Call it the law of unintended consequences. The Patient Protection and Affordable Care Act (ACA) has made it harder for companies to offer competitive medical benefits, according to Nationwide Retirement Institute’s small-business survey.
When Nationwide set out to poll small businesses (between 50 and 299 employees) about their reactions to the ACA, they found a few surprises. First, companies said their ability to offer competitive medical benefits diminished as employees came to see their health care benefits as less attractive than those provided under government plans.
A few factors are in play, says John Carter, president of the retirement plans business at Nationwide. “Employees have more choices,” he tells PLANSPONSOR. “They have the employee benefit plan, or they can turn to the exchange.” As a result, the overall benefits package is a critical area for employers to examine. “If the employee chooses to go to the exchange, the company then has the salary and the retirement plan to focus on to recruit and retain staff.”
“A company’s health benefits package once proved to be a deciding factor in where employees chose to work. With health care now available on the open market, it’s harder for employers to separate from the pack,” Carter says. “Today’s job prospects will look for employers that provide them the greatest amount of total compensation. That includes those who match a higher percentage of what they will invest into a company retirement plan.”
Slightly more than two-thirds of employees in small business (64%) already see their health benefits as less attractive than what they can find on the open market. Carter points out that this option wasn’t as attractive before the ACA, which made it illegal for insurance companies to turn down people for pre-existing conditions in non-employer-sponsored health care.
Small businesses are looking to financial advisers for assistance, Carter says, noting this is unsurprising when you look at small businesses, and the role of medical benefits in retaining and keeping employees. “Forty-four percent of small-business owners said the ACA is difficult to navigate,” he says, and 34% said they’re not prepared to handle the changes.
Carter also points out that nearly half of the smaller companies with at least 50 employees (43%) have increased their contributions to the retirement plan since the implementation of key employer and individual mandate provisions that took effect under the ACA at the beginning of 2015. “If the health benefit is less of a competitive benefit package, then retirement moves to the forefront,” he says. “It’s a clear sign employers are ready to re-engage with the plan’s features, having discussions with employees so they really see the benefit of the plan.”
The speed with which plan sponsors have begun responding to the impact of 2015 ACA provisions is a testament to the resilience of U.S. small businesses, Carter believes. “When you think of all the things on a small business’ plate, to react with a retirement increase in only four months is noteworthy,” he says.
That 43% increase in contributions means the other 57% probably should be having those discussions, Carter says. “They must understand there are more competitive medical benefits outside the company,” he says, and be ready to illustrate clearly the value of all benefits provided.
The rollout of the ACA is still ongoing, and the coming expansion of ACA regulations is changing the mix of employees, Carter says. Smaller companies with 50 to 90 employees are taking a hard look this year at their workforces while there’s still time. “We thought it relevant that nearly one-quarter of these business owners told us they plan to replace full-time employees with part-time workers,” in a move to mitigate future health care costs, he says.
Employees in small businesses today are more mobile, Carter observes, another impact of the ACA. Plan sponsors will need to adopt strategies that carry further incentives for the best employees to stay with their companies, says Kevin McGarry, director of the Nationwide Retirement Institute. “Plans that allow for larger benefit contributions to certain employees will be an attractive option, as will be offering retirement benefits with greater matching contributions,” he says.
Among the findings:
- 67% of small businesses believe the ACA will make it more difficult to offer competitive medical benefits;
- 44% say a greater need exists now to offer employee benefits than before the ACA was adopted; and
- 16% intend to pare their workforce over the next two years because of the ACA.
The survey was conducted online in the U.S. by Harris Poll on behalf of the Nationwide Retirement Institute between October 7 and October 20, 2014, among 334 small business owners with 50 to 299 employees and who are moderate/major influencers or primary decision-makers in the selection of employee benefits for their company.
The 2015 Nationwide Retirement Institute Small Business Owners Survey can be accessed here.