The most severe problem facing small business right now is the cost of health insurance, according to a new release of the NFIB Research Foundation’s quadrennial Small Business Problems and Priorities survey. The survey asked 20,000 members of the National Federation of Independent Business to evaluate each of the 75 potential problems. The cost of health insurance is the top problem across all but one of the 54 subgroups analyzed in the study (industry, number of employees, etc.). It is the only problem of the 75 listed in the survey to be evaluated as a “critical issue” by more than half of respondents (52.3%).
Persistent cost increases continue to plague small-business owners causing great concern among owners of all firm sizes and across all industries. According to the Medical Expenditure Panel Survey (MEPS), the average premium for an individual health insurance plan cost $2,889 per employee in 2001 ($3,886 adjusting for inflation). By 2015, that number had ballooned to $5,963, easily outstripping overall inflation and wage growth. Of course, premiums costs are affected by the changing composition of insurance plans and by employer offer rates. Deductibles in health plans, which are generally higher in small business plans, have increased dramatically over the same period. The average deductible for an individual health insurance plan cost $446 in 2001 ($597 after inflation) and $602 for businesses with fewer than 50 employees. In 2015, the average deductible cost $1,541 for all businesses and $1,964 for businesses with fewer than 50 employees. In the past fifteen years, small businesses have paid more for less when it comes to health insurance plans.
While many small business owners have cut back on benefits, it has become increasingly difficult to retain good employees and stay competitive in the employment market if employers do not offer a strong benefits package. So for a while we saw many small-business owners cutting back on benefits when trying to navigate the sluggish economic recovery. While the percentage of businesses with more than 50 employees offering health insurance has stayed at about 96 percent over the past 15 years, offer rates by businesses with fewer than 50 employees have declined significantly. This erosion has accelerated since the passage of the Affordable Care Act. Between 2001 and 2010, the offer rate declined 7 points, from 46 percent to 39 percent. But in the five years since the passage of the ACA the offer rate has dropped 10 more points to 29 percent. While cost is the biggest issue, there is significant data showing that small businesses will still continue to offer health insurance to their employees.
Some small businesses have found it more cost-effective to provide reimbursement for employees who purchase individual health insurance rather than offer their own health insurance plan. However, as of July 1, 2015, employers who offer reimbursement for employees’ individually purchased health insurance can be fined $100 per day, per employee or $36,500 per employee, per year. In the 2015 survey edition, 16 percent of small employers offered this benefit and therefore are in violation of the new rule and subject to steep fines. Another 20 percent of small employers responded that they were considering or seriously considering offering the prohibited benefit.
The health insurance cost burden on small businesses is also contributing to the problem of wage stagnation. Bureau of Labor Statistics data show that health insurance has increased as a percentage of total compensation over the past ten years. While total compensation tends to increase as labor markets tighten, take home pay suffers as benefits consume the entirety of the gain. When business owners have difficulty finding and retaining employees, they are forced to increase compensation to attract talent. If health insurance is too expensive, small-business owners who are not required to offer will decline to do so, and owners who are subject to the employer mandate are forced to reduce other forms of compensation (such as wages) or find ways to replace employee production.
The cost of health insurance’s top rank in Small Business Problems and Priorities comes as no surprise as it’s held the same position in every survey since 1986. Sadly it remains an urgent priority that has yet to be appropriately addressed. When added to an ever-growing list of regulations and mandates that add to the price of doing business, the escalating cost of health insurance just piles onto one big, bad environment for the 5.7 million employer and over 20 million non-employer small businesses in the United States.
Now is the time to look at ways to reduce costs while offering better benefit plans for your employees. For example, NARFA offers the ability for small businesses to buy group benefits like a large group, with better plan designs, better networks and access, and unparalleled administrative support, which is crucial in the age of endless rules and regulations. Voluntary benefits also offer an excellent strategy for cost control, as employers can offer employees ways to protect themselves against unexpected illness or events.
Contact us today to find out how we help hundreds of businesses in your industry stay strong during these uncertain times and why since 1929 we have enjoyed continued success, evidenced by our 99% member retention rate.