When it comes to attracting new employees and maintaining current employees, benefits packages — especially health insurance — can be just as important as salary. However, many businesses are struggling to keep pace with the increasing costs of health care.
Scott Merritt, owner of Fire & Ice Heating & Air Conditioning in Columbus, Ohio, said his health care premiums have increased 131 percent over the last 10 years.
“Obamacare hasn’t impacted us so far, but it certainly will at some point,” he said. “Because it’s very new and complex, we’re not making any drastic moves until we see its full impact. We have been conservative and stayed with our current Anthem Blue Cross Blue Shield offering, as we feel it’s in the best interest of our employees.”
Merritt doesn’t expect any kind of respite in the rise in cost, either. “Historical increases, such as 131 percent, are usually good indicators for future predictions. Factor in the usual cost of living increases, and we could be looking at a 150 percent increase for health care in 2026.”
Merritt is not alone in dealing with rising health care costs for small businesses. According to an online survey produced by LevelFunded Health, a national health insurance agency, 87 percent of small businesses that offer group health care saw health insurance premiums rise by 25 percent since 2014, with 12 percent experiencing premium increases of 50 percent or higher.
THE OBAMACARE EFFECT
According to Butch Welsch, owner of Welsch Heating & Cooling Co. in St. Louis, his company has a unique health insurance program for employees who are not part of its union workforce. Welsch serves as co-chairman trustee of his local sheet metal union welfare trust, a self-insured plan for union employees.
“Several years ago, our sheet metal welfare plan established an office worker program for the contractor members who employ the union sheet metal workers,” he explained. “The first reason was to provide a cost-effective health insurance program for our sheet metal contractors. Since our plan is self-insured, there are no insurance company fees that are typically present if health care is purchased on the open market. The second reason was that having health care for office employees gave us a good organizing tool. When the union organizer would talk to a particular nonunion shop about joining the union, one of the handicaps was that even though the contractor’s sheet metal people would be covered under the union welfare plan, the contractor’s office people, not typically a large group, would have to search for a separate insurance health plan. Our office worker plan gave them a place to get fairly priced health care for their non-bargaining unit employees.
“That system has worked very well for us as a company and for the contractors as a group,” Welsch continued. “Because of continuing efforts in the operation of the plan, without making any significant reduction in plan benefits, we have been able to keep the per-person cost for health care the same for the last three years. When I talk with contractors who purchase their health care through the more traditional insurance company systems, I hear of at least double-digit increases in their rates.”
However, Welsch maintains that Obamacare has been very costly to the union welfare plan, despite retaining benefits without raising rates.
“Our plan covers approximately 8,000 total individuals,” he said. “At the onset of Obamacare, we were required to pay a tax to the government of $63 per covered individual, which totaled approximately $500,000. This money supposedly was used to help set up and operate the arrangement for those without health care. This money provided no additional benefits of any kind to our participants. Additionally, because our plan is an ERISA [Employee Retirement Income Security Act]-governed plan, it is always under close scrutiny. We had our attorneys review every word in the entire Obamacare document. This cost us an additional $400,000 in attorney fees and staff costs to make sure we complied with every portion of the Obamacare program. Again, this money provided no additional benefits to our members. In our opinion, because our plan was a good plan, in good financial health, and provided excellent benefits to our members, we were taxed — more like penalized — in order for the government to help those who had not done their jobs in operating their plans properly.”
Welsch theorized he is paying approximately double for health care now compared to what he paid 10 years ago. “Through choice in some cases and by government doctrine in others, we are providing considerably more benefits than we did in 2006. Over the last several years, prescription drug costs have increased the most. Not only have the costs of the prescription drugs risen considerably, but the number of drugs available and the readiness with which physicians are prescribing them have drastically increased the cost of our plan. It’s impossible to determine what the cost of health care will be in in 2020, much less 2026. A great deal of the answer depends upon how much more the government gets involved in the health care system. The more they are involved, the greater the cost.”
Frederick Air Inc., located in Frederick, Maryland, offers its 30 employees Care First – Open Access HMO medical with a $1,500/$3,000 deductible with an HSA [health savings account] and dental. Vision is considered an elective and is paid by the employee. Obamacare has absolutely influenced the contracting company’s health care offerings, noted Rebekah Smith, office manager for Frederick Air.
“We went to a higher deductible plan to keep our premiums lower,” she said. “Our overall premiums were increased because they were not based on average age anymore. Our older employees now have a much larger monthly premium. For example, in 2006, our monthly premium for health and dental was based on average age and was around $270 for all individuals. Now, our range is $328-$875 per person, depending on age. On average, we are paying around $425 per person now. Also, we had smaller deductibles and copays 10 years ago.”
Steve Saunders, CEO of Tempo Mechanical in Irving, Texas, said his company pays 70 percent of all employee health insurance, including employee plus spouse and/or children.
