How Businesses Are Battling Benefits

August 25, 2005
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NEEDHAM, Mass. — New results released yesterday by Salary.com in its Small Business Basic Medical Coverage Survey show that nearly 90 percent of small businesses are paying more to provide basic medical insurance to their employees in 2005 than in 2004.

Half of the 304 surveyed companies reported year-over-year increases of 10 percent to 20 percent, while almost one-tenth of small businesses surveyed reported increases of 30 percent or more. The relentless cost increases are having a significant impact on employee compensation, forcing small businesses to adopt measures that, in many instances, have a direct effect on employee take-home pay.

Sixty-four percent of small businesses report trying one or more strategies to contain basic health-care costs. The survey found that the most common cost-containment strategy in use today is to increase co-payments.

A significant percentage of employers have chosen to contain overall medical costs by increasing the employee share of monthly coverage premiums — a tactic that has a direct impact on employee take-home pay. An even larger percentage of employers report that they intend to adopt this tactic in the near future, making it the fastest-growing trend in medical cost-containment among small businesses today.

Other cost-reduction strategies currently used by small businesses include switching plans, reducing extent of coverage, fine-tuning eligibility standards and eliminating coverage altogether.

In one surprising finding, 14 percent of small businesses offer employees significant incentives not to participate in company medical plans, or actively encourage employees to enroll in a spouse’s medical plan. Incentives typically offered include lump-sum salary increases, cash rebates and contributions to other employee benefit accounts.

These companies believe that the potential health care cost savings will more than cover the cost of non-participation incentives. Salary.com estimates that many companies could offer employees a 10 percent salary increase (in lieu of plan participation), and still lower total payroll expenses in a given year, according to Richard Cellini, head of research at Salary.com.       

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