the one minute takeaway
Securing the optimal employee health insurance policy is certainly a top priority when starting a small business. Having a well-rounded small business health insurance policy can help attract and retain the best talent.
In the lengthy list of critical items to address when starting your own business, securing the optimal employee health insurance policy is certainly a top priority. A policy that pay the costs of medical care, hospitalization expenses, prescriptions, and even dental and vision care as part of the benefit package a small business offers can help it attract and keep the best and brightest employees. Decision-making about health insuranceis also an integral piece of a company’s financial strategy not only as it starts up, but as business flourishes and its workforce grows. A company must also take care about the reputational concerns that may reflect poorly on the small business as a whole if it provides a minimal employee health insurance policy, or no employee health benefit at all.
When surveying health insurance options for your small business, it’s also important to know about differences in the health insurance needs between large and small companies. A small business may not be profitable at first, and health insurance may be seen as just an additional cost. In addition, small employers may not be subject to the Affordable Care Act. Under the ACA, employers with more than 100+ workers are required to provide them with health insurance. The ACA also mandates that large employers secure coverage with one of the four major health insurance carriers; the ACA also requires that large employers use a TPA to administer their group health insurance plans. Small employers, on the other hand, may purchase their employee health insurance from a broker who is licensed to sell health insurance offered by a wider variety of carriers. Indeed, the experts at HUB are able to find health insurance that meets the specific needs of your business and your workforce, without sacrificing the coverage options that the major carriers offer to large companies.
Employer-Sponsored Health Insurance
Employer-sponsored health insurance is a plan of insurance that an employer purchases, and participation in it is then offered to employees as a benefit of employment. Ordinarily, insurance coverage under the plan is available not just for the employee electing to participate but also for their spouse and dependents. Because the insurance plan is purchased (sponsored) by an employer to have multiple persons (employees and their dependents) participate, employer-sponsored health insurance is group health insurance. That characteristic differentiates it from health insurance purchased by an individual outside of an employment setting, although that type of policy can also cover the purchaser and their family members.
How Does Small Business Health Insurance Work?
There are a number of steps that a SMB must follow when setting up health insurance for its employees.
- As a preliminary matter, establish your company’s eligibility for small business health insurance. To qualify for small business health insurance under federal law, you must have at least 1 employee, and not more than 50. States differ on whether a business owner alone may be considered an employee to meet the “small business” qualification. You can rely upon HUB to help you navigate the federal and state eligibility requirements for small business health insurance.
- In addition, a company must understand and consider the ramifications of the percentage of monthly health insurance premiums it will be required to pay on its employees’ behalf. Employers that meet the SMB requirement generally must pay at least 50% of its employees’ monthly premium costs. HUB can guide you towards the carriers that may be willing to offer coverage with a lower employer contribution percentage.
- SMBs must also make decisions about coverage details that impact premium price, such as the extent of benefits for physical therapy, chiropractic, or mental health services. Fortunately, your company cannot be denied coverage because of any insured’s pre-existing medical conditions. But HUB can help you secure comprehensive and affordable health insurance as part of your employee benefit package.
- It’s also important for an SMB to shop around for health insurance, even if the is currently covered under a policy. By working with HUB during the pending coverage period, a SMB can be ready to enroll in a plan that better meets the company’s needs as soon as its existing employee health insurance expires.
Why Does My Small Business Need To Provide Health Insurance?
Most businesses offer health insurance to their employees because for various financial, competitive, and even moral reasons. Health insurance is expensive, but not offering health insurance also comes at a cost. Perhaps a SMB would rather use growth opportunities or incentives other than a robust benefit package to attract and keep the best employees. And an SMB may keep its proverbial eye on the bottom line rather than spending scarce resources on insurance that an employee can secure on the individual health insurance marketplace.
While the reasons for and against offering employee health insurance are as varied as the SMBs seeking (or not prioritizing) such coverage, most SMBs offer health insurance to:
- show it cares about the well-being of its employees and their families
- attract the best new candidates
- compensate for a proportionately lower salary than a candidate could obtain elsewhere
- retain existing employees
- avoid reputation risk as an employer that is indifferent to its employees’ basic needs
- avoid the perception that the SMB has inadequate business revenue or profit to afford health insurance for its employees
Types of Small Business Health Insurance Coverage and Policies
A SMB can choose between three different kinds of health coverage. The first is small group insurance, which is historically has been the primary and most popular option for the majority of small employers. The second option involves self-funded plans, which is a more affordable option for many SMBs. The third choice is a Health Reimbursem*nt Arrangement or HRA, another more affordable option that also provides tax advantages.
