Health benefits trends small businesses should be watching

As National Small Business Month wraps up, it is good to keep the unique operational needs of small businesses top of mind as we head into a new season. Over the last few years, high inflation costs, rising interest rates, supply chain issues and price hikes for health benefits have been just a few of the issues business owners and HR leaders have had to navigate.

One of the largest expenses and administrative burdens for small businesses consistently is health benefits. The process of administering these benefits requires arduous amounts of time, money and energy – and as benefits costs continue to climb – many employers often feel like all of the effort isn’t creating enough value for their employees and their business. According to KFF, the average annual premiums for both single and family health care coverage increased by 7% in 2023 – causing many to avoid or even skip medical care.

Brokers can play a pivotal role in working with small business owners to evaluate their benefits options and can help them find ways to take back control of their spend on this often large operational expense. As you have conversations with clients throughout the year, it is important to be cognizant of some key trends that are taking hold in the industry right now for small and midsize businesses (SMBs).

Level-funded plans are growing in popularity

SMBs are increasingly looking for more creative and affordable health benefit options. In the past, they have had two choices: 1) self-fund their health plan – which most small businesses are not able to afford, or 2) go the traditional fully funded plan route with carriers setting the price and business owners being over the barrel. However, with level funding, there is a third way SMBs can now safely fund their health plan, knowing exactly how much they can expect to invest in benefits.

Level-funded health plans are growing in popularity – from 13% of SMBs taking advantage of these options in 2020 to over 40% in 2023, according to KFF. With a level-funded model, employers have cost certainty from month to month and can even reap the benefit of a positive claims year with a surplus. And if their group’s claims are lower than expected they could potentially get a refund.

ICHRAs are also on the rise

Another trend we’re seeing is growing interest in Individual Coverage Healthcare Reimbursements (ICHRAs), which have  tripled in popularity over the last few years. However, they are still flying under the radar for most American business owners. ICHRAs give SMBs the option to contribute pre-tax dollars to their employees to purchase health benefits without having to manage the health plan themselves, giving employees more control over their plan.

Our company recently conducted a survey of 500 U.S. health benefits decision-makers and found 86% of the employers surveyed wish their benefits advisor would bring them innovative solutions like ICHRAs, and 87% think ICHRA could be a long-term fit for their business.

ICHRAs can also be a solution for SMBs with segmented populations, whether that’s temporary or part-time team members, or even full-time employees living in different states. An ICHRA in combination with a level-funded plan could unlock some customized options for SMB clients to consider for their future benefits program.

Related: SMB CEOs appear optimistic about 2024′s economic outlook

New plan designs provide greater value for SMBs

With high out-of-pocket costs typical of today’s traditional plans, many employees simply see their health benefits as a safety net for a catastrophic health issue, instead of a means to valuable holistic health. As a result, 35% of small businesses don’t offer health benefits at all due to high costs.

As an industry, we need to continue watching innovative players who are entering the market to provide health benefits that offer straightforward and accessible coverage for all employees, using models that tear down the high deductible barrier and focus on the services people use the most.

Not only does this increase in smart utilization promote better health outcomes, but it also means employees gain more trust and confidence in using their benefits. This can directly translate into benefits being a powerful tool to recruit and retain workers, something that SMBs continue to struggle with in the wake of the pandemic.

Health benefits will always be an investment, especially for SMB, but new options on the market can help make the investment really pay off for employees and business owners alike. For too long, small businesses have had to make plans work despite being designed for large employers. Looking ahead to open enrollment, brokers now have more options to bring truly innovative, customizable benefits solutions to meet SMB clients’ needs.

Kevin Kickhaefer, chief revenue officer and president of commercial markets at Gravie