Small Business Health Insurance Plans
Small Business Health Insurance 2023. 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?
- What Types Of Health Insurance Plans Are Available For Small Businesses?
- Where Can I Find State Specific Small Business Health Insurance Information?
- What Are Commonly Used Small Business Health Insurance Terms?
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.
What Types Of Health Insurance Plans Are Available For Small Businesses?
While there are several types of health insurance plans to choose from, the following plans are the most popular among small business owners:
Health Maintenance Organization - Simply known as an "HMO", this type of plan offers a variety of health-related services via a network of health care providers and hospitals that exclusively contract with the HMO, or who agree to offer their services to members of the HMO. Employees who participate in this type of plan usually have to choose a primary care physician (PCP), and receive most of their care from this physician. If a specialist is needed, the PCP will recommend one that is affiliated with the HMO.
Preferred Provider Organization - More commonly referred to simply as "PPO", this type of health insurance plan is the most common among small business owners. The insurance company provides a preferred list of health care providers, and employees must receive their medical care from the doctors and hospitals on that list for their claims to be paid at the highest level possible - but they also have the flexibility to see any other provider anywhere in or out of state.
Point-of-Service Plan - Known as a (POS), this type of health insurance plan provides access to health care services at a lower overall cost, but with fewer choices. Members can access care from in-network or out-of-network providers and facilities, but coverage is better when you stay in-network. POS plans may vary, but generally, plans are considered a blend of HMO and PPO plans - offering more flexibility than HMOs, but less than PPOs.
Health Savings Account - A health savings account (HSA) is a special type of bank account that allows participants in the insurance plan to save money that can be used specifically for the medical care they require in the future. HSA-qualified health insurance plans are usually PPO plans that are specifically designed to be used with an HSA.
Indemnity Health Insurance - This type of health insurance plan allows members to control their own health care and to visit any doctor or hospital they choose. The insurance company would then pay a pre-determined percentage of the total charges for the services that were rendered. Employees may have to pay for some types of services up-front and then they can submit a request for reimbursement with the insurance company.
Where Can I Find State Specific Small Business Health Insurance Information?
You can find more state specific small business health insurance information including requirments and coverage by clicking on the state below:
- North Carolina
- New Hampshire
- New Jersey
- New Mexico
- New York
- North Dakota
- Rhode Island
- South Carolina
- South Dakota
- Washington D.C.
- West Virginia
What Are Commonly Used Small Business Health Insurance Terms?
Thanks to the The Centers for Medicare & Medicaid Services for providing the terms in this glossary.
Allowed Amount - Maximum amount on which payment is based for covered health care services. This may be called "eligible expense," "payment allowance" or "negotiated rate." If your provider charges more than the allowed amount, you may have to pay the difference. (See Balance Billing.)
Appeal - A request for your health insurer or plan to review a decision or a grievance again.
Balance Billing - When a provider bills you for the difference between the provider's charge and the allowed amount. For example, if the provider's charge is $100 and the allowed amount is $70, the provider may bill you for the remaining $30. A preferred provider may not balance bill you for covered services.
Co-insurance - Your share of the costs of a covered health care service, calculated as a percent (for example, 20%) of the allowed amount for the service.You pay co-insurance plus any deductibles you owe. For example, if the health insurance or plan's allowed amount for an office visit is $100 and you've met your deductible, your co-insurance payment of 20% would be $20. The health insurance or plan pays the rest of the allowed amount.
Complications of Pregnancy - Conditions due to pregnancy, labor and delivery that require medical care to prevent serious harm to the health of the mother or the fetus. Morning sickness and a nonemergency caesarean section aren't complications of pregnancy.
Co-payment - A fixed amount (for example, $15) you pay for a covered health care service, usually when you receive the service. The amount can vary by the type of covered health care service.
Deductible - The amount you owe for health care services your health insurance or plan covers before your health insurance or plan begins to pay. For example, if your deductible is $1000, your plan won't pay anything until you've met your $1000 deductible for covered health care services subject to the deductible. The deductible may not apply to all services.
Durable Medical Equipment (DME) - Equipment and supplies ordered by a health care provider for everyday or extended use. Coverage for DME may include: oxygen equipment, wheelchairs, crutches or blood testing strips for diabetics. Emergency Medical Condition An illness, injury, symptom or condition so serious that a reasonable person would seek care right away to avoid severe harm.
Emergency Medical Transportation - Ambulance services for an emergency medical condition. Emergency Room Care Emergency services you get in an emergency room. Emergency Services Evaluation of an emergency medical condition and treatment to keep the condition from getting worse.
Excluded Services - Health care services that your health insurance or plan doesn't pay for or cover.
Grievance - A complaint that you communicate to your health insurer or plan.
Habilitation Services - Health care services that help a person keep, learn or improve skills and functioning for daily living. Examples include therapy for a child who isn't walking or talking at the expected age. These services may include physical and occupational therapy, speech-language pathology and other services for people with disabilities in a variety of inpatient and/or outpatient settings.