Each option has strengths and weaknesses that a company must assess to make the best choice for its employees and its business. The key points for each type of coverage are:
- Small Group Insurance
- Geared to businesses with less than 50 full time employees in all but 4 states
- Covers members of an employee or organizational group
- Requires at least 1 employee to qualify and usually at least 70% participation
- Purchased by employers or organizations and offered to employees or members, who may accept or decline to participate
- May extend to covered individuals’ dependents
- Employer or organization must contribute to employee/member premiums
- Allows for reduced cost due to spread of the insurer’s risk across the policyholder group
- One-size-fits-all coverage
- Annual premium increases and participation rate requirements are unpredictable
- There are different categories of small group health insurance, including:
- PPOs - which are established networks of healthcare providers with whom a carrier has made fee arrangements. Covered individuals may use providers in or out of network, with the percentage of PPO payment increasing or decreasing accordingly.
- HMOs – which provide comprehensive care to a member rendered by providers who are exclusively contracted with the HMO or who have agreed to work with it to care for members. An HMO member selects a primary care provider who is refers to specialists as determined.
- Indemnity plans – which require the issuing insurer to pay a stated percentage of medical charges, subject to deductibles and co-payments, and leave the policyholder free to choose their own direction of care. While allowing for the greatest degree of choice in the selection of medical providers, indemnity plans are the most expensive small group health insurance option.
- High-deductible plans – which include larger deductible amounts that traditional insurance policies, with correspondingly lower monthly premiums, and are often combined with a health savings account to permit tax-free payment of qualified medical expenses.
- Self-Funded Plans
- Provides cost-saving measures for SMBs concerned about rising healthcare expenses
- Employer pays claims out-of-pocket at the time of the claim instead of paying a pre-determined premium amount to the insurer
- Employer may create a trust fund for the funds required to pay claims as they come about
- Employer may also work with a TPA for claims processing, and for other services like conducting claim URs
- Gives employees the ability to customize their healthcare decisions
- Provides SMB with more control over health plan reserves, which maximizes interest income
- Employer avoids state health insurance premium taxes
- Subjects employers to the potential financial risk of paying catastrophic claims (although this risk can be mitigated by purchasing stop-loss insurance
- Health Reimbursem*nt Arrangements (HRAs)
- SMB reimburses its employees on a pre-tax basis for insurance premiums and medical expenses
- Employees pay premiums or medical expenses directly to the insurer or medical provider, submit a claim, and get reimbursed
- Different model from Health Savings Accounts (HSAs) or Flexible Spending Accounts (FSAs) which withdraw payment from funded accounts
- Permits employers to reimburse employees without the payment of payroll taxes
- Permits employers to count reimbursem*nts as a tax deduction
- Employees get reimbursed on a pre-tax basis
- There are different categories of HRAs, including:
- Qualified Small Employer Health Reimbursem*nt Arrangement (QSEHRA) – which allows SMBs to set aside a fixed amount that employees use to buy individual health insurance or to make tax-free payment of medical expenses.
- Individual Coverage Health Reimbursem*nt Arrangement (ICHRA) – which provides the same benefits as a QSEHRA, but does not limit maximum contributions or the size of participating companies, and allows benefits to be adjusted across different employee classes and locations.
Why Choose HUB’s Small Business Health Insurance?
SMBs can trust HUB to help them confront the key issues and concerns that must be resolved when with respect to health insurance benefits for the company’s employees. When it comes to compliance obligations and eligibility requirements, HUB can help SMBs navigate the applicable and complex array of federal and state laws and regulations. HUB will also guide SMBs to the health insurance carriers who can offer the most affordable premiums and a lower contribution percentage. Whether you’re a new SMB searching for your first policy, or an established company seeking more comprehensive health insurance at a more affordable price, HUB will help you to secure the most optimal coverage for your SMB’s specific insurance needs.
Small Business Health Insurance FAQ
How do small business owners afford health insurance?
SMB owners afford health insurance by selecting the most affordable and comprehensive option to fit their needs. Contact HUB for details about small group, self-funded, and HRA options.
Can I get health insurance through my LLC?
Small business health insurance is generally not available through an LLC. An LLC can deduct health insurance premiums, but this depends upon specific rules that apply differently to non-member employees, the self-employed, and corporations. Contact HUB to for clarification and guidance.
How do I get health insurance if I own my own business?
Securing health insurance if you’re self employed depends on whether your situation is temporary or permanent. If you’ve recently left a job, you may qualify for COBRA coverage or consider buying short-term health insurance or health insurance that is industry-specific. The permanently self-employed can turn to the Health Insurance Marketplace, purchase private health insurance, or consider health care sharing ministries. HUB can provide information and guidance on the available options.
Is employer sponsored health insurance cheaper?
Employer sponsored health insurance is usually less expensive than individual health insurance policies because it is group coverage. However, the cost is also based on factors such as the benefits provided, co-payments, deductibles, and the insurance company involved. HUB can help you establish the most comprehensive and affordable employer-sponsored health insurance program.
What is the cost of employer sponsored health insurance insurance?
The cost of employer sponsored health insurance depends on many factors, including the size and location of the group, the kind of plan selected, benefits provided, co-payments, deductibles, and the insurance company involved. HUB can help you find the most affordable health insurance option for your SMB.
