Small Business Health Insurance Plans
Small Business Health Insurance 2021. Many small business owners already know that starting a business isn't easy. Not only are you required to jump through a myriad of hoops to get one up and running, but once you are up and running, it has to be insured.
As a small business owner, you need to ensure that your employees are covered with the best possible health insurance, not just in the way of price but also coverage advantages.
This article will outline all the options available, which should hopefully save you from the stress associated with making a decision based on little information. As a business owner, it is important that you ask the right questions because health insurance is a major part of your business's existence.
The more business you do, the more employees you'll need, and so there is a greater need for small business health insurance.
Learn how to get small business health insurance for 1 to 50 employees. The best small business health insurance providers offer affordable rates, flexible coverage options and access to a large network of medical providers.
Below are some answers to commonly asked small business health insurance questions:
- How Much Does Small Business Health Insurance Cost?
- Why Does Your Small Business Need Health Insurance?
- Are You Required To Provide Small Business Health Insurance For Employees?
- What Are Health Insurance Options For Small Businesses?
- Where Can I Find State Specific Small Business Health Insurance Information?
How Much Does Small Business Health Insurance Cost?
The average price of a standard small business health insurance policy ranges from $587 to over $1709 per employee per month based on; single or family, location, coverages offered, deductibles and more.
We often say that the price of health insurance or its cost should be measured in both the dollars spent and in the time spent. That means if you choose a group plan or are considering one, the percentage of premiums you're willing to cover, and whether the employee's families are covered too should be taken into consideration.
Also, whether its better to use a third-party service to find the right insurance for you since they will charge you too. However, finding the right health insurance plan for your business takes time and a whole lot of research, especially when it comes to comparing plants to see which ones meet your needs.
You'd also need to educate the team about the small business health insurance options and set up the right infrastructure to handle the administrative burden of maintaining the plan. Finally, there is a truckload of ongoing paperwork.
The Kaiser Family Foundation in 2019 published a survey of Employee Benefits, found that annual premiums for employer-sponsored family health coverage were a whopping $20,576, which was 5% higher than the previous year. Workers, on average, were paying around $6k towards the cost of coverage.
Employers, according to the Wall Street Journal, were shouldering around 70% of the cost of insurance, with employees paying the rest. The average deductible with annual deductible was $1655 for just single coverage.
Why Does Your Small Business Need Health Insurance?
One of the biggest deterrents for business owners even starting out is small business health insurance. However, that's because they have heard many horror stories about it.
The good news is that there are many tax-friendly tools referred to as health reimbursement arrangements, which mainly work by helping new business owners afford the benefits they need either personally or for the growing team. We'll go into this in more detail a little later.
If your business is growing, it is essential to offer employees a competitive benefits package so that you can continue to recruit and retain that talent in a competitive job market.
Consider the fact that your company's quality of services and products hinge a great deal on the quality of your employees. Also, it would help if you made sure that these employees remain loyal. Sure, compensation is a major driving factor, but benefits and office culture matter as much to modern employees.
Benefits ensure that your team is covered and happy, but if you fail to offer benefits, it can result in some serious consequences, as well as there is a risk of losing employees that your business depends on to a competitor.
The Society for Human Resource Management (SHRM) shared a study, which showed the average cost of hiring an employee is over $4k, and may take up to 42 days on average to fill the position. The numbers are even worse if a business owner wants to replace an employee versus hiring one for a new or fresh position.
The same study cited above states that it takes around 60% of the worker's annual salary to find a replacement. Many businesses learn the hard way that turnover can cost a lot of money, which can be as much as 200% of an employee's annual salary.
That's why you want to make sure that the most valuable employees are well looked after, and a small business health insurance is a great foundation.
Are You Required To Provide Small Business Health Insurance For Employees?
The Employer Mandate of the Affordable Care Act requires employers with more than 50 employees to offer health insurance. To figure out if this rule applies to your business, start with figuring out how many full-time workers or FTEs as they are called are working for you.
You then use the formula, i.e. (Total hours of part-time employees every week / 30) + number of full-time employees = FTE.
