Smaller companies in the technology market are at a severe disadvantage when it comes to the amount of insurance benefits that they are able to offer to their employees.
If a technologist owns a business or has formed a startup, it can be a struggle to provide a package that doesn’t cost too much or that has all the benefits most employees expect from their employer —that’s assuming the company offers any benefits at all.
Large companies have the advantage, in that the services offered from insurance companies improve as the group size gets bigger. Meaning the more employees you have, the less expensive, per employee, the insurance packages become.
William R. Kassebaum, president and CEO of Energient Inc., has owned several technology companies over the past 20 years, with many of these starting small and eventually growing to 30 to 50 employees.
“In my experience, small companies are at a disadvantage when it comes to insurance,” Kassebaum says. “They have smaller groups, which may be hard to underwrite. The new rules have meant costs went up a lot. And many insurance coverages are only available to larger groups (i.e., 10 to 20 or more employees or less than 50 employees). The services offered from payroll and insurance brokers improves as the group size gets bigger.”
According to the Henry J. Kaiser Family Foundation’s 2017 Employer Health Benefits Survey, worker contributions to medical benefits were vastly different depending upon the size of the company. In 2017, a worker’s contributions for a family plan at a firm with three to 199 employees on average spent $6,814 a year for health insurance, compared to worker contributions for a family plan at a firm with 200 or more employees, which spent on average $5,264 a year (Figure 1). While this covers all industries, it shows that workers at smaller tech companies are paying more for their families than those working at large tech firms.
However, it gets interesting when comparing healthcare plans for individuals. In 2017, workers in a single plan at a small company with three to 199 employees paid on average $1,030 a year in contributions while those at a larger firm with 200 or more employees paid on average $1,289 a year in contributions (Figure 2). The company premiums for both individual and family plans average out to about the same.
For Kalyan Sen, CTO of Sen Engineering Solutions Inc., a start-up focused on electric power transmission technology, when it comes to offering insurance benefits for its employees, it is about leveraging the most value for his budget.
“Because we have a shoestring budget as a small company, we look at getting the most out of our insurance with the least expense,” said Sen. “Because some companies have a large overhead and they charge more, it is a challenge. But there are some companies that are lean and mean and offer basic coverage but it isn’t the same as what you would get from a larger firm.”
Solutions for Small Tech Companies
One growing trend is grouping smaller companies together to boost the number of employees in the risk pool. This decreases the risk to insurance carriers, while at the same time increases the amount of benefits that can be offered to employees. Such groups may include three, four or more different companies, forming a larger pool that insurance carriers are more willing to support. So it is possible to work with insurance brokers to figure out a plan that may include a start-up or self-owned business by being involved with other companies.
Third-party insurance or supplemental insurance, such as the IEEE Member Group Insurance Program, is also available. Such programs offer a wide range of insurance plans for individuals and small businesses.
Engineers who are members of IEEE in good standing can have access to life insurance, health insurance exchange, dental, disability and accidental death and dismemberment. While many of these plans are still underwritten — meaning just because you apply for a plan doesn’t mean you will get approved — it is a potential option when weighing how to mitigate risks for small tech companies or start-ups.
To learn more about the IEEE Member Group Insurance Program, click here.
Peter Brown has nearly 20 years of experience reporting and writing about the electronics industry including semiconductors, semiconductor manufacturing, consumer electronics, power and energy, MEMS and sensors and mobile devices. He previously worked for IHS Technology as Senior Manager for Marketing and Communication, where he wrote, edited and designed the weekly Market Watch newsletter as well as press releases on the latest IHS analytical reports. Prior to IHS, Peter held numerous positions at Electronic News including senior editor and managing editor, where he won gold and silver awards from the American Society of Business Publication Editors (ASBPE) for both writing and design.