There are three things that startups in any industry have in common that they need to do to survive: stay financially solvent, make customers happy and hire great people. Despite the optimism of most entrepreneurs, obstacles to success seem to be lurking around every corner. It’s not just paranoia. The Bureau of Labor Statistics has stated that 50 percent of all small businesses don’t survive past year five. The largest existential threat, according to an annual survey from the National Federation of Independent Business, is the cost of health insurance. This issue isn’t new. In fact, it’s been the number one issue since 1986! The costs of providing benefits are linked both to financial solvency and hiring (and retaining) great people, so no wonder it’s important.
Although the challenge is not a new one, today’s founders are faced with an increasingly complex health benefits environment that makes the decisions at hand more overwhelming than ever. As 2019 draws to a close, businesses across the country are delving into the intricacies of deductibles, premiums and copays to determine their benefits approach for the coming year. The pressure can especially mount for entrepreneurs. On one hand, you know that offering good, affordable health insurance is critical to attracting and retaining the kind of high-caliber talent it will take to get your company off the ground. But on the other hand, you need to make sure that you are controlling costs and stewarding them in the pursuit of your mission. Which is difficult, considering the cost of health insurance, and the fact that insurance companies often require a minimum level of contribution from the organization and a minimum level of participation from the employees in order to work with you.
However, choosing the best health insurance for your employees does not have to be the excruciating or expensive process it often is. Here are some considerations to make it easy on yourself and choose the best option for your employees and your bottom line:
Be Willing to Buck the Status Quo
As entrepreneurs, we typically don’t take these roles to become experts in health benefits administration or getting deep in the weeds of compliance and regulation. Staying with the insurance provider you had last year or moving forward with whatever plan you broker puts in front of you sometimes seems like the easiest and smartest option. 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 where you live. That is simply unsustainable for most startups over the long-term, which are finding that benefits continue to eat up a significant portion of profits. While embracing the status quo may be possible in the near-term, businesses will be well-served by evaluating new options for the future.
A Little Research – and an Open Mindset – Goes A Long Way
The good news is that as entrepreneurs are used to thinking outside of the box and getting creative to make every dollar go as far as possible to attract the best and brightest talent. Today’s benefits landscape can actually be advantageous to entrepreneurs, when approached with an open mindset. 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 advisors get paid and do a little research on your own to understand what options exist that may best fit the needs for your organization. This upfront research, question-asking and creative thinking can go a long way and save time later in the process. Come prepared with some ideas of how much you want to spend, what solutions you want available for your team and how much time you’re able to devote to supporting the plans.
Consider a Defined Contribution Approach
That open mindset and upfront research can uncover some unique solutions to your health benefits needs. Defined contribution is becoming a popular approach among many small employers because it offers employers cost certainty, value and administrative ease, all while offering employees more choice. A defined contribution approach is one where employers choose how much money to contribute toward employee benefits, and employees select their own plans. There are several tax-advantaged ways employers can take hold of defined contribution benefits either through a private group benefits marketplace like ours at Gravie, or through the individual market. Defined contribution allows employers to control costs by setting their own budget and leaving the choice up to employees.
Due to recent changes in the health insurance market, there’s a new option that startups should consider. New legislation has created a vehicle called the Individual Coverage Health Reimbursement Arrangement (ICHRA), which enables individuals to shop for plans in the individual market and receive contributions from their employer in a tax-advantaged way for the business.
Taking a defined contribution approach can be a win-win for employers and their teams as employees gets to select a plan that works best for themselves or their family, rather than being pigeonholed into a one-size-fits-all group option, while the employer moves into a more appropriate role of simply a co-financier. Not surprisingly, when individuals have a say in choosing their own benefits, they tend to be more satisfied.
Look for Ways to Gain Efficiencies
Many employers don’t know that they are putting themselves through more hoops and processes than they need to. On average, employers spend 400 hours annually managing health benefits, and for startups, that usually falls on the shoulders of a CEO or CFO who isn’t an expert in this arena and who has countless other priorities, especially during the time of year when most of the business planning decisions are being made.
Bringing on a benefits partner can be a great strategy for small and growing businesses who would do better to outsource some of the administrative burden to an expert. When bringing on a benefits partner, it’s important to look for one that will offer efficiencies for you as the employer and provide a seamless experience for employees, without providing more costs or tools than necessary or burdening employees with more hoops to jump through. Consider a partner that can relieve some of your administrative burden and create a seamless experience for your employees, with a price tag that makes sense for the stage your company is in. New web-based portals and digital solutions are a smart way to cut down on paper forms or phone calls, to see your company’s plan or your individual plan at a glance online.
Even if you are more comfortable with offering more traditional health benefits, know that the insurance market can change dramatically from year to year, and with it, plan options and prices can vary greatly. Savvy entrepreneurs should, therefore, 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.