Trends and opportunities in small business employee benefits

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July 15, 2011 by Tony Novak

Despite this week’s rosy press report by the Department of Health and Human Services, our convservations with clients and the majority of long term insustry indicators tell us that most small businesses continue to have severe difficulties managing employee benefits for employees. The percentage of employers who sponsor employee health plans declines each year even though employers strongly beleive that a health plan is key to employee satisfaction and retention. Eastbridge Consulting Group published the results of a study CDHC Solutions™ for Solutions Outlook 2011 that includes a number of useful observations. We considered these in relation to Freedom Benefits efforts and applicability to the small business employee benefit plans.

  • The number of employees who leave their job voluntarily has surpassed the number of employees who leave involuntarily according to Bureau of Labor Statistics’ Job Openings and labor turnover Survey, October 2010. This was considered to be one signal of the end of the recession. Voluntary employee walk-outs add additional costs for employers and may have the effect of lengthening the financial effects of the recession for these firms.
  •  88% of employees said that choices are “important” or “extremely important” when it comes to benefit packages. Large employers almost always offer employee choices but other industry studies show that less than 1 in 4 small businesses offer a choice in employee benefits. Adoption of a Freedom Benefits flexible benefit plan helps to address this concern by giving the legal and practical framework to expand benefit choices.
  •  Most Americans still get their financial security products through their employer. There is no reason to believe this will change as the Patient Protection ans Affordable Care Act (PPACA) is implemented over the next few years.
  • Only 23 percent of employees said they owned insurance (other than auto and homeowners’) outside the workplace. This result is surprising in light of another recent report of double-digit growth of long term care insurance ownership in many parts of the U.S. and the report that this expansion is not coming from employer-sponsored plans. A provision of the 2010 health reform law known as CLASS is expected to dramatically affect these figures in coming years although it is not clear whether consumers will continue to rely on salary-deducted voluntary methods for this type of insurance. In the end, the combination of the effects of PPACA and other financial reforms will increase employee reliance on employer-sponsored and voluntary salary-deducted products for their financial planning.
  • Medical, drug, dental and vision insurance are seen as more important types of employer-sponsored benefits today while other types of benefits have taken a step back in importance. Employees became more conservative during the recession, focusing on what they perceive as the core coverages. It appears that the only obstacle to making all four a standard feature of employer-sponsored health plans is cost. Medical is considered the most important of the four and the other three are offered is budget allows. The largest growth in perceived importance by employees over the 2006-2010 period is vision insurance.
  • 37% of employers expect to increase the employee contribution toward benefit costs this year while 29% expect to increase deductibles, copay, or other point-of-service benefits costs this year. In many cases small businesses may feel as if this was forced upon them by changes introduced unilaterally by their insurance company.
  •  14% of employers expect to cap their total benefit costs by going to a “defined-contribution” approach. This is where Freedom Benefits expects to have the greatest impact with a range of defined contribution plans, including the most popular choice, the small business Health Reimbursement Arrangement (HRA) plan.

Considering all of these factors, it seems likely that a significant portion of small businesses could achieve greater employee satisfaction and improved retention at a lower overall cost of benefits by incorporating some of these concepts into their benefit plan design. Adaption of today’s best practices in employee benefit plan design and administration tends to maximize employee participation and  increase the small business employer’s and employee’s realized payroll tax savings.

Freedom Benefits offers low-cost small business employee benefit plans customized for each employers’ unique requirements. Emphasis is placed on reducing payroll taxes, capping employer expense and offering employees the widest possible range of benefit choices. A free proposal is available upon request. Send an email to Tony Novak at or call (800) 609-0683 to schedule an exploratory interview and request a free proposal.

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