Small Business Health Benefit Challenges… and Solutions

After pay, health insurance is the most important inducement small businesses use to recruit and keep employees motivated. Yet many employers are finding the ability to provide cost effective health insurance more challenging as premiums continue to rise and the options available continue to decrease. Employers are beginning to think “out of the box” and are looking at new ways to offer their employees benefit programs, and to keep them motivated.

NAPEO, the National Association of Professional Employer Organizations, conducted an employee benefits survey in November, 2007 of its members’ clients to understand the concerns of small and medium-sized employers. NAPEO is an organization that represents firms, PEOs, which specialize in providing human resources outsourcing support and employee benefit packages to small and mid-sized employers nationwide. Mirroring the sentiment across the country, the trade association found that health care costs were their second-biggest worry after attracting workers.

The survey also revealed that more than half of the 365 small businesses surveyed said their premiums rose as much as 10 percent this year, and almost one in 10 told NAPEO they would dump their health coverage next year or are unsure about it. Many of these companies said they will pass at least some costs along to employees next year. One in five said they would raise co-payments for office visits or deductibles; one in four said they’d raise premiums.

California Employers Feel The Squeeze

The survey was conducted nationally, but employers in specific states, such as California, are being hit the hardest. Michael Holmes, Client Services Director of CPEhr, a Los Angeles-based
Professional Employer Organization, is not surprised. “This is another wake-up call,” says Holmes. “Soaring health insurance costs in California are hitting small businesses especially hard and these businesses employ the vast majority of workers. This is an extremely troubling development, not just for small businesses and their workers, but for the entire economy.”

A report recently released by the California State Library, entitled, “Ninety Years of Health Insurance Reform Efforts in California” by Michael Dimmitt, Ph.D of the California Research Bureau, reviews the history of health insurance in California dating back to 1918. It reveals some startling facts, and reasons for even greater concern in California:

• Between 1961 and 2002, health care costs increased almost without interruption. No effort to contain them has proven successful over the long term.

• Federal programs provide health care coverage to over 7.4 million Californians. If the programs were not in place, the number of uninsured in the state would double.

• More than 20 percent of Californians, 6.6 million people, currently lack health care coverage over the course of the year according to research conducted for the California Healthcare Foundation.

• Of those without health insurance, an estimated 75 percent are working people and their families.

• As a consequence of the growth in premiums, the number of people covered by health insurance in California decreased from 64.6 percent to 54.7 percent between 1987 and 2005.

Some employers are content to continue along the traditional health coverage path for their staff. While premiums rise, most just consider it a cost of doing business. However, many California employers are now turning to the PEOs to provide relief for their employee insurance woes.

What is a Professional Employer Organization?

Professional employer organizations, or PEOs, pool thousands of employees under one roof and provide cost effective management of small employers’ health insurance plans. Additionally, PEOs help small businesses outsource their time-consuming human resources chores, such as payroll, HR policies and risk management, so owners can focus on making a profit. The PEO acts like an offsite human resource department, so even small employers can gain access to expertise typically reserved for larger, more established organizations. Particularly in California, where complex employment rules and difficult insurance guidelines weigh heavily on small businesses, it is highly beneficial for small California employers to connect with an expert PEO in the state, such as CPEhr.

Like most PEOs, CPEhr creates a "co-employment" relationship with its clients, thereby sharing the risks and responsibilities of being an employer. CPEhr assumes the role of the Administrative Employer, whereby it pays the employees, files payroll taxes, provides health insurance, issues the workers' compensation insurance, and manages most aspects of employment. The client maintains the role as the Administrative Employer and continues to manage and oversee all day-to-day functions relating to their internal operations. This includes hiring, firing, establishing wages, and directing the workforce.

Through this co-employment relationship, small organizations access the economies of scale enjoyed by large corporations. CPEhr’s clients can offer premium benefit packages and retirement plans to their staff, typically provided by their larger competitors. They can maintain a simple in-house HR infrastructure or none at all by relying on the PEO. The client also can reduce hiring overhead. Costs related to monitoring of, and compliance with, employment laws are reduced, as are the often significant costs of failure to comply with such laws. In addition, the PEO provides time savings by handling routine and redundant tasks for its clients. This enables the business owner to focus on the company's core competency and grow its bottom line.

Creative and Affordable Insurance Options

According to NAPEO, the PEO industry grew over 15% in 2007, to $61 billion in gross revenues. PEOs currently provide access to employee benefits for 2-3 million working Americans. This number continues to grow as the economies of scale offered by PEOs make them an attractive solution for small employers looking to offer a wider range of benefits to their staff, without the need to shop, administer or oversee these plans.

CPEhr maintains a fully staffed employee benefits department which is focused on finding cost effective and comprehensive benefits to make available to its clients. Because CPEhr has the manpower to tackle this daunting task, the small employer merely has to join the PEO program, and enjoy access to the benefits without the responsibility to administer the plans.

Like most employers, CPEhr offers its clients standard major medical insurances with the large insurance carriers. However, due to the size of the pool of employees, CPEhr enjoys a stronger relationship with the insurance companies which enables them to offer a wider range of plans and coverage options, with greater flexibility on enrollments and improved customer service. While a small business independently may secure a benefit plan with one or two co-pay options, a CPEhr offers as many as 8-10 options for the same employer.

In addition to major medical, a wide range of supplemental benefits, such as dental, vision, life, and disability insurances are available. CPEhr also extends its benefit offering to include additional employee programs such as such as travel, cancer and alternative health care insurances, credit unions, Flexible Spending Accounts, and robust 401 (k) plans. The Small Business Administration estimates that merely nineteen percent of employees working in a small business have access to a 401 (k). That number skyrockets to an estimated 95% in a PEO arrangement.

While it is obvious that not every small business will need, or even want, to offer this wide range of benefits to its staff, it should be comforting for them to know that alternatives exist. At the least, the small employer should recognize the extraordinary opportunity PEOs offer to help level the playing field in the complex and tough employee benefits environment.

Conclusion

Rising health insurance premiums, complex employment and benefit administration, and a weak economy are all making the task of procuring affordable, manageable health insurance more daunting for the typical small employer. Particularly in California, where 75% of the uninsured population is in the workforce, these challenges are reaching critical limits. More and more employers are turning towards alternative health insurance solutions, such as joining a PEO for their employee benefit coverages. One such firm, CPEhr, is a leader in the California marketplace and can provide these solutions efficiently and cost effectively for state-based businesses.

About CPEhr

Founded in 1982, CPEhr is one of the largest, privately owned human resources and professional employer outsourcing (PEO) firms in California. With 25 years experience in the California market, CPEhr has an advantage in its knowledge of statewide employment challenges. CPEhr provides a personalized service that extends to 35 states. CPEhr offers an array of integrated human resources services that includes: Employee administration, human resources and labor law compliance, payroll and tax administration, benefits administration and compliance, workers’ compensation administration, risk management, training and development and recruitment.