Wish That Group Health Insurance Wasn’t So Expensive?
Part V: The Health Of Your Employees Affects Your WealthByRaymond D. Matkowsky
Would you pass up an opportunity that required you to spend $1 and would more than likely return $10 or $100 or even $1000? There are many reasons why over 80% of new businesses fail within the first three years of operations and why 90% of new companies will close their doors within five years. As a struggling business owner or manager (and we all struggle at one time or another), you certainly do not need to add any more obstacles in your path. Yet, this is exactly what you are doing by not offering or ceasing to offer health insurance to your employees. Furthermore, you are not only leaving money “on the table,” you are probably costing your business more money than you imagine and putting your business at a greater risk. The primary reason for a business is to create a source of revenue for its owners. If you think that health insurance premiums are a cost, you’re right. But so are your raw materials, utilities and rent. Yet, they all help you generate a profit! Health insurance is both an indirect and a direct source of revenue and profit.
Let’s put one myth to rest. Small businesses are not dropping employee health insurance in droves. Some have but most have not. It would be a mistake for you to think that this is a trend. Excluding those who switch insurers or those that go out of business, very few small employers drop health insurance benefits. In a study conducted jointly by the Kauffman Foundation of Kansas City, Mo. and the RAND Corporation, between 2000 and 2005, less than 1.5% of small businesses in the U.S. have dropped their health insurance coverage. Analyzing the data, you find that the primary reason for the decline in the number of small businesses providing health insurance appears to be that owners of new firms are reluctant to introduce health benefits. Many believe that this is short-sighted.
According to a survey taken by the Commonwealth Fund, a health care reform group, one reason is that over 80% of Americans think employers should be required to provide health insurance to their workers or pay into a fund to cover them. According to a Zoomerang Entrepreneurial Report issued in late 2007, 57% said that a regulated system of healthcare would be good for growing businesses. With this many Americans having this opinion, a business that does not offer or drops employee coverage is courting trouble. Both small and large businesses believe that there is a valid business case for offering health benefits to their employees.
In the United States during the late 19th century and a few years earlier in Canada, railroad companies established the first formal pension systems. Initially, these pensions were to reward long term employees. However, it was quickly realized that one of the unintended consequences solved a very serious and costly problem.
For most 19th century railroad workers retirement was out of the question and the railroads’ costs skyrocketed because of their workers’ ill health and subsequent accidents. A pension coupled to a mandatory retirement age made this problem go away. After World War II, the federal government instituted a wage-price freeze. This forced businesses to rely on health care benefits as a recruitment lure. During the 1970’s the Nixon administration once again established a wage-price freeze. Businesses differentiated themselves by dropping high deductible major medical plans in favor of low deductible, low co-pay medical insurance that is prevalent today.
Employees are your only sustainable competitive advantage. You have to attract and retain great employees if you are going to stay in business. This was well appreciated in the 1940’s and the 1970’s. The best way to grow your business is to invest in your employees and don’t forget you are an employee also. Successful companies maintain their competitive advantage by getting the best people they can and benefits can make or break a deal. Health benefits have always been and will be in the foreseeable future an important tool in distinguishing yourself from your competitors. Even if your budget is strained by buying health insurance for your employees, consider it a necessary cost of doing business.
Even though health insurance can be expensive, not having it can be more expensive. Group health insurance is a very vital factor in the efficient functioning of an organization. A small business depends on teamwork. Many older workers now comprise the workforce. As a person ages, medical insurance becomes more of a necessity. If a member of your team is absent because of illness or worse, it can put your whole organization in danger.
Those of you that self-insure should take note of a recent Pitney Bowes experiment. When Pitney Bowes lowered the co-insurance paid out by its workers for asthma medications, they had a 15% drop in the annual average for the cost of care. Their workers had a financial incentive to continue the appropriate management of their condition. In short, reducing coverage may very well be counter-productive. For those of you that do not self-insure, you should point out this fact to your carrier. You maybe able to show that your company should be entitled to a reduced premium.
Your best workers will leave for “greener pastures,” possibly to your competitor. Besides the cost of new hires, you will be left with heavier workloads to handle. It is a fallacy that you could do more with less. The less help you have, the less work gets accomplished. Plus, you not only risk a worker backlash when you ask them to pick up the burden, you have also created a huge security risk in allowing a situation where a worker wants or has to leave.
One of the biggest threats to the security of an organization and one that is seldom considered is the departure of an employee. Potentially, the most dangerous form is the resignation. An unhappy employee rarely resigns without planning their departure and you cannot rely on non-compete clauses. Unless you have one that is limited in scope and tightly written, they are almost always unenforceable.
There are no two ways about it. The good health of your employees is good business.
We welcome any input you may wish to make on this column or any other part of this series. If you have any comments, email me at
rdm@datastats.com.com.
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