Startups often promote perks, but lack health insurance
The excitement of working for a startup can come with great perks, from stock options to stocked kitchens. However, some employees aren’t offered health insurance because the costs are so high for businesses.
Thirty-nine percent of employees – or more one in three workers – at small businesses say their employers don’t provide insurance as a benefit, according to the 2012 Aflac WorkForces Report.
Getting health insurance for a start up can be a challenge, says Joe Torella, president of the Employee Benefits Division at HUB International Northeast, an insurance brokerage firm. He says that a startup has to prove that it’s legitimate (by showing payroll and revenue) and can run into difficulties getting coverage for employees with pre-existing conditions.
Most startups don’t offer true health care benefits, says Rick Lindquist, president of Zane Benefits, a Utah software company. Instead, many of them provide “defined contribution” plans. Zane Benefits helps employers, insurance brokers and accountants provide “defined contribution” health care benefits to employees, with companies paying a fixed amount to workers, who use the money to pay for insurance they choose independently.
Why don’t startup employees ask for more?
When working for a startup, the desire to help the business succeed may cause some employees to overlook the fact that the company isn’t offering health insurance. Some employees may not be concerned because they’re on a family member’s insurance plan.
Or having a free lunch every day – and other perks that often are part of the startup culture – may appear more valuable than health insurance, since these perks often are more exciting.
Offering health benefits – the second most expensive business cost, behind payroll – frequently is cost that startups fear they can’t sustain. But in reality, the lack of benefits contributes to employees at small businesses feeling less satisfied with their overall benefits than those at midsize and large companies, according to the Aflac survey.
Even when benefits are offered, they don’t appear to measure up, as the Aflac survey found:
• 43 percent of employees at small businesses say they’re only somewhat satisfied with their overall benefits.
• 37 percent say their current benefits meet their family’s needs only “somewhat.”
• 21 percent say their benefits don’t meet their needs at all.
Making insurance part of a healthy workplace
Startup owners often hold off offering insurance for their first employees until the size of the staff increases.
“It was definitely tough to do. I don’t think we were able to (offer health insurance) until we hit a scale of 10 people,” says Charles Quinn, president and developer at Atlanta-based software company Highgroove Studios.
Quinn launched Highgroove in 2005, working only with contractors. Three years later, he hired his first staffers. Now, the company employs 24 people. Among their perks: a personal trainer who conducts one-on-one, 30-minute sessions twice a week in the on-site gym.
These days, Highgroove does offer health insurance, covering all the costs for employees and 50 percent for their dependents. Dental, vision, and short-term and long-term disability insurance also are provided.
“When we started growing and hiring full time, the productivity boost I got from them not having to worry about (insurance) was tangible,” Quinn says.
The Aflac study reports a direct tie to insurance and on-the-job performance, with 56 percent of employees saying a benefits package is very or extremely influential when it comes to productivity.
Finding a way to offer health insurance
Startup owners often aren’t educated about purchasing health insurance, the options available and ways to lower costs, Lindquist says. Another deterrent is the cost of group health insurance, which can be daunting.
In 2013, annual health care costs are projected to rise about 5 percent to $11,507 per employee, according to a survey by HR consulting company Towers Watson. The survey also found that 42 percent of companies plan to boost their employees’ share of health insurance premiums by as much as 5 percent in 2013.
In the early years, some startups offer to reimburse employees if they find health insurance on their own. Lindquist says employers that provide a “defined contribution,” instead of traditional employer-sponsored health insurance, give each employee a fixed tax-free sum that they can spend on out-of-pocket costs for health insurance and other medical expenses. The fixed amount can range from $50 to $500 a month, he says.
Gary Welch, who launched Spectrum Physical Therapy in New York in 2008, remembers the first employees he hired had health insurance through their spouses, so he didn’t offer it as a benefit. As he built his staff, though, he discovered that some employees did need insurance. “They’re helping my business build, so I feel like I owe them,” he says.
Spectrum now offers insurance to its six full-time employees (among 13 workers in all) through LIA Health Alliance, a health insurance marketplace for New Yorkers. An LIA Health Alliance membership costs $120 a year, with Spectrum covering 50 percent of each employee’s plan and employees pay the other 50 percent).
The cost of health insurance is so high that Welch says he can’t extend the benefit to employees’ family members.
“If we were going to provide insurance for the employee and their families, it would easily put us out of business. We couldn’t do it,” Welch says.