When employees think about benefits they could earn through a new job, health insurance is one of the first things they consider. Everyone needs it, and the cost can be prohibitive for individuals. Employer-provided health insurance is a tempting benefit for job seekers.
When business owners think about health insurance, though, they often feel trepidation. How will they navigate the complicated legal requirements? Where will they find a plan that satisfies their employees’ needs? And how much will it cost?
It’s true, health insurance can be expensive for employers. Insuring an individual can cost around $6000 per year–and even more for family coverage. But between employees’ need for it and the legal requirements for employers, it’s some of the most worthwhile money you’ll ever spend on benefits.
Do You Need to Provide Insurance?
Under the Affordable Care Act, employers with over 50 full-time employees must offer affordable health insurance. If employees are part-time, you can find the full-time equivalent by adding up the total hours your employees work per week and dividing by 30. The insurance you offer must be affordable, meaning your employees’ share of the annual premium must be no more than 9.78% of their annual income.
Even if your business is too small to qualify, however, it’s still a good idea to offer insurance. The high cost of individual plans makes it impractical for workers to accept a job offer that doesn’t include a competitive insurance plan. Good health insurance helps retain employees for years, saving thousands in rehiring costs.
In addition, employees can focus better on their job if they know that their medical expenses are provided for. Insured workers are more likely to get preventative care, avoiding serious illness and chronic absenteeism. And knowing their employer cares for their well-being will increase their sense of buy-in with the company.
If your business has fewer than 25 employees, you can earn tax credits for providing health insurance. Requirements include:
- The insurance is purchased on the Small Business Health Options Program (SHOP) Exchange
- Yearly salaries for full-time employees average less than $50,000 a year
- Health insurance is available for all full-time employees
- You pay at least half the premium cost yourself
If your business meets the above requirements, you can be paid back in tax benefits for up to half of what you spend on premiums.
Your Options
Small group insurance
When we think of health insurance provided by a business, we are usually considering small group health insurance. Instead of buying insurance for employees individually, the employees are taken as a group, which an insurance company covers together. This allows all the employees to be included in the same risk pool, bringing overall costs down.
The most common type of group health insurance is the PPO, or preferred provider organization. PPOs allow participants to see any doctor they choose within the provider network for the same copay, and any doctor outside of the network for a higher copay. They don’t need to choose a primary care provider (PCP).
Another option is an HMO. HMOs, or health maintenance organizations, center patient care around the primary care provider. Each participant must choose one, and they will need this doctor’s approval to see a specialist. This keeps costs lower, but it restricts participants’ options. Out-of-network providers aren’t covered.
High-deductible health plans (HDHPs) can be combined with health savings accounts (HSAs). An HSA allows participants to save pre-tax money for future health expenses, including to meet their plan’s high deductible.
Finally, indemnity plans, or fee-for-service plans, reimburse participants after they have paid for services out of pocket. It allows complete freedom for the participant, but they may not be reimbursed the full cost they had to pay.
Self-funded plans
Some employers, concerned about the cost of group insurance, choose self-funded insurance. Instead of an insurance company taking a risk on the potential cost of your employees’ healthcare, you take that risk yourself. The business puts a certain amount of money in trust for future healthcare expenses, then the employer pays for costs the employees incur.
To set up self-funded insurance, you may want to consult with a broker. A stop-loss insurance plan protects your business from being bankrupted by a single catastrophic claim. It’s also wise to bring in a third-party administrator to manage the plan for your employees.
Health reimbursement arrangements
One last option, which leaves employees more freedom, is to reimburse individuals for buying their own insurance. This way, they can select any plan that meets their needs, and you pay a fixed amount. They can buy insurance that fits within that budget, or use your payment to cover part of a more expensive plan while they cover the rest.
To protect employees’ privacy, you can have this health reimbursement arrangement (HRA) managed by a third party. Two options are qualified small employer health reimbursement arrangements (QSEHRA) and individual coverage health reimbursement arrangements (ICHRA). Both allow money to be set aside, free of taxes, for reimbursements. A QSEHRA has limits on business size and maximum contribution, while an ICHRA is more flexible for businesses of various sizes.
Where to Find Health Insurance
Once you have an idea of the kind of health insurance you’d like to provide, it’s time to start looking. You can find insurance through any of these sources:
- Directly from an insurance company, such as Aetna or Blue Cross. You may get a better rate this way, but it will take substantial time and effort to sort through your options.
- From a broker, who can show you different plans available and help you choose the best one for your company. They are paid on commission—don’t hire a broker who expects to be paid up front.
- Through a purchasing alliance, which will sell a variety of options to your employees at a single cost to you. This allows your coverage to come through a larger group, with bigger purchasing power, than your business has on its own. Plus, your employees can choose from a selection of plans.
- Through a professional employer organization (PEO). A PEO can handle a lot more than health insurance, such as human resources and payroll, but if you have one, it can manage your health insurance benefits as well.
- Through the SHOP exchange, provided by the government. Plans you find here are eligible for SHOP tax credits, as described earlier.
Ready to Start?
You don’t need to jump in at the deep end. Instead, you can start by consulting with a financial advisor. You can discuss the possibilities for a business your size, the options available in your area, and your goals. Our advisors are experienced in business management and matched to your needs.
