If you can’t afford health insurance, can you afford losing a key employee?

Growing up in the age of startups, I have seen firsthand how important employee retention is and how much initial time and money is spent on every new employee. For startups, there is potentially a much greater disadvantage to having turnover; investing time in an employee that quickly leaves for a better job is going to keep productivity down and hurt the growth of the new business. Personally, I have had colleges that simply left their job at a startup because the employer wouldn’t offer health care, and with the new Affordable Health Care penalties for not owning insurance and the “not so affordable” individual insurance that is currently on the market, I don’t blame them. This post will explain some of the advantages of offering health insurance that start up employers should truly consider.

To negate quick turnover, health insurance can be used as a tool for retention of new employees, recruiting of valuable and more experienced employees, and as a satisfaction tool to keep employee’s morale and commitment high. Health Insurance is definitely one of the main retention tools a company can incorporate, especially if the start up’s industry’s environment is saturated with competitors that do not offer health benefits. Just as a startup is looking for the brightest and the hungriest individuals, so are individuals looking for the most “complete” package in a company. Having high salary compensation looks great, but having a high salary with health benefits shows the employer cares about the employees’ health and wellbeing, further strengthening the retention with the employee. Lastly, for retention purposes, morale is a key component to a successful business, and the growth rate of a startup depends on the human capital invested in the company. Keeping that human capital happy is exactly what your health care package can be a part of.

Does offering health care benefits have any, strictly monetary, benefits? The answer is yes. The employer will receive tax deductions for their amount paid for health care benefits. So, although money will be spent, there will be tax deductions to help alleviate the costs per employee. When employers hear this quote from myself, they usually respond with,

“Brett, I like what you’re saying about the retention tools and recruitment advantages, but why shouldn’t I just offer my employees some additional compensation? I only have 6 employees working my startup; can’t I just give them a “raise” so they can go buy individual insurance?”

The answer to this question is yes, however, I always explain the following reasons why that line of thinking will cost the company more and potentially lose valuable employees. If we take the Employer’s option (we will call the employer, Bob), then Bob will be losing money paying his employee’s a “raise” because individual insurance is paid by gross income, not net. So, while his employee’s under a group plan would be paying net dollars, his employees, using his “raise” compensation mind you, will be paying in gross income. On top of that, Bob couldn’t write off the health benefits purchased by his employees because they are only tax deducted while in-group plans. Bob just got hit with two large expenses instantly, but wait, there is more! (Queue the drum roll) Bob may very well lose his employees due to the fact that they cannot get individual insurance because they have missed the enrollment period and will have to wait another year to hit it. With the Affordable health care act, the enrollment periods will be held this November, and if Bob’s employees missed last year’s enrollment, they couldn’t get coverage until January 1st, 2015. Three strikes Bob, and you are out of money and valuable employees with all those human capital investment costs.

The disadvantages for startups not offering health benefits could be dire and could stunt the overall growth of the company, and the human capital that it has invested in. It would be an absolute shame to lose a key person employee to a competitor that offered medical insurance, dental, and vision, especially if that key person grew up to be the next Bill Gates or Steve Jobs. My question to the startups would be, “If you think you couldn’t afford it, and you want to differentiate yourself from the rest of the massively saturated market that is startups(especially tech) and retain high valued employees you have already invested in, could you afford losing these employees?”

Additional Disclaimer – Although I am an Insurance broker and a professional in the field, the Health Care laws are ever changing, especially in the age of the Affordable Health Care Act, and the laws, information, opinions, or understandings that I have wrote about may be obsolete by the time you come across them and I take no legal responsibility for what actions you may or may not take because of it. To keep yourself safe, please seek updated professional advice, because changes are happening and I would like to keep everyone safe from any misleading or dead information. Please check out the “Terms and Conditions” page for more information and/or bookmark my blog for upcoming changes and updates to the ACA. Thank you for reading, and have a great day!