Health Insurance - A contract that requires your health insurer to pay some or all of your health care costs in exchange for a premium.
Home Health Care - Health care services a person receives at home.
Hospice Services - Services to provide comfort and support for persons in the last stages of a terminal illness and their families.
Hospitalization - Care in a hospital that requires admission as an inpatient and usually requires an overnight stay. An overnight stay for observation could be outpatient care.
Hospital Outpatient Care - Care in a hospital that usually doesn't require an overnight stay.
In-network Co-insurance - The percent (for example, 20%) you pay of the allowed amount for covered health care services to providers who contract with your health insurance or plan. In-network co-insurance usually costs you less than out-of-network co-insurance.
In-network Co-payment - A fixed amount (for example, $15) you pay for covered health care services to providers who contract with your health insurance or plan. In-network co-payments usually are less than out-of-network co-payments.
Medically Necessary - Health care services or supplies needed to prevent, diagnose or treat an illness, injury, condition, disease or its symptoms and that meet accepted standards of medicine.
Network - The facilities, providers and suppliers your health insurer or plan has contracted with to provide health care services.
Non-Preferred Provider - A provider who doesn't have a contract with your health insurer or plan to provide services to you. You'll pay more to see a non-preferred provider. Check your policy to see if you can go to all providers who have contracted with your health insurance or plan, or if your health insurance or plan has a "tiered" network and you must pay extra to see some providers.
Out-of-network Co-insurance - The percent (for example, 40%) you pay of the allowed amount for covered health care services to providers who do not contract with your health insurance or plan. Out-of-network co-insurance usually costs you more than in-network co-insurance.
Out-of-network Co-payment - A fixed amount (for example, $30) you pay for covered health care services from providers who do not contract with your health insurance or plan. Out-of-network copayments usually are more than in-network co-payments.
Out-of-Pocket Limit - The most you pay during a policy period (usually a year) before your health insurance or plan begins to pay 100% of the allowed amount. This limit never includes your premium, balance-billed charges or health care your health insurance or plan doesn't cover. Some health insurance or plans don't count all of your co-payments, deductibles, co-insurance payments, out-of-network payments or other expenses toward this limit.
Physician Services - Health care services a licensed medical physician (M.D. – Medical Doctor or D.O. – Doctor of Osteopathic Medicine) provides or coordinates.
Plan - A benefit your employer, union or other group sponsor provides to you to pay for your health care services.
Preauthorization - A decision by your health insurer or plan that a health care service, treatment plan, prescription drug or durable medical equipment is medically necessary. Sometimes called prior authorization, prior approval or precertification. Your health insurance or plan may require preauthorization for certain services before you receive them, except in an emergency. Preauthorization isn't a promise your health insurance or plan will cover the cost.
Preferred Provider - A provider who has a contract with your health insurer or plan to provide services to you at a discount. Check your policy to see if you can see all preferred providers or if your health insurance or plan has a "tiered" network and you must pay extra to see some providers. Your health insurance or plan may have preferred providers who are also "participating" providers. Participating providers also contract with your health insurer or plan, but the discount may not be as great, and you may have to pay more.
Premium - The amount that must be paid for your health insurance or plan. You and/or your employer usually pay it monthly, quarterly or yearly. Prescription Drug Coverage Health insurance or plan that helps pay for prescription drugs and medications.
Prescription Drugs - Drugs and medications that by law require a prescription. Primary Care Physician A physician (M.D. – Medical Doctor or D.O. – Doctor of Osteopathic Medicine) who directly provides or coordinates a range of health care services for a patient.
Primary Care Provider - A physician (M.D. – Medical Doctor or D.O. – Doctor of Osteopathic Medicine), nurse practitioner, clinical nurse specialist or physician assistant, as allowed under state law, who provides, coordinates or helps a patient access a range of health care services.
Provider - A physician (M.D. – Medical Doctor or D.O. – Doctor of Osteopathic Medicine), health care professional or health care facility licensed, certified or accredited as required by state law.
Reconstructive Surgery - Surgery and follow-up treatment needed to correct or improve a part of the body because of birth defects, accidents, injuries or medical conditions.
Rehabilitation Services - Health care services that help a person keep, get back or improve skills and functioning for daily living that have been lost or impaired because a person was sick, hurt or disabled. These services may include physical and occupational therapy, speech-language pathology and psychiatric rehabilitation services in a variety of inpatient and/or outpatient settings.
Skilled Nursing Care - Services from licensed nurses in your own home or in a nursing home. Skilled care services are from technicians and therapists in your own home or in a nursing home.
Specialist - A physician specialist focuses on a specific area of medicine or a group of patients to diagnose, manage, prevent or treat certain types of symptoms and conditions. A non-physician specialist is a provider who has more training in a specific area of health care. UCR (Usual, Customary and Reasonable) The amount paid for a medical service in a geographic area based on what providers in the area usually charge for the same or similar medical service. The UCR amount sometimes is used to determine the allowed amount.
Urgent Care - Care for an illness, injury or condition serious enough that a reasonable person would seek care right away, but not so severe as to require emergency room care.
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.