Employee benefits represent a major investment your business has to make. The cost of benefits will tend to increase every year, with each person you bring into your business multiplying those costs. That’s why employee benefits are one of the biggest focus areas for cost reduction.
Large businesses can save millions of dollars by taking a second look at the structure of benefits and compensation. However, even small businesses and solo entrepreneurs should do everything possible to reduce these costs early in the enterprise life-cycle.
The lower your costs today, the better your trajectory will be over the years.
Why Employee Benefits Are Worth The Investment
The importance that businesses ascribe to employee benefits has waxed and waned over the years. It was not really that long ago when virtually every business that wanted to be looked at as a serious employer offered some type of retirement plan, often a 401k with contribution matching.
Over the decades, businesses have slowly externalized many of these old employee benefits. This trend is not absolute, however. For example, changes in the regulatory environment have meant that businesses need to take health insurance into account in their growth plans.
Today’s workforce is acutely aware that, as far as many employers are concerned, they are “on their own.” Millennials are well aware that their parents – not just grandparents – often had the opportunity to access employee benefits that seem lavish today.
Millennials are already the largest generation in today’s workforce, and the oldest are approaching their 40s. With that in mind, they are taking a more sober look at the benefits offered by potential employers. Generation Z will soon be entering the workforce and is likely to do the same.
With that in mind, employee benefits have some clear advantages:
- You can differentiate during the hiring and recruitment process compared to competitors
- You can reduce turnover, since talent will have fewer options for getting similar benefits
- You can improve morale and reduce stress by giving employees resources that matter
Many talented employees will put a high value on benefits as they reach a point in their career where further cash compensation makes less of a difference. Being aware of what’s standard in your market will help you be more effective in your human capital strategy.
But the big question remains: How much will it cost?
Healthcare Remains The Biggest Cost In The World Of Employee Benefits
As we’ve discussed recently, the world of employee benefits could see a big transformation by the end of 2020. Legal challenges are in motion that could invalidate the Affordable Care Act as soon as this November, setting up 2021 as the first year post-ACA.
For those who have not heard, a quick update: Spearheaded by the Trump Administration and the attorney general of Texas, a coalition of 18 states is calling on the Supreme Court to strike down the Affordable Care Act. Opening arguments will be heard this November.
Although a decision is not likely until next spring, this still has business owners and employees alike looking at the recent trends in employee benefits. Under the Affordable Care Act, millions more people are finding healthcare coverage, but prices continue to increase.
Apples-to-apples comparisons of healthcare cost growth over the lifetime of the ACA have shown that many states experienced only modest increases in most years. Even the 6% increase in gross premiums found in 2014-2015 is less than the average increase prior to ACA implementation.
However, there are two caveats:
1. Some States Have Seen More Significant Cost Growth Over Time
Premium increases are ultimately in the hands of insurance providers who evaluate the “pool” of insured people for their states. As of March 2019, states like South Dakota, Texas, Tennessee, North Carolina, and Arizona rounded out the top five most expensive states for health coverage. The worst, South Dakota, saw 12% healthcare costs as a percentage of median income.
2. The Current Health Crisis May Change The Game In Coming Years
Consider the fact that as we write this, there are over six million U.S. cases of coronavirus. Doctors are coming to grips with the fact that coronavirus symptoms can persist for months after the virus leaves a victim’s system, owing in part to long-term blood vessel damage.
That could change demands on the healthcare system and cause employee benefits costs related to healthcare to rise further. Consider, for example, that Florida is both one of the states hardest hit by coronavirus and sits within the top ten in overall healthcare coverage costs.
The prospect of absorbing millions of people with lingering coronavirus symptoms into today’s insurance pools could transform what is available, how much it costs, and how we look at “pre-existing conditions.” The time for businesses to start preparing for the new reality is now.
Other Benefits Can Be Less Expensive, But Healthcare Will Remain Key
While health insurance costs per employee typically run between $5,000 and $30,000, other benefits today’s rising stars are looking for can be provided at comparatively low costs. A benefits plan that’s rich in options can be more attractive to some employees than one that focuses only on premium healthcare: Age, gender, and career attainment are factors that can influence priorities.
Looking at the cost of employee benefits for retirement, costs run between 2% and 6% of employee salary. A Health Savings Account may cost anywhere from $500 to $1,500 per year. Life insurance may cost in the hundreds per year, with disability and dental in the low thousands.
There are many ways to craft a powerful package full of head-turning employee benefits. But the cost of health insurance remains the elephant in the room. Not only is it the largest single cost, but its future is unknown. Small businesses in particular need to watch out.
Look Beyond ACA To Develop A Plan For Employee Benefits That Lasts In Coming Years
Whether or not the ACA remains in place, the cat is out of the bag: Almost everyone has healthcare on their mind. Your most serious employees will be looking ahead to when they need employee benefits to cover their health ups and downs. Get out ahead of them by doing your homework.
It’s time to have an ace in the hole for whatever tomorrow brings. ACA alternatives for employee healthcare are available. Small business owners and solo entrepreneurs should move quickly, as they are the ones most likely to be left out in the cold in a changing regulatory landscape.
Entrepreneurs who are making too much money to qualify for ACA subsidies and who have no or few pre-existing conditions are in the best position to leverage new alternatives for employee benefits. By acting now, they may be able to weather future changes without a hitch.
If you are ready to take action on healthcare employee benefits, we are here to help you. To find out more about your options and future-proof your business, just contact our team of experts today.