Take, for instance, if you have 49 FTE, you aren't required to ensure that those employees are covered. However, if your FTE is 50, it is up to you to ensure that 95% of the workforce is covered. But there are many other reasons your employees should be covered with health insurance, i.e., keeping them healthy and improving your ability to recruit and retain employees.
According to the Kaiser Family Foundation, 56% of small firms and around 99% of large businesses offer some type of health benefits to some employees.
What Are Health Insurance Options For Small Businesses?
Many small employers or businesses have historically relied on small group insurance. But things have changed a lot since then.
While the plans are widely understood and known, they aren't the only option today. As an employer, you have three options. The option you choose mainly depends on what may work best for you, based on how the company has been set up, how much the group plans cost and how much individual plans may cost.
These plans and their costs may vary depending on where you are based and the health of the individual you want to be insured.
As mentioned earlier, the three options for small business health insurance are:
- Small group health insurance
- Self-funded plans
- Health Reimbursement Arrangements (HRA)
Small Group Insurance
small business health insurance has always been the primary option for small businesses that want to offer employees health benefits. It is meant for businesses that employ less than 50 full-time employees, except for in four states where it is applied to businesses with 10 employees and more.
The Kaiser Family Foundation states that 56% of businesses with anywhere from 3 to 199 employees now offer health benefits. Around 81% of them offer one plan.
As you might imagine, Group insurance will provide coverage to members of the group, which means employees or members of a particular organization. The members of your group aka employees will be insured at a reduced cost because the risk is mitigated by being spread across the entire group.
How Does Small Business Group Health Work?
The small business health insurance plans, are usually purchased by you, aka the employer, after which it is offered to employees. The plans are only available in groups and aren't for individuals since you need 70% participation at least for the plan to be valid.
That means needing at least one employee in most states, and the employer needs to contribute to the premium for the employee. Furthermore, businesses can signup for it at any time instead of only when enrolment is open.
The cost associated with the plan is shared by all members of the group, which means that both employer and employees pay their shares. The plans cost less because of the larger pool of people contributing. Though in many states, we've seen that the difference in cost is negligible.
Small business owners can transfer most or maybe all of the cost of the insurance over to the employee(s), but paying part of the insurance premium is always good for attracting and retaining employees.
Once the business owner chooses a plan, the group members have the option of either accepting or declining coverage. In some places, the plans may be tiered, offering basic and then varying forms of advanced coverage, with a selection of add-ons that cost extra.
The cost of premiums is later split between the employees and the company based on the plan. The other thing you need to consider is if insurance coverage will be extended to families of employees without costing the group extra.
Where's The Best Place To Buy Small Business Group Health Insurance?
Employers are strongly advised to buy these plans directly from an insurance company but choose a broker if they can help get a better deal. The state's SHOP exchange is also a good place to buy.
Benefits of Choosing Small Business Group Health Insurance
Small group insurance is ACA compliant, which means they are tax-free and have many good product options which make up for good employee retention. Employers can almost be guaranteed coverage, which means that regardless of who applies and meets the criteria will be accepted.
Buying the SHOP plan may also help a small business owner qualify for Health Care Tax Credit. Furthermore, employees benefit because they have access to a much wider network of doctors compared to an individual plan.
Where Does It Fall Short?
Small business owners should understand that the shortcomings of small group plan, one of which is that they are expensive. The one-size-fits-all nature of the insurance means that the premium increases are unpredictable at best, and the same goes for their participation rate requirements.
The other thing you need to know is that patients are separated from the process, which means they can't make financial decisions. Furthermore, one sick employee with a claim means that everyone has to pay higher prices.
We are seeing the cost of healthcare continuing to rise, which is why some employers are looking at self-funding options to save money. Self-funded plans mean that employers will pay for claims out of pocket when and as they arise instead of paying a premium each month to the carrier. The self-insured plan, as it is often referred to as, is seen as a means to control their spend and manage risk.
How Does A Self-Funded Small Business Health Insurance Plan Work?
