Small biz CEOs worried about economic prospects; keeping a close eye on health care benefits

A new report on how smaller employers have been dealing with rising health care costs revealed that more than 40% are considering switching insurers and more than 25% are looking at increasing deductibles and other out-of-pocket costs for employees.

The WSJ/Vistage Small Business Index found that confidence in the economy among small businesses is declining, despite relatively good economic numbers. The report noted that although inflation is now growing at a slower rate and the Federal Reserve held off an interest rate hike in September, CEOs of small businesses are still not optimistic. “Analysis of this monthly survey of small business leaders showed that economic sentiment is on the decline,” the report said. “Most notably, the proportion of small businesses that expect the economy to worsen in the year ahead has risen to 49%, a 9-point gain in one month.”

Insurance jitters as open enrollment begins

The report found a range of views on health insurance strategies. The survey found 44% of small business CEOs have already switched or are planning switching insurers in the near future; 25% have increased or plan to increase employee deductibles or other out-of-pocket costs; 11% are offering or plan to offer Individual coverage Health Reimbursement Arrangement (ICHRA) plans, which allows employers to reimburse some costs when workers buy health plans on the individual market.

In addition, 11% of those surveyed said they are offering or plan to offer a “virtual first” primary health care arrangement for employees. Employers continue to explore options such as self-insured plans (10% said they are such plans or planning to be), and 5% said they are currently offering or plan to offer a network built around one hospital system.

At the same time, many employers see health care benefits as a decisive factor in attracting and retaining workers. The report quoted David Sincock, president of the Rancho Cucamonga, California-based SI Testing, who said: “We are not reducing health care costs. We pay 100% for our employees and family. We consider it a great investment.”

Mixed feelings about future economic conditions

Still, rising health care costs are just one part of managing costs, and employers seem gloomy about the U.S. economy overall, the report said. When asked about overall economic conditions in the U.S., small business CEOs were mostly negative: 49% said things had worsened, 38% said they had stayed the same, and 13% said things were improving.

And only 12% of respondents said they expected economic conditions in the U.S. to improve over the next year. The survey found that 38% said they expected conditions to stay the same, and 49% expected things to get worse.

On the other hand, when asked about their company’s outlook for the next year, those gloomy predictions lightened a bit. The survey found that 40% of respondents expected that their company’s sales revenues would improve over the next 12 months, 31% said they would stay the same, and 13% said sales would get worse. Likewise, 40% said their company’s profitability would improve over the next 12 months, 37% expected things would stay the same, and 22% said profitability would worsen over the next year.

As for hiring plans, 48% said they expected to increase their workforce, 41% said their headcount would remain the same, 10% said they would decrease their workforce—a increase of 3 percentage points from a month earlier.

Read more: How small business owners can craft the right benefits package

The report noted that these expectations were generally less optimistic than in some earlier surveys, for example, 44% of CEOs expected more profitability when surveyed in September. And 51% expected more workforce expansion when polled in September. Overall, the changes in these numbers are relatively small, though.

In all, the Vistage report concluded that smaller business see a lot of challenges in managing growth over the next year. The report quoted ITR Economics Vice President of Economics Jackie Greene as saying: “Small and midsize businesses are experiencing growth to some extent, but increased costs, specifically wages, will continue to impact profitability. This gap between revenues and profits indicates a profitless prosperity.”