Small Businesses Willing to Band Together to Reduce Health Benefit Costs

“Without advantages such as a larger pool of insured employees, more bargaining power with health insurance companies, and the benefit of full-time human resources personnel, small-business owners are often left with little recourse and few options when a health insurance carrier hikes costs,” says The Commonwealth Fund.

In the first half of 2019, it conducted three phases of research: key informant interviews, two focus groups, and a national survey of 500 small employers. The survey revealed that health care costs are top of mind for small businesses. When asked to choose their top two challenges, they cited the cost of providing health coverage to employees (37%) and attracting new customers (33%).

To compete with larger employers, small employers are hard-pressed to offer benefits like health insurance, even as the benefit takes up a larger share of the bottom line, The Commonwealth Fund notes. Two-thirds of businesses (69%) said the problem has been getting worse. They reported that costs have increased over the last four years; one-third of this group reported annual increases of 10% or more. Businesses with fewer employees cited bigger increases than larger businesses. Employers cited prescription drugs and lack of choice of health care plans as pain points.

Focus group findings also revealed that many small-business owners make painful decisions around health care quickly, often because they lack choice or the time or resources to wade through the policy information. Without a human resources professional on staff, small-business owners often have to take more time later to find an alternative when a health care plan becomes too costly.

More than half of employers said they have made adjustments in the past four years to decrease the costs of providing health care, with many shifting the cost burden onto employees. Nearly half said they have increased deductibles or copayments for their employees, one-quarter required employees to pay higher premiums, and 16% either reduced or eliminated dependent coverage. In addition, 29% of small-business owners negotiated with their current carriers and slightly more than one-quarter changed carriers. One-third have considered discontinuing health care coverage for their employees.

Ideologically, many employers prefer private-sector solutions to government solutions. Yet all options provided to curb costs—both market-based and regulatory options—find support among business owners. When asked about specific solutions, respondents said that allowing small-businesses to purchase their health insurance together to gain market power (92%), efforts to increase transparency (92%), access to unbiased information (91%), and accountability for brokers (90%) would be helpful.

Dave Chase, co-founder of Health Rosetta, which promotes reform for the U.S. health care system, says there is an ongoing move away from traditional benefits brokers to benefits consultants. He recommends plan sponsors get away from traditional brokers and utilize benefits advisers/consultants.

About two-thirds of small-business owners surveyed by The Commonwealth Fund have already spoken with other owners about health care costs, and 92% are willing to work together to push for changes to make health care more affordable. They are mixed about phone banking federal or state representatives and averse to hiring an advocacy firm. Instead, they are more willing to be part of an organization that offers group health insurance and advocacy (59%) and to join a volunteer association where they discuss ways to control costs with others (78%).

A survey from PeopleKeep earlier this year found nonprofits also want more cost-effective alternatives to group health insurance. In the meantime, many are satisfied that qualified small employer health reimbursement arrangements (QSEHRAs) meet employees’ needs. Another study from the same firm found 71% of small businesses that offered QSEHRAs in 2017 had not offered health benefits previously. Through a QSEHRA, employers may offer employees a fixed monthly allowance of tax-free money (up to $429.17 per single employee and $870.83 per employee with a family in 2019).

Under new rules adopted by the U.S. departments of Health and Human Services, Labor and the Treasury, starting in January 2020, employers will be able to use what are referred to as “individual coverage health reimbursement accounts,” or “ICHRAs,” to provide their workers with tax-preferred funds to pay for the cost of health insurance coverage that workers purchase in the individual market, subject to certain conditions.