Smaller employers continue to shun health insurance as business owners purportedly brace for Obamacare.
Even in good economic times, small businesses have been lukewarm about providing health insurance to their employees. Providing health insurance to employees adds costs and a byzantine layer of bureaucratic paperwork that can be difficult to navigate. In today’s tougher global economic atmosphere, small businesses have become even more averse to springing for costly health plans. In fact, the number of businesses of all sizes that provided health benefits for their employees shrunk from 59 percent to 52 percent from 2000 to 2011. Small businesses have gone from bad to worse, experiencing a nearly 10 percent decrease over the same period in the number of employers who offered health insurance. In fact, 1 in 4 small businesses are themselves uninsured.
Small businesses face strong headwinds when it comes to covering their employees. Typically, smaller companies have slimmer profit margins, making employee health plans prohibitively expensive. More importantly, insurance companies charge them higher rates because insurers view each individual company as a separate pool of risk. Corporations and larger firms, who may employ hundreds or even thousands of individuals, dilute the risk pool through their sheer number of employees. The more people in one risk pool, the more likely an insurance company will be willing to offer affordable rates. Size matters. The number of employees in a firm can be used as leverage for discounts and other rate reducers. Unfortunately, small businesses by their very definition lack precisely that quality. Even if a business could provide insurance, family premiums have increased so dramatically that some employees refuse to take it.
The Affordable Care Act (ACA)
The recent Affordable Care Act adds another layer of rules and regulations on top of an already tumultuous healthcare landscape. However, despite an overwhelmingly critical and hostile reaction from small business owners who fear that they will be faced with either crippling health care costs or penalty fees, the Act’s actual impact on small business will be marginal. Businesses with less than 50 employees are not required under the new Act to provide coverage; 96 percent of all businesses in the U.S. employ less than 50 people. In fact, for businesses employing fewer than 25 people, the Act provides a tax credit to help offset costs. Furthermore, only 0.2 percent of all businesses over 50 employees do not already provide some kind of health coverage for their employees.
Schooling, Pooling, and PEO’s
Nonetheless, the fact remains that an overwhelming majority of small businesses do not provide health insurance for their employees. They are simply too small in terms of gross revenue and in terms of workforce size. To get around this, many small to mid-sized firms have been turning toProfessional Employer Organization solutions. Much like the multitude of smaller fish in the ocean that band together, or form schools, to fend for survival, smaller companies can all pool together under the same PEO umbrella corporations. Insurance companies treat this school of small firms as a single pool, thus diluting the risk. This allows the PEO to secure a menu of more affordable health insurance options for its individual client firms.
In any case, all companies employing more than 50 people will now have to provide health coverage by law. PEO’s can not only help secure favorable insurance rates, they can also help smaller companies avoid potential pitfalls, comply with new rules and regulations, and focus on their core business.
The Bottom Line: Professional Employer Organizations (PEO’s) can help small businesses secure more favorable health insurance rates in order to comply with existing and new rules and regulations – particularly in regards to the Affordable Healthcare Act.