Small business owners are constantly on the lookout for ways to lower their fixed costs and improve their bottom line. With the high cost of healthcare continuing to rise, employee benefits are becoming an increasingly large expense for businesses.

The Kaiser Family Foundation (KFF) reported that in 2021, the average cost for family health insurance premiums for employees rose 4% from the previous year to reach $22,221.

Do you let any of your other expenses increase by that degree and not do something about it?

In this blog post, we will explore the importance of taking a strategic approach to employee benefits and highlight the hidden cost-saving opportunities that can transform a small business.

The Simplicity Trap

When it comes to choosing health insurance for employees, the easiest option is often the chosen option. According to a survey by the Society for Human Resource Management (SHRM), the most common reason for this is the lack of time and resources to thoroughly evaluate and compare all the options. The survey found that 60% of organizations rely solely on their insurance brokers to provide benefit options, and only 43% of organizations conduct a competitive bidding process for health insurance.

The process often unfolds something like this...

1. The HR director chooses the simplest option available for employee benefits.
2. They do not typically think about how the benefits plan can impact the overall performance of the business.
3. On the other hand, the CFO cares about the company's financial performance and wants to control costs, but does not understand the opportunity to improve the benefits plan.
4. As a result, the cost of benefits often becomes an ever increasing operational expense, with the CFOs attention on more important things.

CFO Holds the Key

Many CEO/CFOs don't know it, but 80% of their healthcare expenses are variable, and therefore, manageable. The first step is for the CFO to simply get involved. By doing so, they can assist HR to ensure that the company is getting the best value for its benefits spend.

By rethinking your approach to employee benefits, you have the potential to transform a crucial aspect of your business. Imagine what you could do with an extra $50,000 or $100,000 in capital. Think about how you could improve your services and retain your top talent. With this new perspective, you can continuously reap the benefits year after year, while your competitors miss out on these opportunities.

Hidden Opportunities

When the CFO becomes involved with employee benefits, there are several cost-saving opportunities that can be uncovered. These opportunities can be found by exploring alternative funding options, such as:

• Level Funding: This funding option involves paying a set premium each month, regardless of the actual cost of claims. This helps control costs by removing the uncertainty of fluctuating claims.

• Captives: Captives are self-insured groups that pool funds from multiple companies to cover employee health benefits. This allows for greater control over costs and improved financial predictability.

• Health Reimbursement Arrangements (HRAs): HRAs are employer-funded accounts that employees can use to pay for eligible medical expenses. This can reduce the cost of benefits by shifting some of the financial responsibility to the employees.

• Self-Funding: Self-funding involves the employer taking on the financial risk of providing employee benefits, rather than purchasing insurance. This can result in cost savings by removing the need to pay the overhead costs of insurance companies.

By utilizing these alternative funding options, it is possible to uncover up to 80% of a company's healthcare expenses and achieve significant cost savings.

In conclusion, employee benefits can present significant cost-saving opportunities for small businesses. By involving the CFO in the benefits strategy and exploring alternative funding options such as level funding, captives, HRAs, and self-funding, companies can uncover a significant portion of their healthcare expenses and achieve cost savings. If you need help uncovering these cost-saving opportunities for your business, consider reaching to us here at ThinkTank. We can provide guidance and support to help you achieve a more cost-effective and sustainable employee benefits plan.