The buzz on the street for small business has slowly been shifting from the economy to health insurance. While President Obama failed to push his health care agenda through Washington before the summer break, most believe it is just a matter of time before he succeeds.

What does this mean for small business?

Consider the following statistics:

• Fewer than half of all small businesses with three to nine employees even offer health insurance to their employees
• The average small business pays as much as 18% more for health insurance than large companies
• 99% of large companies with 200 workers or more offer health insurance for their employees

(source: U.S. Public Interest Research Group)

The reason for this disparity is simple – cost. With small employers paying up to 18% more than their larger counterparts for the same coverages, and bearing the brunt of the economic downturn harder than bigger companies, many are simply not in the position to incur more costs and provide comprehensive insurance to their employees.

The Obama Proposal

Under the House measure, employers with payrolls of more than $400,000 a year will be required to provide health insurance or pay an 8% penalty. Businesses whose payroll falls between $250,000 and $400,000 a year would pay a lesser penalty. Businesses with fewer than $250,000 in payroll would be exempt. A Senate version would exempt employers with fewer than 25 employees, and the fine for bigger companies not complying would be $750 fine per employee per year.

So, let’s take a 40 employee company with a $1 million payroll. If employee-only premiums cost $300 per month, the Obama plan would force the employer to pay $12,000 per month ($144,000 per year!), or face a penalty of $30,000.

Outsourcing Alternatives

While it may be true that small employers pay more than their larger counterparts, the small business owner still has viable alternatives to traditional health plans. By joining a Professional Employer Organization (PEO), the small business is in the position to compete with their larger competitors. The reason is three-fold:

1. A PEO creates a “master plan” for all of its clients. Hundreds, or thousands, of small businesses join together under the PEO’s plan and benefit from the resulting economies-of-scale. In place of a 40-employee group applying for coverage, they access a plan with thousands of employees.
2. The PEO is in the position to negotiate competitive rates and plan options with the carriers. While small employers are limited in their negotiating power, a PEO can select from a range of benefit options, including HMOs, PPOs, and POS plans, as well as High Deductible Health Plans (HDHP) and Health Savings Accounts (HSAs).
3. A PEO is fully equipped with benefit administration staff. One of the most difficult aspects of offering health insurance is the accompanying administration. Adds, deletes, deductions, changes, and questions can take hours of time away from work. A PEO assumes the entire management responsibility for a clients’ benefit plan, from shopping the carriers, to the open enrollment process, to reconciling the billing and deductions.

If you are concerned about the upcoming healthcare proposal or are considering offering health insurance for your staff, serioulsy consider a PEO to assist you through the process.