How Employers Can Tackle the Rising Cost of Employee Health Insurance
Retailers broke records over the holidays as Americans opened their wallets, supported by a strong job market. But that same job market, with low unemployment rates, means retailers struggled to recruit and retain the workers needed for the hectic shopping bonanza.
For retail workers — who represent 26 percent of the U.S. labor force — the holidays, when they work more hours while others take time off, are the most stressful time of the year. Retailers can alleviate some of the stress during the festive season and beyond by offering health benefits, especially to the managers essential to keeping the organized chaos organized.
Many retailers recognize the effectiveness of offering healthcare to employees but have found generous benefits to be prohibitively expensive. Company leaders know they should offer health benefits to attract and retain workers in a competitive market, however, retailers often employ a mix of part-time and salaried employees that don’t match the one-size-fits-all traditional group health plans. And with the cost of group insurance rising every year, retailers are struggling to squeeze health benefits into budgets already under pressure from inflation.
A Growing Trend: ICHRA Reimbursement Plans
A growing number of retailers are wrestling back control of their expenses — or offering employees healthcare for the first time — by reimbursing workers for health insurance rather than buying it for them directly. How? The Individual Coverage Health Reimbursement Arrangement (ICHRA), which allows employees to purchase the individual health plan of their choice from Healthcare.gov or a state-based exchange and get reimbursed on their paycheck, tax-free. Retailers are using ICHRA to provide employees with quality healthcare without taking on the enormous expense of group coverage.
Attracting the Next Generation of Workers
The annual holiday havoc is a headache for retailers, but it’s also an opportunity for company leaders to re-evaluate their benefits strategy. Inflation is cutting into margins, and every retailer is experiencing the same pain from a tight hiring market and a lack of employee loyalty. McKinsey estimates that the departure of each frontline employee costs about $52,000 annually in recruiting, training and productivity losses, above and beyond their salary, which adds up to millions of dollars for large retailers.
Offering affordable, quality healthcare is a necessary step in attracting and retaining employees. However, for small independent retailers without a HR department, managing the compliance and regulations involved in health insurance is daunting. Group health plans aren’t a natural fit for the retail industry: not only are they cost-prohibitive, they don’t accommodate part-time workers and often impose near-impossible participation requirements. That’s a particular challenge because retail workers have the lowest take-up rate of any industry, according to KFF data.
Owners of small retail companies can effectively outsource benefits with ICHRAs, which require less than an hour of actual administrative work each month. Employers simply set a monthly reimbursement budget, and employees choose the plan that best fits their needs.
A Better Alternative for Enterprise Retailers
For larger retailers that are required by law to offer health insurance, ICHRA allows companies to escape traditional group health plans that produce steep renewal increases each year. If a single employee on a group plan or one of their dependents gets sick or has an accident, the overall group rate skyrockets as a result. ICHRA instead keeps costs consistent, especially for companies with multiple locations that nervously await each year’s renewal quote.
Transitioning a company’s health insurance from a group plan to ICHRA is undoubtedly a significant shift, one which requires careful planning and proactive communication. Every employee has to purchase an individual plan themselves, rather than relying on the HR team. The transition can be stressful for HR leaders, but that short-lived pressure prevents the annual risk of a rate increase. Many organizations pay employees $500 to $1,000 per month for ICHRA plans; when the time comes for renewal, they can continue paying the exact same amount.
Scrapping the Status Quo
Inertia is a powerful force. Some retailers — juggling inventory, customer service, marketing, and daily operations — have avoided trying to offer health insurance. Furthermore, the ebb and flow of employees moving in and out of the business in an industry with high turnover rates can make it difficult to predict long-term costs associated with traditional health insurance plans. This fluctuation, coupled with varying work hours, can lead to challenges in meeting eligibility criteria for conventional group insurance, which typically requires a certain number of hours to qualify.
Retailers must also contend with a workforce with a wide range of needs and backgrounds. Retail employees range from high school students working part-time jobs to single adults to parents supporting families. The health needs of these different demographics can vary widely, further complicating the process of selecting suitable health benefits.
Importantly for retailers with variable workforces, ICHRA caters to all types of employees — seasonal, part-time, hourly, and salaried. No one is excluded from getting coverage, which means retailers can recruit with confidence for every position. For these reasons, retailers have been early adopters of ICHRAs.
Looking Forward: The Future of Retail Health Benefits
In an industry staring down a shortage of applicants and struggling to retain top talent for management roles, this new benefits model allows retailers to take care of employees, control costs, and focus on growing their business.
Jack Hooper is the CEO and co-founder of Take Command, a Dallas-based SaaS company that offers health reimbursement arrangement administration.
