August 14, 2009
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Rhonda Ealy will not buy equipment for her coffee company for as long as she can afford not to. Other small business owners have laid off staff – in both cases, with the aim of providing health benefits for their full time staffs through the downturn.
It's no secret that health insurance is a huge burden on companies' balance sheets. When General Motors revealed in 2005 that it would take its largest quarterly hit in a decade due to a $1.1 billion write-off of health care costs, the investor world woke up to the fact that health insurance is an enormous drain.
Small businesses have it even worse. According to a study by PricewaterouseCoopers, health care costs for employers rose 10 percent in 2008 alone. Such costs are behind a disheartening trend: Just 59 percent of small business employers provided health benefits in 2007, down from 68 percent in 2000.
They say the recession will end when we have two consecutive quarters of growth, but for small businesses, and their employees, one sure sign will be the ability for employers to comfortably afford to provide coverage.
President Obama aims to improve health care coverage among small businesses, and at least in his speeches, he intends to make it easier for small businesses. Key features of the proposal:
· If you employ fewer than 25 people, you will not be required to provide health insurance.
· You can buy insurance through an exchange for better rates.
· You can get a tax credit when you buy through the exchange.
Of course, all of these will have to get past Congress. But even if they do, will they be enough to offset the current overwhelming costs? It’s said that small businesses are paying an 18 percent premium on insurance rates because of their size (larger businesses get a bulk rate). They need more help than their larger brethren.
In the meantime, small businesses do have options. Those options may not slice deep into the costs, but the other option is to take away benefits altogether – leaving your employees to fend for themselves, and possibly take their skills elsewhere. Here are some possibilities for continuing coverage:
· Roll back your plan. Instead of a soup-to-nuts coverage plan, pare it back to some core basics. Your employees won’t be able to get those fancy eyeglass frames for free anymore, but at least they’ll be able to get their prescriptions at a steep discount.
· Consider Aflac. Or another health savings account option. It’s a way for employees to get in on the game, tax-free, offsetting some of your costs.
· Join a group. If you’re small enough, you might consider partnering with other firms to create a group plan, which will always be cheaper than a specific plan set up for a tiny number of people (see 18 percent difference, above).
The bottom line is the bottom line: For every small business, “health benefits” is not an insignificant line item in its expenses line. Small businesses, under pressure in the recession to cut costs to the bone, cannot crawl out from under this downturn without a drastic change in health care.
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