Running a business comes with many questions employers have to ask themselves. One of the most important is what level of insurance they should offer their employees.
The law requires many businesses in many areas to provide various forms of insurance to their employees. These benefits also account for as much as 11.5% of total compensation, which is often one of the leading operating expenses. Consequently, employers face a challenging balancing act between legal requirements, worker satisfaction, and costs.
There’s no single answer for what level of insurance businesses should offer. Instead, they must consider multiple factors to determine the best option for all involved parties.
Legal Requirements to Consider
One of the most important insurance considerations is what the law requires businesses to offer. Even in this area, requirements vary depending on the situation at hand. Employers must check their specific company against local legislation to find their minimum standard.
Company Size and Working Arrangements
Legal insurance requirements vary depending on the size of the company. Generally speaking, businesses with fewer than 50 employees do not have to offer any insurance under the law. However, that can change depending on whether a company employs full-time or part-time workers.
The 50-employee threshold refers to full-time or full-time-equivalent (FTE) employees. If a business has more than 50 employees but fewer than 50 work full-time, they don’t have to offer any health insurance. Some companies may opt to provide insurance for their full-time workforce but not the part-time workers to avoid potential legal complications.
Similarly, a company that operates primarily on contract labor doesn’t have to provide coverage.
Types of Insurance
If a business has 50 or more FTE employees or wants to offer insurance, they should consider the types of coverage the law requires. Employers can provide various plans, but the law only requires three types of coverage:
- Health insurance
- Unemployment insurance
- Workers’ compensation
Health insurance plans must cover at least 60% of covered services, but some states may require more. Employers must also continue providing health coverage for up to 18 months after worker death, firing, layoff, or other ends to their enrollment.
Unemployment insurance laws require businesses to provide stipends to workers who lose their jobs through no fault of their own. Fired employees don’t fall under that category, so employers don’t have to pay them. The size of the unemployment benefits depends on the worker’s previous pay, employment length, and industry.
Most states require workers’ compensation, even if companies have only one employee. The rest of these requirements vary widely by state, but employers can check the National Federation of Independent Business to see their local laws.
Small businesses should also consider Small Business Health Options Program (SHOP) tax credits. These benefits can give employers tax breaks for offering insurance when they wouldn’t have to under the law. If companies are eligible, they should consider applying for these credits to manage costs while protecting employees.
Most states require employers to have fewer than 50 employees to receive SHOP credits, but California, Colorado, New York, and Vermont offer them to companies of up to 100 workers. Employers must also cover at least 50% of workers’ healthcare costs and pay average annual wages below $50,000.
These legal guidelines provide the bare minimum for what employers should provide their workers. However, it’s often beneficial to go above these standards. Here are a few non-legal factors to consider to determine the ideal coverage level.
Even if a company doesn’t have to offer insurance, it should consider it to attract and retain workers. Studies show that 88% of U.S. employees said health benefits quality and options are important to them when deciding to take a job. More workers said health insurance matters to them than any other kind of benefit, including paid time off.
If an employer doesn’t offer competitive insurance coverage, they may lose workers to competitors. To combat this, companies can analyze their competition to see what other companies in the same industry and area offer. Matching or exceeding their coverage level will help prevent turnover and other labor issues.
Employers should also consider their workforce demographics, as different groups will have varying insurance needs. A younger workforce with fewer spouses and children won’t need extensive coverage, so they’ll likely prefer a narrower but more affordable plan.
In contrast, older workers may need more frequent doctor visits and have families to care for, so broader-coverage, lower-deductible plans are more appropriate.
Generally speaking, the higher a workforce’s average healthcare needs, the more coverage employers should offer. Companies should review their employee demographics to determine what they’ll need. They could also run worker surveys to find out definitively what the workforce wants.
Companies’ industries should also factor in these decisions. Construction, agriculture, education, and health services are the most dangerous industries, so employers in these sectors should provide more coverage to account for the higher risk.
Mental Health Benefits
When most people think of insurance benefits, they likely think of physical healthcare coverage. While that coverage is among the most important to provide, employers should also consider mental health benefits. As many as one in five American adults experiences a mental health issue every year, so this is a prominent concern.
The law doesn’t require mental health coverage in most areas, but it can help protect workers and foster loyalty and productivity. It may not be necessary for every company, but it should at least be a consideration, especially for those in stressful industries. Entertainment and recreation, healthcare, mining, and the automotive industry are among the most stressful, so these companies have a higher need for mental health coverage.
Low-stress companies without a history of mental health problems may not need this coverage. Providing it could help attract and retain employees, but employers should balance this with their expenses to determine if it’s worth it.
Find the Right Insurance Plan for Your Employees
All of these factors should play a role in determining the level of insurance employers should offer their workers. Small businesses and large corporations alike should review their needs and requirements and each category to specify their minimum standard. They should then refer to competitors’ offerings to see how much further they should go to remain competitive.
Businesses should aim above legal minimums to attract workers and maintain high spirits. However, those without extensive healthcare needs or risks can comfortably offer higher-deductible, narrower coverage. When employers understand their employees’ coverage needs, they can find the best option for all parties.
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