UNDERSTANDING SHEET METAL COSTS

The Impact of Health Care Inflation on Part Costs

In the United States, employers are required to pay for at least 50% of the health care
costs of an individual and 33% of a family plan. All companies with less than 50
employees are required to go through a broker and incur that additional expense.
For companies in Massachusetts, the law prohibits employers from forming a
collective group to negotiate a lower rate for their group. Rates vary from
$700/month for an high-deductible individual plan to $3,000/month for a full service
family plan.

For example, a typical sheet metal fabrication shop of 25 employees might have 15
employees that will require coverage and mostly the older employees will sign-up for
coverage. An average plan costs $1,400/month per person so with the company
paying 50%, the health care cost is $10,500 per month. A 25 person shop might ship
5000 parts per month, so $2.10 of every part shipped is for health care costs.

As the manufacturing workforce ages, the health care costs increase. For the past
five years, our health care costs have increased 20% - doubling every 5 years. This
means the heath care portion in the example above would grow to $4.20 in 5 years.
Health care inflation is cited as the #1 cost concern with sheet metal fabricators.

Health care costs are controlled in one of three ways. First, hire workers that do not
need health care coverage. These are typically workers that have a spouse with
coverage or they are offered coverage through the military reserves. Second, hire
younger workers, who lower the risk pool and as a result, reducing the health care
premiums. Lastly, grow the workforce to over 50 employees to negotiate directly
with the healthcare providers.

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