We, unfortunately, see this more often than we care to, and more often than not, this has a lot of unintended consequences, especially after several years of going down this path. While it is true that most insurance providers, especially on the health insurance side, only require 50% of the employee’s coverage to be paid by the employer, let’s talk about why this might not be a good idea. If you have a large base of hourly employees, they will likely be unable to afford $200 – $300 a month in premiums for health insurance.
1. In many cases, employees would simply go without benefits. If that’s the case, you probably aren’t going to be able to land a contract.
Most insurance companies require anywhere from 50 – 75% participation from your eligible staff, so without making those numbers, you can forget about being able to offer health insurance. Don’t get me wrong, we’re not saying to go out and pay for 100% of everything, but consider offering more than one health plan option where there is at least one affordable plan that has some value for the employees. Then you can add something with a higher deductible or copays so that there’s a tiered system from a pricing and benefits standpoint.
In taking this approach, you should be able to get the participation you need while providing many choices to your staff which is always a good thing.
2. This minimum amount strategy will discourage some of your younger, healthy employees from enrolling.
The way they look at it, they are young and healthy and have no health concerns. Why would they pay hundreds of dollars monthly when they can save that money for weekend fun? I can’t say I disagree; we’ve all been young, healthy, and invincible at one point, but the caveat is that you get lower rates the more youthful, healthy people you have on your plan. By passively discouraging their participation by contributing the bare minimum, you are causing the rates for those enrolling to be higher because your overall average age will be higher. If you go through underwriting, you will have more conditions with fewer people, equating to higher rates.
Conversely, by increasing the contributions and attracting younger, healthier staff, with the thought that costs should be dropping, most employers should end up paying the same or possibly even less while getting more people covered.
This is also especially helpful for your employees covering family members, as dropping costs will help them significantly.
3. Recruiting / Retention.
If you are trying to hire like most people are right now and are in a competitive industry where the employee base is the same as some larger employers, you will struggle to hire if you aren’t paying for a good portion of the health insurance. If you can hire, you will probably have issues keeping people on board if you are not doing above and beyond the bare minimum. No big companies are making their employees pay for half of the insurance costs, so if you take this approach, you will probably end up with higher rates and have to pay your employees more on the salary side if they will even consider coming on board.
Benefits cost less than pay raises. I know that sounds really bad, but it’s not, and it’s simply a fact. We see studies all the time where employees will indicate they would prefer benefits to cost less and would forego pay raises to help make that happen.
4. So let’s make this a math problem which is what we like to do.
Say your benefit plan costs $500 a month, but you’re paying 60% of it right now, that is $300 a month for your staff. At the same time, let’s say your average employee salary is $40K. A meaningful raise in today’s day and age would be at least 10%, so call it $4k per employee for the year. In that same base, if employees would prefer to have the benefits paid for, that’s only an additional $200 a month, so your costs are cut in half. Another advantage is that you would not be increasing your or your employee’s tax liability through increased payroll.
5. Benefit costs are a business expense.
If you are a profitable company and doing well, you are likely looking for write-offs at the end of each year to help cut your or your business’s taxes (or both). Remember, benefits paid by your business are treated as an expense, so an increase equals a decrease in your profits and your tax liabilities.
I hope this article has been helpful. It’s terribly difficult to find talent right now, so I hope this gives some good ideas and insights on why doing the bare minimum is not a good idea and can hurt your business in the long run. Please let us know if you’d like to dive more into this and have a more detailed discussion. We’d love to discuss it.