Today’s job market is tight. Many employers are having trouble filling positions because of issues like the “great resignation” and quiet quitting. One way to help overcome these difficulties is by offering desirable benefits. Benefits are crucial in attracting and keeping talented employees, especially health insurance benefits. However, health insurance can be a significant expense for small businesses.

As a small business owner, you must balance the pros and cons of offering your employees health insurance and other types of insurance.

According to the 2022 Wellbeing and Voluntary Benefits Survey, how employees feel about their employer’s benefits package is a critical factor for employee satisfaction.

Small Business Health Insurance Options

Small businesses can choose from a variety of insurance plans for their employees. Some types of insurance are legally required, while others are optional.

Legally Required Insurance

The types of insurance plans you are legally required to offer will vary by state. However, these are some of the most common legally required insurances:

• Workers’ compensation insurance: This type of insurance covers your business and your employees in case they get injured on the job. It is a requirement in most states, regardless of the number of employees you have. You are fully responsible for obtaining and paying for this coverage.
• Unemployment insurance: Unemployment coverage is a requirement in most states. Businesses pay for this coverage using payroll taxes. It offers coverage for eligible workers if they lose their job.
• Disability insurance: While only California, Hawaii, New Jersey, New York, and Rhode Island require employers to purchase disability insurance, it could be a beneficial option for your small business. Disability insurance pays employees a portion of their usual wages if they get sick or injured outside of work and are unable to work.
• Health insurance: If you have 50 or more full-time employees (or the equivalent), you must offer health insurance to your employees. If you don’t, you will have to pay a penalty to the IRS of $2,750 (in 2022) per employee.

Optional Insurance Benefits

Optional insurance benefits can significantly affect an employee's total compensation. If you offer competitive benefits, employees will want to work for you. Consider some of these optional insurance benefits:

• Vision insurance: Vision insurance typically covers visits to an optometrist or ophthalmologist along with eyeglasses and contacts.
• Dental insurance: A basic dental insurance plan covers two preventative cleaning visits to the dentist each year. Dental insurance may also cover a portion of additional dental procedures.
• Long-term disability: Long-term disability insurance applies to non-work-related illnesses or injuries that make a person unable to work for an extended period. The benefit period is typically listed in years. Most employers cover the premiums for this insurance.
• Life insurance: Life insurance is coverage that will pay a set amount of money to an employee’s beneficiary if the employee dies. Many employers offer a certain amount toward group term life insurance with the option of additional coverage paid by the employee.

Optional Benefits to Complement Insurance

With the rising health care and health insurance costs, many businesses have incorporated special savings accounts into their benefits packages.

• Health Savings Account (HSA): A health savings account (HSA) is a type of account where employees can save money on a pre-tax basis to pay for certain medical expenses. HSAs are typically tied with High Deductible Health Plans (HDHP). As an employer, you can choose to make tax-deductible contributions to your employees’ HSA accounts.
• Health Reimbursement Arrangement (HRA): A Health Reimbursement Arrangement (HRA) is an employer-funded group health plan. Employees pay up-front for health care costs and are then reimbursed tax-free for any qualifying medical expenses, up to a specified amount each year. Any unused funds are rolled over to the following year.

Considerations for Picking the Right Benefits Plan for Your Business

When choosing a benefits plan for your business and employees, consider the following:

• The type of plan you will choose
• What is important to your employees
• The cost of the insurance
• What it covers
• What benefits is your competition offering

Pros and Cons of Providing Health Insurance

Not all employers are required by law to offer health insurance. However, doing so can help you stay competitive. In addition, you may benefit from tax breaks and lower insurance costs.

Benefits of Providing Health Insurance

Offering health insurance to your employees comes with numerous benefits for your small business:

• Attract and retain quality employees: If you are competing against similar companies in your industry for the same job candidates, offered benefits could be the deciding factor in a candidate's decision. If your competition offers health insurance and you don't, you risk losing well-qualified job candidates. Offering quality health insurance benefits can be a significant draw in attracting and keeping employees.
• Tax advantages: The cost of health insurance premiums for employees is a tax-deductible expense for most small businesses. You can offer your employees a desirable benefit while getting an income tax deduction for the price you pay for health insurance.
• Avoid health care reform fines: With the passage of the Patient Protection and Affordable Care Act, all employers with at least 50 full-time employees (or the equivalent of 50 full-time employees) must offer adequate health insurance coverage or pay a hefty fine.
• Improve the wellness of your employees: Even the most basic health insurance plans are required to cover preventative health care. This care helps keep your employees happy, healthy, and at work. A yearly physical checkup can potentially catch minor health issues before they become more serious, more expensive health problems. Doing so can help reduce absenteeism for health-related issues. Without health insurance, most people will not see a doctor unless it is an emergency.
• Potential Tax Credit: If you are a small business with fewer than 25 employees, you may qualify for the small business health insurance tax credit if you participate in the Small Business Health Options Program (SHOP).

Drawbacks of Providing Health Insurance

While the benefits of providing health insurance benefits are substantial, there are also some drawbacks to offering health insurance:

• Cost: With the continual rise in health care costs, health insurance premiums can be a high cost to small businesses. In addition, the uncertainty in health care costs makes it difficult to plan for the future. However, you can help keep your costs under control by working with an independent broker who can look for the best value across multiple providers.
• Sharing costs with employees: In most situations, employers share the cost of insurance premiums with their employees. While you can push some excess expenses to your employees, it can leave them feeling taken advantage of. If you make them pay too much, this could lead to higher turnover rates. Offering an HSA is a solid option to help offset employee costs. Employees can set aside tax-free funds that build over time. They can use their HSA account to pay for medical expenses.
• Administrative hassles: Offering health insurance is something that requires continual work on your part. You have to choose the insurance company, fill out forms, pay premiums and act as an intermediary between your employees and the insurance company. These tasks come with an extra cost as you will have to pay someone to do this work. One option that can help alleviate some of the administrative hassles is to work with an independent insurance broker. They can manage most of the insurance administration so you can focus on your business.

Let Wealth Enhancement Group Help You with Your Small Business Health Insurance

Choosing the right insurance benefits for you and your employees can sometimes feel overwhelming. You want to make the right choice in balancing desirable coverage with costs. This is where the financial advisors at Wealth Enhancement Group can help.

We work with small businesses to help them create customized benefits packages that align with their needs and budgets. We can help you navigate the complexities of health, life, disability and other types of insurance.

Ready to learn more about the insurance options available to small businesses? Contact the Wealth Enhancement Group today.