Jay Sachetti joined Jeff O’Brien, partner at Husch Blackwell and Dyanne Ross-Hanson, president of Exit Planning Strategies talked about the market for mergers and acquisitions, exit planning opportunities for companies that don’t end up for sale and how companies can maximize their eventual sale price during an early October panel at the first Upsize on Tap event at Summit Brewing Co. in St. Paul.
When the state Legislature passed a law requiring employers to provide paid leave and safe time for employees, Justin Bieganek started hearing differing details from friends, colleagues and peers.
IT’S THAT TIME OF THE YEAR AGAIN.
As summer turns into fall, small business owners across the country will set aside many aspects of running their businesses for a few weeks and delve into the intricacies of deductibles, premiums and copays.
Insurance brokers will show up to employers’ doors armed with detailed spreadsheets that purport to show what this year’s best health insurance strategy may be and consumers will be left wondering if their insurance will change, yet again, this year, and, if so, what they need to do about it. Yes, it’s health insurance open enrollment season.
However, choosing the best health insurance for your employees does not have to be an annual exercise in masochism. Here are some strategies to make it easy on yourself:
For many businesses, staying with the health insurance provider you had in 2018 may seem like the easiest option. And that may well be the case for 2019. But consider this: over the past five years, healthcare costs for small businesses have increased by two or three times both inflation and GDP growth, depending on the part of the country in which you live. That is simply unsustainable over the long-term. Businesses are finding that a significant portion of their operating profits are being eaten up by the increase in the costs of providing benefits. While embracing the status quo may be possible in the near-term, businesses will be well-served by carefully planning for the future.
Under this approach, instead of choosing a specific health plan for your employees, you simply give them a fixed amount of money (a “defined contribution”) with which to buy benefits. Employees then go to a benefits “marketplace,” operated by your defined contribution vendor, where they can get personal advice and choose the health plan that makes the most sense for them.
Your role as an employer under this arrangement becomes strictly that of a co-financier of your employees’ benefits.
In effect, you outsource all the administrative hassle to the vendor. At the same time, your employees get a lot more choice, and are able to customize their benefits. They may choose options that are inexpensive and maybe even free to them (because your contribution may cover 100 percent of their costs), or they may want to buy something richer than offered in the past.
The beauty is that they get to choose. And not surprisingly, when people choose their own benefits, they tend to be more satisfied.
Defined contribution health insurance has been around for a while. However, a law passed in December 2016 (the 21st Century Cures Act) made these arrangements a lot more attractive to both employers and employees, essentially by making the defined contribution tax-free to employees of eligible employers.
For decades, large companies have enjoyed the benefits of bulk purchasing for health insurance. It stands to reason that an employer with 10,000 employees will be able to buy health insurance more efficiently and affordably than an employer with just 10.
There is, however, good news for small businesses on this front.
A new regulation taking effect in 2019 will allow many small businesses to enjoy these same benefits of scale, through what are known as Association Health Plans (AHP).
Put simply, an AHP allows small businesses that are part of an association to offer health insurance as a single, large-risk pool, thereby providing enhanced purchasing power.
You could, for instance, have an association with 1,000 employers, each with an average of 10 employees, that can now enjoy scale advantages similar to the aforementioned 10,000-employee company.
AHPs could potentially also offer employees a broader choice of plan designs, along with better networks of medical providers, as compared to small group and individual market plans.
Any existing association can take advantage of these AHP regulations as long as the association has a common purpose for its members aside from participating in the health plan. There are some additional technical requirements to make all this possible, so if you are interested you should seek out expert advice.
The insurance market can change dramatically from year to year and, with it, plan options and prices can vary greatly. Even if you stick to offering the same type of health plan you offered last year, savvy business owners should explore options from all the insurance providers. The carrier that was the best option last year may not necessarily be the most cost effective this year.
And remember, commission structures sometimes incentivize brokers to prefer one insurance carrier over another (for instance through production bonuses, where carriers give brokers higher commission rates if they sell more of their product). While the vast majority of insurance agents are ethical business people, it is prudent practice to fully understand how your advisers get paid.
Ideally, your insurance broker is already talking to you about the options presented here (if not, seek out a broker who will). Consult with them to determine your business’s best course of action for the upcoming year. If your broker is still recommending a traditional “one-size-fits-all” plan at an increasingly higher cost, it may be time to start exploring some of the more innovative insurance vendors in the market.
When it comes to employee benefits, especially at this particular point in time, a little careful planning will go a very long way.
