In the US, medical insurance is tied to the employer in the vast majority of cases. Paying for an employee health plan is beyond the means of many startups. Founders are often willing to take the chance or make the sacrifice to forgo medical insurance for themselves. But when hiring employees, you can run up against competition from larger employers who can afford to offer medical insurance. Some great potential employees have pre-existing conditions or children and need health insurance - you'd like to hire them, but they need this one particular benefit.
Startups need to run lean, and most fringe benefits aren't something you should expect in a lean startup. But medical insurance in the US seems to be a sticking point. I've heard from more than one entrepreneur that this is a hiring problem. Is there a practical solution for this that anyone has found?
Health insurance premiums can be a back breaker. Pre existing conditions are tough for the startup relying on individual or very small group policies. I don't have a great answer for those.
Early on we put together a pretty compelling package employing (relatively) inexpensive major medical policies and Health Savings Accounts (HSA). The package is cash flow friendly and puts the employee in control of his/her medical expenses (and spending). Employees love that the cash in the HSA account is completely under their control. As part of our bonus system, we make year end contributions to employee HSA accounts based on company profitability.
We use HSA Bank for our HSA accounts. They are fantastic to deal with. Check out their web site for info.
12+ years in startups with very diverse groups of employees in every one of them and we always figured out how to offer health insurance. We were actually attracting great candidates from big companies with a great benefit package (though lower compensation), since not all large companies have that great of a total package.
Providing health insurance is just the responsible and right thing to do.
BTW, every single one of those startups was self-funded and would be described as lean.
Couple of lessons I've learned:
In 15+ years I've never been able to make a health insurance program that pleases everyone and is affordable to everyone. All you can do is your best and do damage control every year when the rates increase. It is the single biggest negative drain on any small business. You'll never match the "benefits" of a big company when looking at the numbers, but I've found that there are employees that value the opportunitity and culture more than the benefits.
Here's a "temporary" solution. Contract-to-Perm for the first 6-months to a year. Use a local recruiter that burdens all that benefit overhead. Sure, you're paying more by-the-hour for the programmer...but what is the true cost of the distraction of you having to figure all this out and bring it on line in a way that pleases all potential employees? I've seen so much wasted momentum on things like this. If you use the recruiter correctly, they find good people very quickly, with minimal effort on your part and they will deal with all the benefits roadblocks.
With time put in place the most basic plan (an HSA as mentioned above is great) and just find staff that are content with that...so you can get back to work on building the business.