When you as an employer choose self-funding for employee health benefits, a special trust is formed to earmark money which is later used to pay for claims. So, if an employee chooses to keep the claim processing within the confines of the company, a TPA, is then engaged in the process to offer additional services like generating claim initialization reviews, premium collections, and contracting PPO services, in addition to offering the service to the benefit plan. In other words, you as an employer are assuming a lot if the the risk - as opposed to an insurer.
Where Do You Buy A Self-Funded Health Insurance Plan?
Setting up a self-funded plan will take some time, especially if you switch from a traditional insurance plan. You will need to walk through several steps. Many insurers also offer administrative service contract options, or you can engage a third-party administrator who will draft the documents.
You will also want to bring CPAs and partner fiduciaries to manage the process. HIPAA and ERISA, in addition to other regulatory mandates, also need to be met.
You will also need a stop-loss policy while considering Fiduciary Liability Insurance to mitigate risk. Then you will also need to create an administrative service agreement for the TPA, or if you don't want to outsource, then hire a plan administrator. Then distribute the summary of benefits and coverage to all employees.
Self-Funded Small Business Health Insurance Plan Benefits
The biggest benefit is that the plan is customizable based on your workforce. You have the ability to control the health plan reserves to maximize interest income. It can also work out to be more affordable for each employee versus a traditional health insurance plan since there is no pre-funding of health coverage, and you don't need to pay health insurance premium taxes.
The plan is also subject to far fewer regulations which means you can customize the plan to meet your needs. Also, because you're just paying for healthcare costs, there is always money left over that can be carried forward.
What's The Drawback Of These Plans?
Sure, self-funded plans will help your business save money, but the potential risk is also much higher, which you, the business owner, is assuming. Your business is responsible for paying out the actual claim, especially if there is a catastrophic claim which can bankrupt a company.
Many businesses may choose to buy stop-loss insurance to mitigate that risk. But since a self-funded plan isn't managed by a carrier, it is up to the company to set Minimum Value Coverage.
Reimbursement Using Health Reimbursement Arrangement (HRA)
It is considered an affordable and offers tax advantages compared to traditional insurance, where employers can reimburse their employees for medical expenses on a pre-tax basis.
HRA is an abbreviation for Health Reimbursement Arrangement, which is unlike Flexible Spending Accounts and Health Savings accounts. The difference is that this model mainly operates on reimbursements. Employees will pay part of their salary towards the company or the doctor's office directly but will get reimbursed for their expenses when the time comes without any taxes levied.
The use of HRAs by employers puts businesses on the same tax playing field as a regular small group plan, but minus the requirements and hassles involved. Using HRA, employers can easily reimburse without paying payroll taxes.
How Does A Health Reimbursement Arrangement Work?
The model is simple, i.e., the employer decides how much money they want to contribute each month, then provides their employees with standard information about how it works, and then outsources the administrative tasks. Employees can then choose a plan that works for them and submit receipts for the premium and medical expenses.
How Is An HRA Setup?
We would advise against trying to set up your own HRA mainly because of HIPAA, which is why you will want to go through a third-party administrator. Employers can signup at any time and via a new HRA, which offers employees a special enrolment period, which means that they can sign up for an individual plan without having to wait.
Some of the benefits of this model include tax efficiency, optimized benefits, budget control, flexible efficiency, and allows employers to easily prevent having to take the brunt of the risk.
Where Can I Find State Specific Small Business Health Insurance Information?
Small Business Health Insurance - The Bottom Line
We strongly advise business owners to speak with a CPA before jumping in and getting any type of small business health insurance. Make sure that you know exactly what each option can do for your company and the potential drawbacks associated with it.
If you decide to go the HRA route, make sure you know how much it can cost you and if it is worth the extra risk.
It would help if you also did a bit of research to find out all the options available for your business. Furthermore, consider your business's makeup and size and if you want to participate in the plan as the owner of the company.
Also, where you are based, and current market conditions should be considered when choosing a plan. That said, you need to do all of this in a hurry because many states mandate that your employees be covered.