Pros and Cons of Health Benefits
There are a number of advantages to offering health benefits to your workers.
Here are a few of the major ones:
- Attract and retain the most qualified employees. Whether health
insurance is absolutely necessary to attract and retain the most
qualified employees will depend upon factors such as whether your
competitors or other similarly sized employers in your area are offering
- Gain tax advantages. You can offer employees something that
increases their compensation package and yet allows you an income tax
deduction for the contribution, so that your out-of-pocket cost is less than
the value of the benefit to the employee. Self-employed individuals can
deduct 60 percent of their health insurance premium costs as a business
expense in 2001, and 70 percent in 2002 (rising to 100 percent in 2003 and
beyond). You can always deduct 100 percent of premiums for your employees.
If the business is incorporated, all costs for your own insurance as well as
your employees' is deductible.
- Offer employees group purchasing power. Even if you decide not to
contribute anything towards your employees' health insurance, you can offer
them the opportunity to obtain group rates through your business.
- Ensure the wellness of your workers. Many insurance plans offer
preventative care that can keep employees healthy and working. If
employees don't get preventative care and yearly physicals (which they might
not do if they don't have insurance), you could end up having more employees
out for long periods of time with serious illnesses.
There is a downside to offering health benefits, too. Some of the
"cons" of offering health benefits are:
- The costs. Health care costs have risen enormously in recent years.
As a result, not only are the costs draining valuable resources from many
small employers, the uncertainty makes financial planning extremely
- The sometimes tense business of cost-sharing with employees. There
is a way for a small employer to control costs and return certainty to the
process: push any additional costs on to employees. While that may solve the
financial problems, it creates many others. Even if you don't want to push
all the costs on to employees, pushing some of the costs on to them is
- The administrative hassles. Even though the insurance company from
whom you purchase the health insurance will usually act as plan
administrator, you will have to choose the insurer and then spend part of
your time filling out forms, remitting premiums, and acting as intermediary
between employee and insurer, among many other tasks.
- The potential liability. The potential for liability for selecting
a health care provider that commits malpractice on an employee does exist.
While this risk is small and should not be the driving reason behind a
decision not to offer health insurance, you should be aware that several
employers have been sued by their employees for what they contend was their
employer's carelessness in selecting a provider.