Purchasing business insurance and employee benefits are among the most complicated aspects of running a successful small business. So what should business owners know when making major buying decisions?
First, it’s important to separate myth vs. fact, as we do below in this primer about business insurance and employee benefits.
Second, it’s critical to determine what you don’t know – and who can help. Today, it is common for companies with less than 100 employees to lack the in-house HR expertise to identify and evaluate business insurance and employee benefits programs. A single broker who can source both remains one of the most effective ways maximize your HR spend.
Separating Fact From Fiction
Myth No. 1: Rate shopping will lead to a better deal.
Fact: There is no meaningful difference in rates among major providers. Companies or brokers seeking business insurance and employee benefits will receive the same prices from carriers. At Marsh & McLennan, we know this from working with all of the major carriers on behalf of thousands of businesses in the Golden State.
Why so little price variability? There are a limited number of competitors vying for the health insurance business of California’s small businesses because their margins are so thin. The handful of providers are Kaiser, UHC, Anthem, Blue Shield, Aetna, Health Net, along with some regional carriers. The good news is that in the past five years, rate increases have averaged 5% to 10% annually. Of course, if rates suddenly and significantly rise, it’s smart to consider another carrier. But having multiple brokers compete against each other will not lead to a better result.
Myth No. 2: Alternative solutions, like the public exchange Covered California and industry-specific benefits trusts, reduce costs.
Fact: None have produced the expected savings. Trusts have been successful, but they have lowered costs only modestly for participants. These collectives bring together companies from the same industry to negotiate better prices, which are then shared with those in the trust.
However, one alternative has worked relatively well: The private exchange CaliforniaChoice. This 20-year-old private marketplace offers multiple plans at multiple tiers. It has helped keep costs flat for employers. Organizations can pick the plan that fits their need, and employers can fund the plan that best meets their budget.
Evaluating each option and putting together the best possible combination is the key challenge for HR teams.
Myth No. 3. Insurance brokers are obsolete since rate differentials are minor.
Fact: Now more than ever, sophisticated brokers can deliver both strategic and tactical advantages to small businesses with limited HR resources. To create value, some brokers offer a whole suite of expert consultants and services and, in effect, serve as a complete, outsourced HR team.
This includes tech consultants who can recommend the most effective cost-saving technology from the hundreds of solutions on the market; on-staff ERISA attorneys who can help employers navigate plan complexity; enrollment, claims and benefits administration personnel who can smoothly administer a program; partnerships with companies like ADP, Coastal and Zenefits; and broker-provided ideas for attractive new employee benefits, such as genomics, student loan repayment programs, cutting-edge wellness solutions, among others.
The Bottom Line
For small businesses, business operations are increasingly complex. Business owners would be well-served by working with a broker that offers comprehensive expertise and services, such as benefit administration platforms, HR Resources, wellness resources, among others. These value-added services are the only true differentiators between brokers, since rates are essentially the same for all small employers.
Marsh McLennan Agency is a full-service business insurance and employee benefits brokerage. Marsh McLennan Agency helps organizations identify risk and opportunities, secure coverage from best-of-breed providers, and create risk management and employee benefits programs that power your strategic objectives. Click here to learn more.
Pedro Reyes is a Principal at Marsh & McLennan Agency in the employee health and benefits division. He specializes in benefits coverage for small businesses, and has enrolled over 600 companies.