Small business, big decisions: Should we offer health insurance?
This article first appeared in the St. Louis Beacon, Oct. 9, 2009 - On the website for his roofing supply company, Crown C Supply in St. Louis, President Mike Connelly takes a friendly, helpful approach to his potential customers:
"I am well aware of the needs of the guys doing the job," Connelly says. "You want to be profitable. You want the job to turn out well. And most of all, you want the job to go smoothly." He ends with a heartfelt message: "We're Here For You."
When it comes to health insurance for his 47 employees, Connelly would like to be just as accommodating. But after offering coverage from the company's beginnings 30 years ago, Crown C is facing consistently rising costs, up to more than $200,000 - the second largest expense Connelly has besides payroll.
Connelly says health insurance is still available because "bottom line, it's the right thing to do."
But with Congress debating how health care might be changed to make coverage available to more people at more affordable rates, small business owners like Connelly may soon face a difficult choice:
Should they continue to offer a prized fringe benefit to a loyal workforce, despite the cost? Or should they pay a penalty that might actually be less than what the insurance premiums cost and cut their workers loose to find the best policy they can on the open market?
In a small business environment, where employees may feel a closer tie to the workplace than they do in a larger company, such a decision often is based on more than dollars and sense.
Play Or Pay?
Details of the various health-care bills in Congress remain far from settled, so it's not yet possible to sit down with a calculator and figure out exactly whether employee insurance is more expensive or less than paying for the privilege of opting out. Small businesses with a certain number of employees are likely to be exempt from such penalties, but no one is sure what that cutoff will be.
Being able to buy health insurance through your job has advantages. The employer's share of premiums is exempt from payroll and income taxes, and in some cases the employees' contribution is tax-free as well. Buying insurance as part of a group instead of as an individual typically means lower cost, better benefits or both.
Employers also can use health insurance as an inducement to attract and retain qualified workers, though in times like these, when jobs are hard to find, applicants may be less worried about fringe benefits and more concerned about a regular paycheck.
Still, companies know that jobs offering health insurance usually are more attractive than those that don't, despite the state of the economy.
"At this point, we still view it as a recruiting tool," said Jim Henderson, head of Dynamic Sales Co ., a welding equipment firm near Lambert Airport.
"When you're a smaller company, you don't have a lot of bells and whistles you can offer. You have to have as many competitive benefits as you can to make it attractive but also have to balance it against the bottom line."
The typical profile of an employee of a small business is often someone earning a low wage who is likely to keep a job rather than look around. But Jim Brasfield, a professor of health services management at Webster University, said that view isn't always accurate.
"Other times, maybe half of the people who work for a business like a computer software firm are well-educated, high-performing employees," he said. "If you say to them, we've been offering health insurance but no longer are going to do so, that may be a factor in their going to look at another job."
Another consideration that Brasfield, Henderson and others cite is a more personal one - the tie that a small company, perhaps one that is family-owned, may have with employees who have spent their entire working life at one job.
"With a lot of small business employers," Brasfield says, "Their employees are not just some nameless, faceless person who might be working for them today and tomorrow might be gone.
"They often have longtime, valuable employees, and if they have been offering health insurance, even if it has been a financial stretch for them to do so, they might hesitate to say, we're going to cut you loose."
That stronger bond makes employers more likely to try to keep insurance coverage when they can, adds Tim McBride, associate dean for public health at the George Warren Brown School of Social Work at Washington University.
"If they can provide that coverage, they will have happier workers and healthier, more effective workers," he said. "They want to be able to do that."
Doing so isn't always easy. Henderson says that besides the financial costs of offering health insurance, he has to deal with the headaches of figuring out the best value. Dealing with fine print and insurance brokers is not quite the same as operating a welding firm, and the answers don't always make a lot of sense.
"Our number of employees and that kind of stuff have not changed drastically over the years," he says. "It just seems kind of whimsical that the rates go up. I actually asked one year why they were raising it, and the answer I got was, 'Because we can.'
"That money just comes out of the bottom line, and that hurts us in the long run. I have to take care of the company first, or there's no company for the employees to work at."
The whole thing takes up more time and effort and worry than it should, Henderson says
"That's not why I got into business," he says. "The more time I do that, the less time I have to run my company."
Depending on the details of what comes out of Congress, small businesses may find some of their burdens eased. But that gift may come tied up in ribbons of unwelcome red tape in the form of rules about how things have to be done.
"Clearly, we are very opposed to mandates," said Stephanie Cathcart, a spokeswoman for the National Federation of Independent Businesses in Washington. "We don't think that is getting at what we need."
She cites estimates that a requirement to offer health insurance to all employees, with the company funding half of the cost, would wipe out 1.6 million jobs in five years, with 1 million of those jobs coming from small business.
Such a mandate, Cathcart said, would add additional burdens to health-care hurdles that small businesses already face.
"For small guys, it's a lot different from the big guys," she said.
"The small group market is a dysfunctional marketplace. It's going to force them to have to make the difficult decision of whether this is something they are going to be able to do and still keep their business running. It's going to stop growth, decrease wage increases and stagnate the job market. The very people it's supposed to help, it won't."
But Dr. James Kimmey, president and CEO of the Missouri Foundation for Health , says legislation is also likely to help small businesses by creating insurance exchanges that could offer good coverage at more favorable rates than firms can find now.
"One of the problems that small businesses face now is an insurance market where prices are very high because of the way employees are rated," Kimmey said. "They also have to deal with brokers. There's a lot of overhead that's not buying any insurance."
Exchanges would take away some of that expense, he said. But details still need to be worked out about whether such exchanges would be national, which is what President Barack Obama has envisioned or on the state or regional level.
Henderson, at Dynamic Sales, looks forward to a time when he has choices that make sense, for his business and for his employees, at a price that is reasonable and affordable. If the option is to pay a penalty rather than pay for insurance, that may end up being what he has to do.
"I am always opposed to mandates," he said. "I don't like someone outside the company telling me how to spend my dollars.
"That having been said, if you do the math, depending on what plan you look at, I would have to consider it. I have pretty much gone all over the board, and nothing much has worked. That is what is so frustrating."