By Dillon Castro
The New Normal
During the time of consistent economic growth and low unemployment that we’ve experienced for most of the last decade, businesses have experienced unprecedented success. Unfortunately, rapid growth and prosperity in business can often cause inefficiencies to go unchecked. When times are good these issues may seem trivial or benign… until the economy unexpectedly tightens. That is what we are experiencing right now in the Bay Area and throughout the country.
The COVID-19 pandemic has decimated businesses, and while the government is doing what it can to prevent a complete downturn by creating economic stimulus and aid packages, it’s likely that the US, and perhaps the world, will feel the economic ripple effect for quite some time after we get through the worst of this. Businesses will need to take a hard look at how they allocate their financial resources.
Health Insurance As a Capital Expense
After payroll, benefits (particularly health insurance) are usually at or near the top of every employer’s list of biggest expenses, yet in the midst of a pandemic, continuing to offer health insurance will be necessary to recruit and retain employees.
To control costs many small businesses will believe that they have little choice but the “easy” route of reducing the benefits offered or increasing the employees’ share of costs, either of which may aggravate employees more than actually help the bottom line.
What are employers to do?
One business solution for employers to consider is a type of health insurance arrangement called “Level Funding”.
Since the passing of the Affordable Care Act (ACA), employers with less than 100 employees typically purchase small group health insurance plans that have non-negotiable, fixed costs. There is little to no financial incentive for employers to educate employees on best practices for healthcare consumption. Additionally, the premium costs continue to rise year after year regardless of an employer’s individual utilization.
A level-funded health plan allows employers to still pay a fixed premium, but the insurance company takes the health of the employees and their dependents into consideration when determining the premium. Rather than the premiums going on a one way trip to the insurer, employers can qualify to get a refund on the premiums if the utilization of the plan is lower than expected. If the utilization is higher than expected the carrier can increase the premium rates at the renewal, but the employer is often not required to stay with the plan.
We work with carriers who offer level-funded plans and for most small businesses it is one of the best tools out there to help employers to continue offering the level of benefits that their employees have come to expect while also saving on the bottom line.
The Way Forward
If you believe you are paying too much for health insurance, but don’t want to risk watering down your benefits offering, schedule a call with us today for business solutions to help eliminate inefficiencies to be ready for the post-COVID business environment.