When health insurance gets harder to offer
If you run a small business, health insurance may be one of the benefits you work hardest to keep. You need employees, and coverage helps you attract and retain them. When you can’t offer the salaries a larger organization pays, those benefits may matter even more.
Recently, one of my clients received a proposed 14% increase through its professional employer organization, or PEO. The owner had resisted offering medical insurance for a long time. Now the business offers it, and the question is how to keep doing so.
Another client, a pediatric clinic serving underserved communities, received notification of a proposed increase of 18% to 21%. Those figures aren’t final. The clinic is already struggling to recruit and retain employees who could work at larger healthcare organizations with more extensive benefits.
Your renewal may look different, but the research points to the pressure employers are facing. Marsh, a global professional services firm whose work includes employee benefits consulting, recently released preliminary survey findings projecting an average 8.2% increase in total health-benefit cost per employee in 2027. That’s after employers’ planned cost-reduction measures. Without those measures, respondents expected an average increase of 11%. Aon, a global professional services firm that advises employers on benefits and risk, also projects rising costs: a 9.5% increase in healthcare costs for U.S. employers in 2027, before any measures to reduce those costs.
Small businesses employ nearly 46% of private-sector workers, according to the U.S. Small Business Administration. That’s a lot of households affected by whether an owner can keep offering useful healthcare coverage. More than 16 years after the Affordable Care Act was enacted with the goal of making insurance more accessible and affordable, these decisions are still difficult.
Whether you’ve received your renewal or you’re still waiting, here’s how I’d approach this year’s decidedly bonkers medical renewals.
Consider a PEO, even if you’ve explored one before
A professional employer organization can give a small business or nonprofit access to benefits along with payroll and other employment administration. If you’re looking at alternatives for your organization, a PEO is one of the first options I’d consider. I’ve seen some PEOs use this renewal period as an opportunity to take on clients they previously declined. If you’ve been turned down before, it may be worth another conversation.
Ask for the cost of the full arrangement. A proposal that shows a return on investment from benefits savings alone may leave out costs that change the picture. Include administrative fees, the coverage offered, and services you’d otherwise need to buy. You could see a lower insurance premium without spending less overall. Beware, though — my client’s proposed 14% increase also shows that a PEO won’t shield you from increases.
Look at what the choices would mean for your employees
Ask your broker or PEO benefits team to compare your current offering with realistic alternatives before you accept the renewal.
You need to understand what your business would pay and what employees would pay. Look at cost-sharing options and paycheck deductions, then work through the deductible, copays, coinsurance, prescription coverage, and out-of-pocket limit. Check access to doctors and hospitals, too.
These are some of the questions I’d ask as you do your review:
Would a different coverage structure help? An exclusive provider organization, or EPO, generally has lower premiums than a preferred provider organization, or PPO. An EPO generally covers care within its network, with emergency exceptions and other applicable protections. A PPO generally offers out-of-network benefits, but that care costs more. Network size is another consideration. A narrower network won’t work in every situation. The clinic I mentioned already has geographically limited coverage and a substantial annual benefits expense. We have to look closely at what any further restriction would mean. It may make the plan pointless.
Could you absorb more of the dental and vision premiums if employees need to pay more for medical coverage? Dental and vision premiums are generally lower than medical premiums and depending on the numbers, you may be able to pay 100% of those premiums and still spend less than you would by absorbing the full medical increase. Paying the dental and vision premiums can offset part of what employees would otherwise pay, but their total deduction may still go up.
Would offering only one plan meet your employees’ needs? Another approach is offering a base plan with additional choices employees can select by paying the extra premium.
Could you review spousal coverage? One interesting option is restricting spousal enrollment when the spouse has access to coverage through their own employer. I’ve seen clients decline to contribute to spouse coverage or charge the employee a surcharge for adding their spouse to the plan. Check you plan to understand what’s allowable.
One practical reminder: whatever plans you choose, check when the premiums are due and when you collect employees’ contributions through payroll. If you’re paying the full premium before collecting their share, make sure you have the cash available to cover that gap.
Give HSA-eligible plans a closer look
I encourage employers to seriously consider offering high-deductible health plans that qualify for a health savings account, or HSA, and educating their staff about them. I understand that the words “high deductible” can strike fear into the hearts of many because a deductible of $3,000 or more is a lot to think about.
