The small business quandary
By Brian Summers
How does a small business owner choose between offering a robust benefits package that eats into profits and cutting back and risking the possibility of losing good employees to the competition? It's a quandary that small employers face daily.
The smallest employers pay roughly 18 percent more than large businesses for the same health plan, because they cannot benefit from pooled risk the way a large company can.1 Yet, the U.S. Department of Commerce notes that small businesses:
- Represent 99.7 percent of all employees.
- Employ more than half of all private sector employees.
- Pay 44 percent of the total U.S. private payroll.
- Produce 13 times more patents than large firms.
- Generated 64 percent of net new jobs during the past 15 years.2
Employers see value in voluntary benefits
According to LIMRA, employers see many advantages in offering voluntary benefits to their employees.4
- Seventy-seven percent say they improve worker morale and satisfaction
- Seventy-five percent say they add no cost to their company
- Seventy-one percent say they help attract and retain employees
- Sixty-nine percent say they are less expensive than those benefits employees could buy on their own
- Sixty-six percent say they offer employees a wider array of benefits
Employees also see advantages in voluntary benefits offerings. In addition to gaining some financial peace of mind when the economy may be pinching their family checkbooks, employees appreciate voluntary benefits for other reasons.
Flexibility in using claims payments. There are no restrictions on how claims payments can be used: helping an employee's family pay for hospital transportation; family member lodging and child care during a family member's treatment; or paying for deductibles, copayments, coinsurance and other non-covered costs associated with hospitalization or outpatient surgery.
Portability. Most voluntary insurance policies are individual plans rather than group plans; therefore, employees can keep coverage if they leave the company or retire, as long as they keep paying the premiums. An exception might be a disability policy, which is designed to provide income protection during normal working years, such as ages 18 to 65.
Intact coverage. The terms and conditions of a voluntary policy usually don't change when an employee leaves a job.
More lenient underwriting. Underwriting criteria through voluntary programs are typically more lenient than those in individual plans purchased on the open market.
Stable premiums. If employees keep their voluntary policies when they change jobs or retire, they may be able to keep the coverage at the same premium. Premiums for voluntary insurance won't go up simply because an employee no longer works at the company where the policy was first purchased. In fact, a voluntary insurance provider can't raise premiums on individual policies unless it raises them on all similar policies in that state.
Continued convenience of payroll deduction. The convenience of paying premiums for voluntary insurance through payroll deduction is a big plus. There are no checks to write and no premium payment deadlines to remember. If employees leave the job, in most cases they can continue that convenience simply by changing the payment method to automatic bank draft.
Choose a voluntary benefits partner that specializes in small business
Small businesses are the backbone of America. As their broker, your job is to show them how to balance opportunity with resources. My job is to show you how voluntary benefits play a vital role in that balance, and how you can use a strong benefits partner to lend a helping hand.
When looking for a voluntary benefits partner, small businesses shouldn't settle for a "one-size-fits-all" approach. They should only evaluate providers that specialize in the small business arena, basing their selection on the following criteria:
1. Full portfolio of benefits that can grow with the business. Smaller firms should engage a partner with the ability to offer a variety of plans and products that provide the flexibility to address changes in the size, needs and demographics of a company's workforce. For example, major medical plans are not designed to provide coverage against loss of income, death, or all the costs of a catastrophic illness, so a voluntary benefits partner with a full portfolio of offerings ensures employees will have access to additional, affordable protection for their families.
2. Industry experience and best practices. Companies should look for partners that not only provide a versatile product portfolio, but also have a proven history and a foundation of small-business best practices across a number of industries and within different group sizes. This type of benefits partner brings a deep and wide base of knowledge learned through the course of thousands of small-business customer engagements. They are best positioned to understand industry nuances and then tailor programs to specifically address individual company needs.
3. Ability to streamline benefits administration. Carriers that use a consultative approach can help small firms streamline the administration of their benefits plans. These employers need to see vendors as their HR team, as opposed to another provider of a commoditized product. The ability to incorporate better automation and the use of technology into enrollment support -- including assistance for core benefits -- provides the consistency in communication employers expect. This approach also provides optimum ease of administration and gives small employers real-time access to the information and forms they need.
A couple of months ago, I met with a broker who focuses on small businesses. I asked him why he didn't target larger companies. It turns out he looks at every small business as a large company. By providing the small business owner with a higher level of service, he has a goal of receiving three referrals from every client. The math is simple. One client leads to three clients; three clients lead to nine clients; and nine clients lead to 27 clients. By focusing on the small business owner and using a strategic and consultative approach, this broker develops a large client base.
Small companies fear the one-size-fits-all approach that many brokers use when approaching them. They need someone who will address their unique HR needs and challenges. By choosing a voluntary carrier that is well versed in the needs of small business, you can demonstrate how voluntary benefits can help resolve their benefits quandary.
1 Council of Economic Advisers, "The Economic Effects of Health Care Reform on Small businesses and Their Employees," July 25, 2009; http://www.whitehouse.gov/administration/eoop/cea/Health-Care-Reform-and-Small-Businesses.
2 U.S. Dept. of Commerce, Bureau of the Census and International Trade Admin,; Advocacy-funded research by Kathryn Kobe, 2007 (www.sba.gov/advo/research/rs299tot.pdf) and CHA Research, 2003 (www.sba.gov/advo/research/rs225tot..pdf); U.S. Dept. of Labor; Bureau of Labor Statistics.
3 Editorial Staff, "Voluntary Plans Pique Small firms' Interest, Employee Benefit News, June 29, 2009.
4 Neyer, Ron, "The Voluntary Benefits Report Card," LIMRA International, 2007.
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