACA) was designed to help combat increasing health insurance costs with the Small Business Health Options Program (SHOP) marketplace, Health Insurance Marketplace plans, and premium tax credits.
So, is health insurance more affordable now for businesses? Yes and no. Individual health insurance is 20% to 60% less expensive than group health insurance, and qualifying individuals can utilize premium tax credits for discounted health coverage - so in this case, yes. However, group health insurance is still expensive to offer employees. With SHOP, small businesses are offered tax credits if they pay at least half the worker’s premium, have fewer than 25 employees and whose workforce has average wages of less than $50,000 a year. If a small business does not meet these requirements, group health insurance through SHOP is still quite expensive for the employer and employee. In other words, group health insurance is only more affordable for small businesses in certain cases.
What Does This all Mean?
We know group health insurance costs are high and it could be a factor as to why many businesses are deciding to limit hiring or decrease their workforce, but what does this all mean? And what will the effects be?
As of right now, it’s unclear. But, if small businesses limit hiring, the effects on the economy and workforce could be severe. Why? In 2010 alone, 62% of all U.S. employers were small businesses. In other words, if small businesses are not hiring, the workforce will dramatically drop and the economy would slowly come to a hault.
Now, that’s only a theory, and there must be a solution if this is that serious, right? And there is - individual health insurance coupled with premium reimbursement for small businesses.
The Solution - Individual Health Insurance with Premium Reimbursement
It may come as a surprise individual health insurance is a large part of the solution for employers to offer affordable health insurance. The second part is to couple individual health insurance with premium reimbursement for your small business. What is individual health insurance and premium reimbursement and how are they the solution to small businesses limiting hiring?
Individual Health Insurance: Individual health insurance is a policy purchased by an individual for themselves and their family based upon personal needs and budget -- just like car insurance. It can be purchased from the Health Insurance Marketplace, a broker, or directly from the provider.
Premium Reimbursement: Employers can reimburse employees for their individual health insurance premiums by implementing a premium reimbursement arrangement. With a Premium Reimbursement Program, the business offers employees a monthly healthcare allowance to use on individual health insurance – instead of contributing to a group health insurance plan. Employees purchase their own health plan, and are reimbursed up to the amount available in their balance.
How are these the solution?
Individual health insurance is 20% to 60% less expensive to group health insurance. Furthermore, when you couple an individual health insurance plan with premium reimbursement, your costs are predictable and you are making affordable healthcare available to your employees. The best part? You can use it to recruit and retain for your small business, and the looming threat of limiting hiring because of expensive employee benefits will become a thing of the past.
Though small businesses are feeling the need to limit their hiring as the cost to offer employees healthcare benefits continues to increase, there is absolutely no need for this to be happening. The ACA has made it possible for small businesses to offer affordable healthcare benefits to employees. The question is, will small business owners realize that there is an option to prevent feeling as though they need to limit hiring due to expensive employee benefits?
What do you think? Do you think the trend will continue and small businesses will limit hiring because of expensive benefits? Comment below.
Survey Source: mlive