Every small business owner knows about cost reduction, especially when it comes to selling, general, and administration costs that make up the bulk of costs in hiring and firing employees. Small business owners face a new threat in their profit margins in the form of rising health care costs.
A Kaiser survey of small business owners reveals the effect of rising health care costs on small business operations. Only a handful of small business owners are paying for a larger share of their employee’s health care costs as prices rise. Instead, small businesses – which pay 84 percent of premiums for employees, and 35 percent of family health insurance premiums – are looking to slice and dice their costs to compete with major companies. Large businesses pay a much smaller share of their employee’s health care benefits, giving large conglomerates a pricing advantage over smaller companies.
One of the most glaring shifts in the health care industry is a shift toward high deductible health care plans. Small businesses owners are increasingly relying on health savings accounts, which allow employees to shelter pre-tax income for direct spending on health care services throughout the year. Small business owners pay mere pennies on the dollar in administration costs for a health savings plan, which may save employees nearly $2,000 a year in taxes.
Nearly one-fourth of all small business employees now have access to a health savings account. This dramatic increase is mostly new – businesses previously paid for the full cost of a low deductible policy for employees. Crippled by rising health care costs and a weaker economy, small businesses find that the health savings account is a less expensive alternative to a full blown insurance package.
Small businesses are not abandoning health care insurance in total. In fact, small business owners are reporting that a majority of their companies do offer health insurance benefits. The historic average of small businesses offering health care is roughly 61% of businesses, a figure which has remained in place for the last eight years.
In particular, the smallest of small businesses report the weakest health care benefits. Only 29 percent of businesses with 10 or fewer employees are providing health insurance benefits to their workers. Wages are also lower at companies with fewer than 10 employees, which is consistent with the idea of economies of scale – small businesses simply cannot afford to pay what larger companies can afford to pay their workers. Historically, nearly two-thirds of small businesses with fewer than 10 employees gave their workers health care benefits. In a post-recession reality, however, companies simply cannot afford luxurious health care options.
In the coming years, several big changes are expected in the health care industry. For one, all companies with more than 50 employees will have to provide health care insurance to employees or pay a fine as part of the Affordable Health Care Act. Some companies are ramping up their participation in health care insurance plans while others are cutting back, content on paying a fine rather than provide health care insurance to employees.