Between state and federal mandates around offering health insurance to employees, most small and mid-sized companies have considered what kinds of benefits they should offer employees. But even if you decide to offer access to health insurance, how much is enough? We examine below.
How Much Health Insurance is Enough for a Small Business?
When you’re a small business, after salaries, health insurance is often one of the most expensive expenditures that you have to make.
It’s hard to calculate how much health insurance is enough. Each business is different. If you took a manufacturing company and a software company with the exact same amount of revenue, you may find that the manufacturing company has more employees or more health hazards, making health insurance a greater percentage of total revenue.
Therefore, the best way to determine how much health insurance is enough is to ask three questions.
1. What Are Your Demographics?
“The Affordable Health Care Act depends on Americans aged 18 to 34 signing up to offset the cost of older enrollees,” wrote Alyson Krueger in Forbes.
The same can be said for your company. What are the demographics? If it is comprised of people in their early- to mid-20s, they may not need to to all that much. Or they may be satisfied with access to a high-deductible plan because they believe they won’t need to use it often.
However, if your company is comprised of people with families or that are a little bit older, they may need access to some higher quality health insurance. Understanding your demographics is the first step in calculating how much insurance to offer.
2. What Do Your Competitors Offer?
Because of the high demand of software engineers in San Francisco, it’s common for companies to offer completely covered healthcare, even premiums and copays in some cases.
Get a simple guide to walk you through the process of creating a benefits package to fit your business.
High-quality benefits are a key way to differentiate yourself from competitors, or even stay on par with what they’re offering top talent.
How you answer question number three will shape your strategy when offering more than your competitors. If your competition looks to cover 65% of the premium, you can try to surpass that by 5%. This will give you a cutting edge when hiring.
3. What Can You Afford?
Knowing your demographics and competition mean little if you don’t have much of money available to pay for health insurance. For example, your competitor may be at a later stage in their company’s growth, so they can afford to pay more for health insurance.
Whatever the case, calculate what you can truly afford to cover for your employees. The Affordable Care Act mandates that employers of a certain size offer affordable health insurance; it doesn’t say that employers need to pay for all the health insurance.
If funds are tight, you may only be able to offer a high-deductible plan for your employees. One of the perks of a high-deductible plan is that the employees get to use a Health Savings Account, a pre-tax account used for health expenses. You could deposit some money into each employee’s HSA to make up for a less generous health insurance plan.
Even if you can’t afford a lot for insurance, you can access affordable, high-quality benefits packages. By using a PEO like Justworks, you get the buying power of a Fortune 500 company, even if you have less than 100 employees.
Justworks groups employees together, to give employers health insurance only large companies could usually afford. You can learn more about us here.
This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, legal or tax advice. If you have any legal or tax questions regarding this content or related issues, then you should consult with your professional legal or tax advisor.