Good morning!
Here are today’s highlights:
In this week’s podcast, Sarah Segal says it’s time to start emphasizing profitability.
The IRS’s ability to conduct audits has been significantly constrained.
Stew Leonard’s offers a lesson in family-business succession: “I would be devastated if the next generation didn’t carry the torch.”
Collateral damage: The trade war with Canada will hit Wisconsin especially hard.
HEALTH CARE INSURANCE
Health insurance rates are expected to spike in 2027: “Large and small employers are bracing for what looks to be the sharpest increase in health care costs in more than two decades. The cost per worker is projected to go up an average of 11 percent next year, or somewhat lower if workers’ insurance benefits are reduced, according to a U.S. survey released Wednesday. The employers’ final costs, after they make changes to health plans, are still expected to increase about 8 percent next year, the steepest since 2003, according to Marsh, the benefits consultant formerly known as Mercer. More than a third of the 1,800 employers surveyed said they anticipated that costs would rise at least 10 percent after making cuts.”
“‘This seems to be a new normal,’ said Ellen Kelsay, the chief executive of Business Group on Health, which represents large employers that offer health benefits. From 2018 to 2027, health care costs could increase 76 percent, roughly twice the rate of general inflation, according to a survey the employer group released last month. For next year, companies predicted a 9.2 percent median increase, which fell to 8 percent after they made benefit changes.”
“The cost of providing coverage to employees is becoming an existential business issue, said Mike Pasterick, an executive at the insurance broker Aon, which issued its own projection last month. Aon estimated employers’ costs would rise 9.5 percent next year, pushing the average cost per employee above $19,000 if no changes are made. ‘This is impacting the companies in a very material way,’ he said.”
“The pressure by hospitals and doctors to charge employers even more is likely to intensify with looming cuts to government plans like Medicaid, the federal-state program for low-income individuals. Hospital groups are already seeing an increase in the number of patients who don’t have insurance or can’t pay their bills, and many are expected to charge employers more to help make up for lost revenue.”
“Smaller employers may be making the most significant changes, said Shawn Gremminger, the chief executive of the National Alliance of Healthcare Purchaser Coalitions, many of whose members are smaller companies. ‘I think it’s the smaller market where the pain is most acute,’ he said. While some are considering moves like offering employees a fixed amount of money to pay for a plan, others are taking a close look at the giant companies that sell them insurance or pharmacy benefit management.” READ MORE
THE 21 HATS PODCAST
We’re Growing. Now I Want to Make Money: This week, Sarah Segal tells David C. Barnett and Jay Goltz that she has decided it’s time to pay more attention to something that can occasionally get lost amid the other demands of running a business: making money. Sarah’s agency is having a very good year, with revenue growing 40 to 50 percent. But she’s realized that growth alone isn’t enough. She wants to know exactly what it costs to hire each employee, what it costs to service each client, whether her fees are covering those costs—and what has to change if she’s going to hit a 20-percent profit margin. She’s also confronting something a lot of owners struggle with: how much to pay herself. For years, Sarah says, she’s been inclined to put the money back into the business rather than pay herself a market rate salary. Now she’s trying to do both—raise her own compensation while making the business more profitable.
Along the way, Sarah, Dave, and Jay weigh in on how owners can fool themselves about profitability, why growing businesses eventually require real budgets, and what owners should actually expect from their banks. Is a bank merely a safe place to park your cash, or can you expect it to help you finance and build your business?
Plus: When should a new business start paying its owner a salary? Dave argues that until a business can pay the owner for the work he or she is doing, it’s more of a hobby than a business. He also explains how entrepreneurs can get trapped in money-losing businesses—not necessarily because they still believe in the business, but because loans, leases, and personal guarantees can make shutting down even more expensive than continuing to operate.
You can subscribe to the 21 Hats Podcast—brought to you by Grasshopper Bank—wherever you get podcasts.
