Employee Benefits: Does Health Insurance Make Sense?

Benefits are a key component of employee retention, and a significant benefit often offered is health insurance. Last week, we released a blog that covered how to find good employees and what helps retain them within the trade practices. Offering a comprehensive benefits package that includes health insurance will really set you apart from the industry, as it’s not something we often see in home service providers. In today’s market, newer job seekers are looking beyond a paycheck and are seeking benefits.

Health Insurance: Starting Off

A good place to start with a benefits package is health insurance. If you want to offer health insurance to your employees, one of the first things to consider is the size of your company. It is significantly more challenging for a smaller company, with 1 to 3 employees, to offer health insurance, and it is physically feasible for the company to provide that. Please ensure that you weigh the cost to your company against the benefits of providing health insurance.

HSA or Reimbursement

These smaller companies may not be able to apply for traditional health insurance, and you would have to explore other options. Those other routes can include things like an HSA or a health reimbursement account that reimburses employees for certain qualifying medical expenses or a portion of their insurance.

This is a great option because it can be legally set up with parameters, and you can still allow it to be a pre-tax deduction, so they don’t have to pay taxes on the payroll that is going to this health insurance. Because it’s definitely something we see with smaller companies and recommend looking at if you are within the size range, even up to five employees.

Those parameters will allow you to set a fixed amount of money, regardless of the number of medical expenses incurred. This way, you can know exactly how much you’re spending each month, making it easier to budget.

With more traditional insurance, you will actually see variations depending on an individual’s age, gender, and other prior health issues, so you’re paying more for that, and you’re not able to assume your costs will be the same for every employee.

Marketplace Insurance: Use Caution

Another option for a smaller company would be to get health insurance through the marketplace. We provide numerous warnings to people using the marketplace because there have been issues with individuals updating their income, particularly among business owners. As they make more profit, they generate more income, but they have not updated their information in the marketplace. This means that the tax credits were not correctly applied through the marketplace, and they ended up having to pay a significant amount back. Those credits do have to be reimbursed back to the government if you end up making more money than you claimed on your health insurance marketplace application.

There are other health insurance options that are not quite a group health plan; employees can shop among various companies, and the employer covers a portion. Allstate and Aflac both have options for smaller group health benefits, and they also have the Co-op plan.

Group Health Insurance

If you are sitting there and have never heard of any of these options, you wouldn’t be the only one. The most common type of health insurance is a group health insurance plan. The company is actually the one who applies for this plan, and they will offer one to two different selections for their employees. There is a ton of regulation about how many options you can have based on your state and the carrier that you’ve chosen to provide your health insurance.

The number of options that you can offer generally coincides with how many people you have employed and are eligible for that health insurance. This differs from the Co-op plan because there are only those two options: either they choose to participate, or they have no other options. Please ensure that you check your state’s regulations before offering any of these solutions as health insurance, as they vary from state to state. The requirements for coverage change significantly.

When we discuss the requirements for coverage, we are referring to the percentage of health insurance that the company will cover, ranging from 10% to 50%. The most common percentage is actually around 50%.

There are numerous options available within this area. You can offer more coverage, such as coverage for dependents or spouses. It is really up to the company, but we would definitely recommend starting at 50%.

The biggest downside to group health insurance is that, as we mentioned earlier, it’s challenging to accurately budget for the cost of each employee. It’s not a set amount for everyone, and it could fluctuate depending on the employee and their individual circumstances. Unfortunately, it is set up so that the older you are, the more expensive the health insurance is. Therefore, you’ll have to keep in mind that your insurance will be higher if your workforce is on the older side.

Deciding whether health insurance is the right move for your business will come down to your labor metrics. If you are already at the higher end of KPIs for labor in your industry, adding benefits and health insurance to raise that expense is not a good idea. For the industries we often work with, we should not be seeing labor metrics exceeding 30 to 33% for both indirect and direct labor.

Beyond health insurance, there are various options that you can also offer, including short-term disability, cancer insurance, and life insurance. Those are still benefits, but they will cost you a lot less than health insurance, so it may be a better place for a small business to start.

Having a solid understanding of your books and these labor metrics is crucial in determining the level of benefits your business can offer, and it still makes financial sense. You want to invest in these employees because it will ultimately benefit your business, but you cannot disrupt your cash flow to do so.

If you don’t have a solid understanding of these books, Waterford can really help you with that. We specialize in this industry, which allows us to stay up-to-date on those KPIs and what they should be. Please don’t hesitate to reach out to us with any questions at 864-351-0852 or info@waterfordbusiness.com