An HSA lets an eligible employee set aside money for qualified medical expenses with federal tax advantages. If they don’t use all the money this year, it stays in the account. It also travels with them even if they leave the job. Some HSA providers offer investment options, so the account can also become part of an employee’s retirement savings strategy. For employees who can build a balance beyond what they need now, the account can help them save for future healthcare expenses, including in retirement. They should check fees and investment requirements before choosing how to use it.
If you can contribute to employees’ HSAs, I think you should. An HSA-eligible plan may have lower premiums than the alternatives you’re considering. If your business saves money, putting some of those savings into employees’ accounts gives them a head start on their deductibles.
Nonprofits can offer HSA-eligible plans and contribute to employees’ HSAs, too. The employee eligibility rules and federal HSA tax benefits apply whether the employer is a private business or a nonprofit. Employer contributions generally receive favorable federal payroll-tax treatment, and employees may also receive payroll-tax advantages when they contribute through a qualifying Section 125 payroll arrangement. The employer’s tax status and state rules can affect the savings.
If you can’t contribute, the HSA can still be valuable.
When I talk with employees who are curious about the plans, we start with their medical expenses and any prescriptions or other care they already expect to need. If they don’t have many medical expenses, I encourage them to consider the plan as a viable option for coverage. Then we talk about what would happen in an emergency. What could they pay out of pocket before they’ve built up money in the account? Can they afford regular contributions?
The first year can be the hardest. Employees are trying to build a balance while they may also need that money to pay for care. Leaving funds in the account gives them a chance to carry savings into the next year, but that can be tricky when expenses come up. Using the HSA to pay for qualified medical expenses is what it’s there for. An employer contribution can give employees a head start while they’re getting established.
Ask your broker about an HRA, too
The employer funds a health reimbursement arrangement, or HRA, and sets the amount available to reimburse eligible healthcare expenses under its rules. Employees don’t put their own money into it. Some HRAs work alongside group insurance and can help with expenses such as deductibles. Other types let you help pay for individual insurance employees buy themselves. The eligibility and coverage requirements differ.
An HRA isn’t a savings account employees own and take with them like an HSA. If you’re considering an HSA as well, ask about compatibility. Some HRA designs prevent employees from making HSA contributions.
Communicate before, during, and after open enrollment
Communicate. Communicate. Communicate. As you work through these decisions, keeping employees informed is the most important thing you can do to help them navigate the changes. They need to understand what’s happening, what it could mean for their coverage, and where they can get answers to their questions.
I’ve often seen business leaders hesitate to share "bad" news with employees. I understand why. You don’t want them to worry about the stability of the business or start looking for another job. It can also be uncomfortable to admit that a benefit you want to provide is getting harder to sustain. But they are going to find out eventually.
Let them know you’re reviewing next year’s benefits before the enrollment meeting. Ask what concerns they have about their current medical options. Give them a private way to speak with HR, your broker, or the PEO benefits team about their own care or a family member’s needs.
If you’ve received a large proposed increase, say so. Explain that you’re looking at options and trying to keep useful coverage available. Tell employees which decisions are still open and which have already been made.
The openness may help you learn something that changes how you assess a plan or coverage. A network that looks fine on paper might leave out a specialist an employee needs. A change in prescription coverage could matter more to them than a small difference in the premium.
You won’t be able to accommodate every concern, but you can listen and explain what you’re considering. I’d rather you have that conversation than hope employees won’t worry if you say nothing.
You can cover a lot in an enrollment meeting. That doesn’t mean everyone will remember it, or that they’ll be ready to ask about their own situation in front of coworkers.
Give employees a written comparison that shows what you contribute, what comes out of their paychecks, and what’s changing in the coverage. Explain unfamiliar terms. Offer office hours with HR, your broker, or the PEO benefits team, and remind employees to use them.
If your coverage includes healthcare advocates, show employees how to reach them and what they can help with. Rippling, for example, lists Rightway support within its PEO offering.
Keep communicating after the new coverage begins. An employee who understood the meeting may still need help when a bill arrives or there’s a problem with a prescription.
When the choices are still difficult
Sometimes you’ll review the alternatives and still be unable to offer coverage that every employee can afford. That’s a hard place to be. You may be doing everything you can to keep offering insurance, and an employee may still find that the choices don’t work for their family.
Be honest about those limits. Explaining a plan well won’t make inadequate coverage a better choice or guarantee that an employee won't go looking for better insurance.
If you’re working through a difficult benefits renewal, I can help you weigh the options with your broker or PEO and plan the conversations with your employees. Get in touch if you’d like to talk through your situation.