“We believe our partners and their families should have insurance, and we pay no attention to the Affordable Care Act,” Saunders said. “With a company of our size, this is a $1 million expense, which is a painful line item to see at the end of the year.”
Since 2009, Tempo’s employment has grown from 63 employees to 190. “Health care costs obviously go up in part because our number of employees has increased. Pricing is a game we play with the insurance company every year. We’re very familiar with percentage increases and not as familiar with small decreases. We’ve played this game so long, we’re almost immune to the effects. We just make the deal, figure out how to pay for it, and move on down the road. We’d like to pay it all, we’re just not profitable enough to do that yet, though we’re working on that.”
Sky Heating & Air Conditioning in Portland, Oregon, is one company that does pay 100 percent of its employees’ health care costs. However, coverage does not currently include dental or vision, though owner Travis Smith is looking to add those benefits sooner than later.
“I think there is a stigma – especially with men – about going to the doctor,” said Travis Smith, president of Sky Heating & Air Conditioning. “I know I personally get scared of going. If we break down the barriers to getting regular checkups and preventive care, I think employees will lead happier, less stressful lives and catch any ailments earlier, which gives them better survival rates and lower long-term effects.”
Sky Heating & Air Conditioning has had a slightly different experience with Obamacare. “Originally, we had a high-deductible, major-medical-only plan, but now our deductible is 25 percent of what it used to be. We actually have better, more inclusive coverage because of it.”
That’s not to say Sky is immune to rising health care costs overall.
“We’re still seeing 25 percent cost increases every single year. More still needs to be done,” Smith said. “We’re getting better services with more issues covered and lower deductibles now than we did in 2006, but we’re also paying more than we did in 2006. We were fortunate to switch from small to large group coverage two years ago as we grew and joined organizations. This cut our costs almost in half. Otherwise, I doubt we could afford to pay 100 percent of the cost.
“I honestly don’t want to think about how much health insurance will cost in 2026,” he continued. “I guess it will depend on if the government does anything. The U.S. has the highest cost of health care per person and offers nowhere near the best care. We pay more for our prescriptions than anybody else, and these issues need to be resolved.”
A NECESSARY COST
Despite the ever-rising cost of health care insurance, most HVAC contractors consider it a necessary part of owning and operating a business.
“It is important for us to offer health care to our employees,” Welsch said. “If we are going to be able to attract top quality people to our company, a good health care plan is an absolute requirement. Additionally, by purchasing the health insurance for our employees as a group and using all of the methods that our group plan uses to keep the costs within reason, we are able to afford benefits to our employees at amazingly reduced prices in comparison to what it would cost if they were purchased on the open market.
“Although our welfare plan is self-insured, we use a firm that has negotiated rates with all of the different providers from which we derive the savings,” he continued. “We are able to see the discounts obtained by this group, and they are amazing. It’s not unusual to see a hospital bill reduced by 75 percent because of the reductions negotiated by our plan manager. I believe any sincere business owner has to admit that health care costs are a necessary cost of doing business.”
Steve Schmidt, owner of Frederick Air Inc. in Frederick, Maryland, agreed, saying, “In order to attract quality people, we have to have benefits, and health care is certainly part of that. It’s a cost of doing business, as far as I’m concerned. I can’t have employees if I’m not supplying health insurance.”
Schmidt noted his business also benefits from offering health insurance. “We want people working here who are healthy and come to work every day able to do their jobs. If they don’t have doctors and health care available to them, we’re asking for problems that will probably lead to an unhealthy workforce. If they come to work healthy everyday, we’re getting our money’s worth, so to speak.
“The other side of it is we’re offering careers here, not just jobs,” he continued. “We want people here who are career-oriented and family-minded. We want them to have good lives, and financial stability is a bit part of that. For them to be financially stable, they have to have health insurance. We want to supply that for them so they feel good about their jobs and careers. It’s part of the package of attracting and keeping good people for as long as possible.”
Smith said he does not consider health insurance a necessity when it comes to owning and operating a business. “It’s a benefit, in my opinion, and companies should be able to choose to offer it or not. I prefer to pay 100 percent and take care of our employees because it allows us to attract the best employees and provide the best service to our customers. Other companies prefer to just be cheap, and if they want to do that, they should be able to.”
Saunders said he views health care costs differently in terms of operating a business.
“It’s not a cost — it’s a responsibility,” he said. “It’s something you do because you’re a good human being, a good employer, and you care about the people who work for your company. Insurance is part of a comprehensive package of pay, paid days off, long-term retirement, and job security — it’s just part of everything that makes employment important and useful in today’s world. I personally do not know how you cannot help your people have health insurance. That’s a terrible way to live. In today’s America, you can have a good, profitable business with employees who have good jobs with all the resources to have good lives and be part of a happy, healthy, vibrant community. It’s all related. We all have to do our part to make this world worth living in.”
Publication date: 12/5/2016