Last March, small business owner Kelly Moore testified before the House Ways and Means Committee about what she considered the worst day of her life, when she had to announce to employees at her GKM auto parts store in Ohio that she would no longer be able to offer them health benefits.
“Making the decision was agonizing. I lost sleep,” she said.
The decision came in 2017 after years of benefit cuts — first it cut spousal coverage, then dental and vision insurance, life insurance, and subsequently reduced the employer contribution from 80% to 70% to 60%. A year later, thanks to a 20% tax savings from the Qualified Business Income (QBI) deduction taking effect and the ability to consolidate with other NAPA-affiliated companies as an association, the company was able to recover the benefits.
But now, like many small business owners, Moore is under attack again. Health care costs continue to rise by up to 40% per year, and the QBI deduction will expire after 2025 unless there is further action by Congress.
For small business owners, it’s the #1 business priority—and for several decades, the National Federation of Small Businesses has polled its members. “We’ve been in crisis mode for nearly 40 years,” said Jocelyn Castillo, manager of federal government relations for the advocacy group.
Read: Small business owners face a tough cocktail of labor shortages, inflation and rising interest rates. But some are finding new ways to thrive.
The conundrum is this: Small business owners want to provide health insurance for their employees, but they can’t afford it.
“To get qualified talent, regardless of business, you have to have it to hire anyone. These are table stakes. Employees are demanding it,” says Jean Smart, CEO of Penelope, which provides retirement plan solutions for small businesses. On the contrary, only about 20% of the companies he works with that start 401(k) plans do so because new hires asked for it.
Smart currently employs 12 people, up from four when it launched last year. In just the two years she’s run the health plan, costs have risen 10 percent. She says she has to budget 30% more than an employee’s salary to cover costs. “So if I’m paying someone $100,000, I have to budget for $130,000,” she says.
Smaller businesses have less purchasing power
About 99.9 percent of U.S. companies qualify as small businesses, according to the Small Business Administration, and those more than 33 million companies employ more than half of the private sector workers in this country. Still, homeowners don’t have the same buying power as large companies when it comes to group insurance plans.
The price differences can be staggering. NFIB’s Castillo points to the fact that Mercer’s latest survey of large employer health care costs showed a 5.4 percent increase, while most of her small business owners saw an average increase of 25 percent.
An Oregon roofer is facing a 44 percent increase in premiums, and this may be the last year he can offer benefits to his employees.
“It all depends on the risk pool of the market you’re in,” says Castillo. “If you’re a large employer, the group is your employees, and if you see a lot of diabetics, you can implement wellness programs. But small businesses owe the entire state, and that’s the luck of the draw.”
Castillo says 98 percent of her members believe they will have to stop offering health benefits in the next 5 to 10 years if nothing changes in the dynamic. The calculation becomes risky employee retention versus customer retention. Right now, small business owners are raising prices or losing profits to offset rising costs.
“They try very hard not to give themselves to the employees,” says Castillo. “This is the tension we live with.”
“It’s all a spreadsheet”
Some band together to form associations, such as Moore in Ohio with NAPA-affiliated stores. Others are moving to Health Care Reimbursement Agreements, where employers provide a portion of the cost for employees to purchase their own health coverage on the private market.
Some network to discover their opportunities. Smart was able to call on a network of female business owners like Luminary, Chief and WeSuite to scour the market for healthcare opportunities.
“That’s what women do. To me, everything is a spreadsheet,” says Smart. “They gave me these 12-page decks with massive rankings.”
Smart narrowed it down to three main questions he wanted answered: how much will it cost me, how much will it cost my employees, and what doctors can we see? She then spent about 12 hours choosing a plan. “I chose the one that explained it in a nutshell, versus 20 pages of diagrams,” she says.
Once she’s made up her mind, Smart still spends much of her time managing the plan and thinking about the future. “I already called the plan manager because my costs doubled from year one to year two. So next year I need to be more proactive and plan ahead. You want to set it and forget it, but you have to think about it all the time.
