There is no doubt about it, the current system is no longer working—at least its not working for everyone. According to the Employee Benefits Research Institute, while there is a general, overall stability in the system of employer-sponsored health insurance, with large employers not yet willing to relinquish their role in the system; the percentage of small businesses with fewer than 200 employees that offer health coverage dropped in the last seven years, going from 68% in 2000 to 59% in 2007.
The effects of high healthcare costs go far beyond insurance premiums. In fact, impossibly high health insurance costs can be disastrous. A 2005 Health Affairs study entitled MarketWatch: Illness And Injury As Contributors To Bankruptcy, demonstrated a connection between the loss of health insurance and the rise in medical bankruptcy. The researchers concluded that there are four major problems with the financial safety net for American families confronting illness:
- First, even brief lapses in insurance coverage may be ruinous and should not be viewed as benign. While forty-five million Americans are uninsured at any point in time, many more experience spells without coverage. We found little evidence that such gaps were voluntary. Only a handful of medical debtors with a gap in coverage had chosen to forgo insurance because they had not perceived a need for it; the overwhelming majority had found coverage unaffordable or effectively unavailable. The privations suffered by many debtors—going without food, telephone service, electricity, and health care—lend credence to claims that coverage was unaffordable and believe the common perception that bankruptcy is an “easy way out.”
- Second, many health insurance policies prove to be too skimpy in the face of serious illness. We doubt that such underinsurance reflects families’ preference for risk; few Americans have more than one or two health insurance options. Many insured families are bankrupted by medical expenses well below the “catastrophic” thresholds of high-deductible plans that are increasingly popular with employers. Indeed, even the most comprehensive plan available to us through HarvardUniversity leaves faculty at risk for out-of-pocket expenses as large as those reported by our medical debtors.
- Third, even good employment-based coverage sometimes fails to protect families, because illness may lead to job loss and the consequent loss of coverage. Lost jobs, of course, also leave families without health coverage when they are at their financially most vulnerable.
- Finally, illness often leads to financial catastrophe through loss of income, as well as high medical bills. Hence, disability insurance and paid sick leave are also critical to financial survival of a serious illness.
In light of this situation, where a lapse in healthcare coverage can have catastrophic effects, what can you, as the small business employer, do to protect your employees’ access to affordable healthcare without risking bankruptcy yourself?
Be Proactively Pro-Health
How much of the illness and injury that people suffer is preventable? As much as 70% of it. Surprised? According to a study by Health Affairs magazine, the U.S. ranks dead last out of 19 industrialized nations when it comes to reducing preventable deaths in patients younger than 75. You would think that Americans, with our bottom line business orientation, would have taken to the idea of wellness programs. After all, those companies that have gotten onto the wellness bandwagon have reported:
- A reduction in health care benefit use and health care costs.
- Lower rates of absenteeism.
- Reduced injuries and worker's compensation/disability claims.
- Increased morale and loyalty.
- Higher productivity.
Wellness programs at work don’t have to be complex or all-inclusive, but they should promote general health and exercise and address issues that have proven to have a negative effect on employee health and productivity such as smoking, obesity, stress, substance abuse, and preventable diseases such as the flu and other illnesses that can be warded-off with a vaccination.
Go Shopping
Yes, as elementary as it sounds, the advice your mother gave you about always shopping around applies here. Find the best deal you can and work from there. Start with the Internet, ask around and consult your local independent insurance agent.
Join the Crowd
One of the best ways to lower premiums is to join a group health insurance plan. Essentially, the way it works is the bigger the group, the lower the individual premiums. Depending on its size, your business may be large enough to form a group by itself. If not—or if your group is too small to trigger any cost savings—you can partner with other businesses to increase the size of your group. As long as you are partnering with others in your own state, there shouldn’t be a problem.
Saving for a Healthy Future
One of the most popular alternatives today is the health savings account. These are tax-exempt accounts that are used to pay for certain medical expenses. Both contributions to the account and withdrawals are tax-free—that goes for both employee and employer—and individuals can claim tax deductions on their 1040 forms. By using them, you can reduce your small business health insurance costs while giving your employees a nice tax break. What’s more, these accounts can accrue interest and are completely portable.
To qualify to establish a health savings account, you must already have a health insurance plan with a high deductible in place and available to your employees. According to the U.S. Office of Personnel Management, a high-deductible health insurance plan has a minimum annual deductible of $1,100 for the insured and $2,200 for the insured and their family and a maximum annual out of pocket limit of $5,600 for the insured and $11,200 for the insured and their family.
Those who benefit the most from health savings accounts are those who are in good health and who do not regularly see doctors. However, for those who have more regular or in-depth medical needs, they can be supplemented with other, more targeted insurance options.
Cutting Costs by Cutting Coverage
When all else has failed, cutting coverage may be necessary. This does not necessarily have to mean a wholesale cutting of benefits, though that is usually what the phrase “cutting coverage” implies and doing that will certainly cut health insurance costs for your company. It can also mean shifting the cost burden from you, the employer to your employees. One thing is for sure—and this is why I save this for a last resort—is that this will be a very unpopular thing with your employees.
Be sensitive to the needs of your employees and see what areas of the healthcare benefit they need most. If you can cut around those areas, that will minimize the impact of the cuts on your people. Doing this may also give you an idea of how to maximize your coverage while minimizing, as much as possible, the cost.
The Bottom Line
There are a number of individual things you can do to reduce the cost of healthcare benefits, but you should also consider a combination approach with a wellness program as well as one or more of the cost-cutting alternatives. If you manage this right, deal with the issue of health on a number of levels rather than just one, your employees will be happier and healthier because of it and all the more productive as a result.
