Health Benefits in Small and Medium Size Businesses

It shouldn't come as any surprise. The smaller the business, the less likely the business offers health benefits to employees.



Firms with 200 or more employees typically provide health benefits for employees. But when you go down to smaller businesses, the number drops dramatically.



A 2003 survey by the Kaiser Foundation shows that 98% of firms having 200 or more employees offer health benefits. But only about 60% of firms with fewer than 200 employees can afford to offer health benefits.



As a result, for businesses with under 200 employees, finding and retaining qualified employees can be a challenge. These organizations are at a disadvantage in the hiring market vis-a-vis larger firms which can afford to provide health coverage. See if this scenario sounds familiar: just when an employee becomes becomes really valuable with accumulated skills and knowledge, he or she leaves for a larger company offering better benefits or pay.



What are smaller businesses doing to address this? Some actions that small businesses have taken:

- Adopt high deductible plans. According to the Kaiser study, more large employers are offering high deductible plans to employees, with deductibles of $1,000 or more per year. If this trend continues, smaller businesses may not be so far off from some larger employers with respect to health benefits.

- Join a group that offers group health benefits for members. Check first with your local chamber of commerce. The Cleveland, Ohio area chamber of commerce, through its Council of Smaller Enterprises, has become nationally known for its affordable group benefits for members. While many chambers of commerce offer group benefits plans, not all are great deals, as I've learned through my own experience. It pays to shop around. But a chamber of commerce plan is definitely worth checking into. Find local chambers of commerce here.

-Consider engaging a Professional Employer Organization (PEO). More and more small and medium businesses are outsourcing the handling of complex, human resources related matters to a PEO. PEOs can help control costs, and at the same time provide better service to employees. One of the things they can do for small and medium size firms is provide group coverage. As part of a larger pool, businesses can offer better health benefits and get professional handling of claims questions, etc. for employees. Search for a PEO here.

I expect we will see the trend toward greater outsourcing accelerate among the SMB market, which could be good news for PEOs. The business world increasingly is dividing into two camps: very large multinational businesses, and the growing SMB market. For small and medium firms to compete, economies of scale dictate that they outsource non-core services such as HR, in order to serve their employees cost effectively.