Over the past 60 years, health care costs in the U.S. have outpaced inflation and wage growth. These rising costs are often passed on to companies and their employees. With more than 180 million Americans receiving health care through employer-sponsored plans and health insurance premiums in some states potentially doubling in 2025, empowering businesses to better manage these rising costs can have a significant impact not only on the health of our workforce, but also on the health of our economy.
The health care system is difficult to navigate, causing unnecessary worry and anxiety for small business owners. That's why we believe it's important to combine our experience as a leading national small business bank with our in-depth knowledge of the healthcare industry to put entrepreneurs on a more sustainable path when it comes to the cost of healthcare.
Small business owners often cite rising health care costs as one of their top concerns. Over the past five years, health insurance benefits alone have increased 33% for small business employers, and according to a study by the National Federation of Independent Business, nearly half of all small business owners reported losses to cover health care costs. Since small businesses create two-thirds of U.S. jobs, these problems have potentially significant implications for the economy.
In fact, small employers continue to face challenges protecting their employees from ever-increasing health care costs. Employees of small businesses incur significantly higher health care costs than employees of large companies: the average deductible for employees of small businesses is $1,000 more than employees of large companies. In addition, employees of small businesses pay $2,500 more in family insurance premiums than employees of large businesses.
The impact of rising health care costs on small businesses goes beyond raising the cost of health care for their employees. With fewer resources to navigate the complex health insurance marketplace and find the right health plans for employees, they are often at a disadvantage compared to their larger counterparts. A new study from the JPMorganChase Institute confirms these trends, showing that among companies with annual revenues of less than $600,000, health insurance payments accounted for nearly 12% of payroll-related expenses, compared to 7% among companies with revenues of more than $2.4 million.
Moreover, employers are beginning to prioritize the value of healthcare services. Recent studies show that employers are more interested in investing in areas such as primary care and mental health because they are proven to deliver better patient outcomes and reduce costs. But the sad reality is that small businesses often can't offer access to innovative solutions like their larger counterparts.
In a tight labor market, providing competitive benefits to job candidates can help attract and retain talented employees. A healthy workforce also promotes a healthy business, and ensuring employees have access to high-quality health care can help increase productivity, prevent unnecessary sick days, and reduce turnover. However, the current environment puts small employers in the uncomfortable position of having to choose between the risk of increased financial instability and the potential loss of their most valuable asset - their employees.
While more innovative solutions are needed to make health care options more affordable for employers, there are several steps companies can already take to address or contain costs without compromising the quality of care for their employees.
- Find the right health insurance broker to offer the best options for your particular business: A licensed insurance broker can be a valuable partner when choosing a health insurance plan, but it's important to find one that offers the best options for businesses and employees. Knowing what questions to ask a broker, who is often incentivized by insurance companies, and being careful about choosing health insurance can ensure that businesses are carefully evaluating their options each year. Given the challenges of rising health care costs and small businesses, having a trusted and knowledgeable partner is essential for any business.
- Consider alternative cost management strategies that do not sacrifice quality or affordability for employees: Some small businesses run the risk of leaving their employees "underinsured" because options such as high-deductible health plans make costs unaffordable. Alternative funding options can provide additional flexibility in plan design while lowering costs for both employers and employees. For example, supporting benefits with a health savings account can help keep coverage affordable for employers offering high-deductible plans. In addition, options such as an individual health reimbursement plan can provide cost predictability while maximizing employee options or allowing employees to choose a high-quality plan on a state insurance exchange.
- Make the most of the benefits offered each year: Effectively communicating the value of the health benefits offered helps employers and employees get the most out of their benefits. Small employers should use messaging that is relevant to employee needs, reflects company values, encourages participation in the program, and extends beyond the open enrollment period. The benefits message should also encourage employees to take advantage of preventive care benefits, such as seeing a primary care physician and getting preventive screenings, that promote employee health.
Small business health is synonymous with the health of the American economy. With the right tools and resources, small business owners can make more informed decisions about health care options and not only improve the availability, affordability and quality of care for their employees, but also manage costs more effectively.