Just before COVID-19 arrived, unemployment hit 50-year lows, creating steep competition among employers looking to attract the best talent. That all changed when the pandemic hit. Unemployment soared beyond 14 percent in April 2020, with more than 18 million unemployed or furloughed.
Small and medium businesses (SMBs) have been hit the hardest by these fluctuations in the economy, as revealed by research we conducted at benefit software company Ease. Our second annual “SMB Benefits & Employee Insights Report,” which pulled data from 75,000 SMBs covering 2.5 million employees nationwide, revealed that medical premiums for the average small business accelerated in 2020, with monthly premiums rising nearly 6 percent.
Here’s how small businesses are weathering the pandemic while altering benefit offerings to remain competitive and affordable for employees:
Smallest Businesses Rehired Furloughed Employees at the Highest Rate
In late 2020, Ease found that 81 percent of insurance brokers surveyed had assisted their SMB clients in laying off employees or navigating COBRA. Nineteen percent said they assisted in closing a business. Many of the newly unemployed were navigating the process for the first time, some having to find healthcare coverage on their own.
But as furloughed employees began returning to work, it was the smallest businesses that rehired at the highest rates. According to Ease’s data, businesses with 10 or fewer employees rehired more than 37 percent of their staff on average. For businesses with 11-250 employees, that figure ranged from 2 percent to just more than 4 percent.
Taking a wider look at the past three years, Ease’s shows that more than 12 percent of businesses of 10 or fewer employees that have seen growth have now expanded to between 11 and 50 employees. While recovery for the smallest businesses has been a relative success, growth understandably lags behind that of 2019.
Increase in Medical Premiums Accelerated Amid the Pandemic
As small-business employees were gradually hired back to their workplaces, they faced more challenges upon their return. While overall healthcare prices rose less than 2 percent from 2019 to 2020 and prescription costs dropped, premiums on individual medical plans for the average company in Ease rose by 6 percent, while family plan premiums rose almost 4 percent.
Larger SMBs have seen the most significant increases since 2018. For companies with 101 to 250 employees, individual premiums rose more than 12 percent and were surpassed by the rise in family premiums, which rose at 17 percent over the last three years. While employer costs remained roughly fixed, businesses are covering a shrinking share of medical premiums, passing the increases on to employees.
The rise in premiums was even more pronounced in certain regions. In New York, for example — where SMBs employ more than 4 million people and account for half the state’s private workforce — medical premiums rose 20 percent for individuals and 15 percent for families.
Voluntary Benefits Become Key Weapon in the War for Talent
With costs on the rise and medical care becoming a larger priority for employees amid the pandemic, companies are increasingly adapting their benefit offerings to stay competitive in the talent market.
Many SMBs are filling the gaps in their core medical plans with voluntary benefit plans. The average number of voluntary benefit plans offered per employee rose 3 percent since 2018, with the larger businesses averaging more than five voluntary plans. The most popular plans are dental, vision, life and accidental death and dismemberment (AD&D), short-term disability, and long-term disability.
The pandemic did not slow this trend, a sign that business leaders are shifting their approaches to benefits and trying to appeal to a wider swath of talent.
Regionally speaking, SMBs in California offered 2 percent more voluntary benefit plans than they did in 2018 on average. Florida, however, saw a slight year-over-year decrease in 2020, while Texas and New York saw slight increases.
Fewer Medical Plans Means More Affordability
Healthcare took center stage during the pandemic recovery, and small businesses have played a critical role in getting the economy back on track. This situation has given the 60 million SMB employees in the US new cause to reevaluate their medical plan options. Only now, they may have fewer to choose from.
While voluntary benefit offerings increased, the number of medical plans available to SMB employees has decreased 3 percent on average over the last three years. The gradual decrease signifies an effort by group and business leaders to constrict the number of options available and steer employees toward more affordable medical plans, such as high-deductible health plans (HDHPs), which allow for lower premiums in combination with a health savings account (HSA) or health reimbursement arrangement (HRA).
For smaller employers, business is personal. Furloughs and closures did not just mean losing revenue but losing friends and colleagues. The strategies that emerged from this trying time will better connect SMBs to what employees really need while ensuring their businesses are positioned to grow.
David Reid is founder and CEO of Ease.