5 Reasons to Offer Small Business Health Insurance

5 Reasons to Offer Small Business Health Insurance

As a business owner, you may be wondering whether you should offer health insurance to your employees. Deciding to offer small business health insurance can be a big decision for any company, and you may have questions about why you might provide health coverage as one of your employee benefits.

For example: offering health insurance helps your workers, but what are the benefits for the employer? Are there financial and tax advantages associated with group health insurance? Can offering small business health insurance enhance your ability to recruit and retain employees?

You may be surprised to learn that there are many ways that small business health insurance can help your company operate more strategically, efficiently, and effectively. Not only does a small business health insurance plan benefit employees, but employers might find that there are plenty of ways that a group plan helps them out as well.

Keep reading to learn 5 great reasons to offer small business health insurance.

1. Access to lower monthly premiums

From a cost perspective, it may make sense to offer small business health insurance due to the reduced price of a group health plan. Generally, small business health insurance plans tend to have lower per-person costs on average, compared to health coverage in the individual market.

According to a recent eHealth study:

• In 2018, the average premium per-person through a small business plan ($409) was 7 percent lower than the average premium for an individual health insurance plan ($440).
• The average individual deductible for small business health plans was 31 percent ($1,438) lower than the average deductible for individual health insurance coverage ($3,140 vs. $4,578).

This means that enrolling in a group health insurance plan can be more affordable than individual insurance not only for employees and their families, but for the business owner and his or her family as well.

Why are small business health insurance plans generally cheaper per person than individual plans?

Group health insurance plans can cost less per person than an individual health insurance plan due the advantage of having a larger risk pool, or having risks spread out across more people. In other words, group plans often cost less per person, on average.

According to the Small Business Administration (SBA), when a greater number of people pay for their health insurance in a group plan, average costs become more stable. As a result, the insurance company has more resources to draw from when someone needs medical care. This means that the high cost of any one person ends up having a smaller effect on the average cost as the group becomes larger.

This means that a larger group size may make your group health insurance plan cheaper. The eHealth study found that:

• In 2018, the average monthly premium for small business groups with 5 or fewer employees was $419 per covered person.
• The average monthly premium for small business groups with 6 to 29 employees was $364 per covered person, or 13 percent less.

Overall, group size and the number of employees receiving coverage can make a significant difference in terms of small business health insurance premiums.

The price of premiums for group coverage has been more stable than individual coverage

Not only are monthly premiums generally lower through small business health insurance plans than through individual plans; they also have not increased in price as significantly as individual premiums.

According to an eHealth study, the average per person premium for small business health coverage increased only 5 percent between 2015 and 2018, while individual premiums for those that buy their own coverage increased 54 percent in the same period (from $286 in 2015 to $440 in 2018).

The lower price of small business health insurance costs for both enrolled employees and employers can be an excellent reason to offer a group health plan to your workforce.

2. Benefit from tax incentives

Another financial advantage of providing small business health insurance are the tax benefits to the employer that come with a group plan.

There are several ways that a group health plan can result in tax advantages for your business:

• Generally, employers can deduct 100 percent of the cost of monthly premiums they pay on qualifying group health plans from their federal business taxes.
• Offering health insurance coverage to workers as part of their compensation package could also potentially mean that a business may benefit from reduced payroll taxes.
• Employers can usually deduct HSA contributions from their small business taxes.

While group plans already tend to be more affordable than individual plans, the tax advantages from offering small business health insurance can further help your company in providing this highly valued and sought-after employee benefit.

certain employers may qualify for the small business health care tax credit

Some small employers may benefit from the small business health care tax credit. Created by the Affordable Care Act (ACA), the tax credit is meant to encourage small business owners to offer group health insurance to their employees.

To qualify for the tax credit, a small business must meet all of the following requirements:

• Your small business must have less than 25 full-time or full-time equivalent employees (to receive the maximum tax credit, your business must have less than 10 employees).
• Your company must pay average wages of less than $50,000 annually per employee (adjusted for inflation).
• You as the employer must pay at least 50 percent of your qualified employees’ health insurance premiums.
• You must purchase your group health insurance coverage through the Small Business Health Options Program (SHOP) Marketplace or through a licensed health insurance agent who can enroll your business in a SHOP plan.

As of 2018, SHOP plans can be directly written through the carrier with the help of certified insurance brokers. eHealth’s licensed and SHOP-certified agents can enroll employers who qualify for the small business health care tax credit, conveniently allowing you to complete all the necessary steps through eHealth.

The small business health care tax credit can certainly be an excellent incentive to offer health coverage for qualified employers. Not only is the tax credit is available for two consecutive taxable years; it may also help your small business in keeping and attracting high-quality employees. However, keep in mind that this isn’t an easy credit to qualify for, and sometimes it is not worth it for a small business to pay for the price of an ACA plan just to try to get this tax credit.

3. Improve your hiring and recruitment strategy

Deciding to offer small business health insurance can serve as an essential part of an effective hiring strategy, and can help a company stand out as an employer of choice.

According to a recent eHealth study, 66 percent of small business owner survey respondents said that they offer medical employee benefits in order to help them hire and retain the best employees.

