(This column originally appeared in The Inquirer)
If you run a small business, brace yourself: The cost of providing health-care benefits to your employees is about to go up … again.
The average cost of employer-sponsored health-care coverage in the U.S. is expected to increase 9%, surpassing $16,000 per employee, in 2025, according to information collected by health-care consulting firm AON. That’s after employer health-care costs have already increased more than 50% since 2017, according to the Business Group on Health, a trade association that recently reported that further increases are “expected to persist.”
Some large employers say that they’re absorbing these cost increases rather than passing them down to their employees. But for small businesses, that strategy isn’t always affordable. So what can a small employer do to offer competitive health benefits at an affordable cost?
Here are five strategies to consider.
1. Multiple plans
For starters, it’s important to offer choice. Rather than offer one single plan that may provide benefits that workers are never using, employers of all sizes can offer various plans with different levels of coverage and deductibles so that employees can decide what best suits them. This minimizes the cost to both parties.
“We’re definitely seeing more employers offer choice,” said Gregory Grimm, a vice president at employee benefits consulting firm Exude, Inc., which is based in Center City. “We have clients that may have 30 or 40 employees who offer three or four different plans.”
Grimm says that many of his clients who do this establish a fixed dollar amount that they’ll contribute to an employee’s health care and then leave it up to that employee to choose their plan.
“Offering this choice helps alleviate some of the cost burden on the employer and says to the employee that we want to help, but we don’t want to be the ones making decisions about your healthcare coverage,” Grimm said.
2. Health savings accounts (HSAs)
Health savings accounts are inexpensive to set up and relatively easy to administer. Once in place, an employee can contribute up to $4,150 for themselves or $8,300 for their family annually (employees who are 55 or older can contribute an additional $1,000 as a catch-up contribution). Employers can also contribute. Those funds can then be used for costs that are not fully covered by their health-care plan such as dental, eyeglasses, hearing aids, and certain medications. Any unused amounts roll over and can be invested.
Wendy Whitmoyer, who manages employee benefits at Carpenter Technology in Philadelphia, said that her company has been offering HSA accounts for years. They’ve been more popular with employees than flexible spending accounts (FSAs), which allow employees to put away money for health-care expenses but don’t roll over unused funds to the next year.
“With an HSA, you don’t have to worry about losing unused funds and you can invest what you save,” she said. “It’s like a 401(K) for their health-care.”
3. Health reimbursement arrangements (HRAs)
Health reimbursement arrangements can oftentimes be established in addition to — or in lieu of — your existing health plans. Under this arrangement, employers contribute pre-tax funds into an account, and the employee uses that money to get their own insurance, be it on a healthcare exchange or through a healthcare broker. Like an HSA, unused funds in many cases can roll over and be invested.
“Depending on the company and the situation, we oftentimes find HRAs to be the most cost conscious remedy,” said Rob DeNinno, a principal at Precision Benefits Group in Philadelphia. “Employers can be more in control of the health-care dollars they fund and get a tax deduction too. With the right fit, both employees and employers can save a significant amount of premium expenses.”
4. Captive insurance programs
Self-insurance has primarily been an option for big corporations with deep pockets. But over the past few years, a number of captive insurance companies have emerged that bring together hundreds — even thousands — of smaller firms under one umbrella. The firms pool their resources and employee medical histories into one entity to spread the risk of loss.
Corey Stevens led the initiative to join a captive insurance program in 2023 at his company CMI Media Group, a small Philadelphia-based subsidiary of WPP. Stevens, vice president of people operations, said the impact has been significant.
“There are additional administrative and compliance responsibilities under the program, but after we got past that piece, it ended up being a very smart decision,” said Stevens.
Stevens says his captive insurance program is a conglomerate of different small businesses that come together with a similar interest around keeping benefits costs down, getting more competitive rates, and “spreading the costs of premiums.” It also provides them with more insights into their health-care expenditures.
“Although there’s more administrative work to manage the claims we’re now able to see more about what expenses we’re incurring which helps us make decisions around future benefits to determine which is most helpful and which benefits are being used,” he said. “That information alone has been a great help. We’re in our second year and so far it’s working out for us.”
5. Education
Ask anyone who’s trying to choose the right health-care program for their family, and they’ll tell you it’s complicated. That’s why smart employers invest the resources to provide training and education to help their employees make the best (and most affordable) decisions possible.
“We devote a significant amount of time to help our employees understand how our different plans work, how the high deductibles of certain health plan would affect them,” said Whitmoyer. “By doing this we can help them choose the right health-care option, which oftentimes saves them — and us — money.”