Many workers value employee benefits like health insurance

Several studies have shown that whether health insurance and other employee benefits are offered as part of a compensation package may often make or break a job offer for a prospective hire. For instance:

• A 2017 LendingTree survey found that 33 percent of people have turned down a job due to a lack of benefits, and that over 32 percent of Americans would like to have improvements in their health insurance coverage.
• A 2015 Glassdoor survey observed that 57 percent of U.S. job candidates said that benefits and perks are among their top considerations before accepting a job.
• A 2016 survey by Fractl, a content marketing agency featured by the Harvard Business Review, noted that 88 percent of respondents said that being offered health insurance might tip them toward choosing a lower-paying job with better benefits over a high-paying job.

The reality is that most prospective hires want quality employee benefits such as group health insurance. Overall, small employers who offer health coverage may be better positioned to recruit the best talent and attract employees who can help their business thrive.

Employee benefits may help small businesses stand out from competitors

It may be challenging to attract quality workers without popular benefits like medical coverage. As a result, offering group health insurance may also help small businesses stand out during the hiring process by beating offers from competitors who don’t offer employee benefits related to health care.

According to the Bureau of Labor Statistics, only 55 percent of private industry employees in small businesses with less than 100 employees were offered medical care employee benefits.

By providing group health insurance when competing employers don’t, you can substantially differentiate your business through demonstrating that you prioritize the well-being of your employees and recognize them as valuable assets to your company.

Ultimately, making health insurance part of worker compensation may help to create a robust and compelling employee benefits package that can have broad and lasting appeal to future hires and current employees alike.

4. Encourage employee loyalty and retention

Employee loyalty is often an extremely important consideration for a small business, and offering small business health insurance may be an effective way to help retain your company’s quality workers.

Not only can a group health plan demonstrate that you are offering employees what they are worth; it can also encourage your workers to stay with your company in the long term.

In addition to offering a group plan, small changes to the workplace can make a big difference toward improving employee retention. Some potentially low-cost ideas for small business owners include:

• Flexible working arrangements, such as allowing employees to start work earlier or work from home during certain days of the week, may help inspire employee retention.
• Promoting open communication, building effective teamwork strategies, and planning team-building outings may also play a role in improving employee loyalty.
• Making minor adjustments to workspace layouts and lighting may contribute to a more comfortable work environment and help show employees that you care about their well-being.

While all employees have different work preferences, going the extra mile as an employer to create an accommodating workplace can show that you value your team and help with employee retention.

The value of employee loyalty

Sponsoring group health insurance coverage and other employee benefits can be an impactful strategy that highlights how you appreciate the dedication of your staff while also:

• Helping to prevent workers from finding jobs elsewhere that provide the benefits they need.
• Encouraging employee loyalty without increasing the pay or wage of each worker.

Indeed, salary increases may not be the only way to retain your current employees. According to a 2015 Glassdoor survey, nearly 4 in 5 (or 79 percent) of employees would prefer benefits or perks more than a pay raise, with 40 percent valuing health insurance benefits higher than a raise.

While you should always talk with your employees to find out their personal preferences for rewards, perks, and promotions, recognizing the popularity of health coverage could make it easier for your business to decide on which benefits employees want while also staying within your budget.

Turnover costs are a significant expense for small businesses

You may be wondering if retention is even really important for your small business. There’s plenty of quality workers out there who can replace employees that quit, right?

Unfortunately, it’s not usually true that hiring quality workers is easy. Given the time and cost required to train new employees, as well as the challenge of finding workers who are the right fit for your business, it may worthwhile to prioritize employee loyalty in order to help your small business run smoothly and efficiently.

According to an article by a leading human resources (HR) analyst at the accounting firm Deloitte, the “total costs” of losing an employee to turnover can be considerable, including the:

• Cost of hiring, onboarding, and training new workers
• Loss of productivity and engagement
• Possibility of customer service errors
• Often negative cultural impact to the organization

Employers often deal with significant expenses as a result of employee turnover. For instance, a Center for American Progress report found that, based on an analysis of 30 case studies in 11 research papers published between 1992 and 2007 which provided estimates of turnover costs, businesses spend about one-fifth (or about 21 percent) of a worker’s annual salary to replace that employee.

As a small business especially, you’re probably looking to save on costs wherever you can. You might find that offering small business health insurance is cheaper in the end, because you avoid extra costs due to high employee turnover.

Small business health insurance may help improve employee retention

The bottom line is that turnover costs are a real concern for small businesses. The good news is that group health insurance can be an effective way to promote employee retention.

A survey of U.S. workers by Willis Towers Watson, a multinational insurance advisory company, found that:

• 46 percent of worker respondents agreed that health benefits were an important factor in their decision to work for their employer.
• 55 percent of worker respondents considered the health benefits they were offered a good reason to keep working for their employer.

Generally, when workers have group health insurance, they may stay at their current jobs longer in order to retain their employee benefits. This creates a win for both employers and employees, since companies may maintain and increase employee retention while helping keep their workforce content.

5. Boost employee job satisfaction

Another great reason to offer small business health insurance is that it may play a significant role in helping maintain or increase employee job satisfaction.

According to a Glassdoor Economic Research survey, out of a list of 54 employee benefits, the following three basic employee benefits displayed the highest correlation with employee satisfaction:

1. Health insurance
2. Vacation/paid time off (PTO)
3. Retirement planning options like 401(k)s and pensions

Health insurance coverage came out as the number one benefit related to keeping employees satisfied, and it’s not surprising given its popularity as an employment perk.

The importance of satisfied employees cannot be overstated: when your staff is content with their job, they will probably be happier with their employment and more likely to remain at your company.