The coronavirus pandemic continues to impact the country's businesses and workers significantly. As a result, remote work and hybrid arrangements are gaining a stronger foothold, causing a massive shift in the economy and healthcare. Employers are still the most common source of health insurance in the U.S. (though just over 50%, according to Census reports), but this outdated model is rapidly losing its luster.
For small businesses, managing health insurance costs while providing valuable benefits to employees is a top priority. Exploring alternatives to traditional small-group health insurance can lead to more affordable, flexible solutions that better meet the diverse needs of both employers and employees. This guide highlights the best alternatives, including Health Savings Accounts (HSAs), Professional Employer Organizations (PEOs), telemedicine, and Association Health Plans (AHPs). Each option offers distinct advantages, from tax savings to improved access to care, providing small businesses with the tools they need to offer competitive health benefits efficiently.
Why Consider Health Insurance Alternatives?
In the rapidly changing healthcare environment, businesses increasingly seek ways to offer competitive benefits while managing costs effectively. While beneficial for many, the traditional group health insurance model may only align with some businesses' financial and operational goals, such as tiny to medium-sized enterprises (SMEs). The rising costs of employee insurance for employers serve as a pivotal reason for employers to consider health insurance alternatives. Here's an expanded look into why exploring these alternatives is becoming more critical:
Escalating Costs of Traditional Health Insurance
One of the most compelling reasons for businesses to explore health insurance alternatives lies in the significant financial burden that traditional group health insurance plans can impose:
High Premiums: The cost of premiums for employer-sponsored health insurance has been steadily increasing. For many businesses, especially SMEs, these costs consume a substantial portion of their budget, limiting their ability to invest in critical areas such as employee development, infrastructure, and innovation.
Predictability of Expenses: Traditional health insurance plans often come with unpredictable rate increases at renewal times, making financial planning challenging for businesses. Alternatives can offer more predictable costs, helping companies to budget more effectively.
Administrative Complexity: Managing traditional health insurance plans requires significant administrative effort and resources, contributing to the indirect costs of providing health benefits. This complexity can be particularly burdensome for small businesses without large HR departments.
The Financial Appeal of Health Insurance Alternatives
Exploring alternatives to traditional group health insurance can offer several financial benefits:
- Lower Cost Solutions: Health Reimbursement Arrangements (HRAs), for example, allow employers to set aside a fixed amount of money each month for employees to purchase individual health insurance or cover medical expenses. This approach can be more cost-effective than paying the high premiums of group plans.
- Flexibility in Benefits Offering: Alternatives often enable businesses to offer various health benefit options without the one-size-fits-all price tag. Employers can tailor the health benefits offered to their workforce's and company's specific needs and budgets.
- Tax Advantages: Certain health insurance alternatives provide tax benefits unavailable in traditional group plans. For instance, contributions to HSAs and certain types of HRAs are tax-deductible, lowering the overall tax burden for employers and employees.
- Incentives for Healthy Behaviors: Some alternatives focus on preventative care and wellness programs that can lower healthcare costs in the long run. By incentivizing healthy behaviors, companies can see a reduction in sick days and long-term health-related expenses.
Strategic Benefits for Employers and Employees
Beyond the financial implications, considering health insurance alternatives can also have strategic benefits:
- Cost Efficiency: Traditional group health insurance plans can be prohibitively expensive for small businesses or startups. Alternatives often provide more affordable solutions while maintaining the quality of care.
- Flexibility and Customization: Health insurance alternatives, such as Health Reimbursement Arrangements (HRAs), allow employers and employees to tailor coverage to fit individual needs. This customization can increase satisfaction and make a better fit for diverse health needs and financial situations.
- Access to a Broader Network of Providers: Some alternatives offer access to a broader network of healthcare providers, overcoming the limitations set by traditional plans' in-network provider lists.
- Simplicity and Ease of Use: Managing a group health insurance plan for small businesses can be complex and time-consuming. Health insurance alternatives often have simpler administration, making it easier for businesses to offer health benefits.
- Encouragement of Consumer-Driven Healthcare: Alternatives like Health Savings Accounts (HSAs) encourage individuals to control their healthcare spending, promoting consumer-driven healthcare that can lead to more cost-effective health management.
- Attracting and Retaining Talent: Offering a customizable and flexible benefits package can make a company more attractive to potential employees and help retain current staff by meeting their diverse needs.
- Enhancing Employee Satisfaction and Productivity: Employees with access to health insurance that meets their individual or family needs will likely be more satisfied and productive. Personalized benefits can contribute to a healthier, more engaged workforce.
By considering health insurance alternatives, businesses and individuals can find solutions that better match their needs, offering a balance between cost, quality of care, and flexibility.
Benefits of Health Insurance Alternatives
Exploring health insurance alternatives offers a range of benefits that cater to the modern workforce and the evolving needs of companies. Here are key advantages to consider:
- Cost Savings: Both employers and employees can benefit from the cost-effectiveness of alternatives to traditional health insurance. Employers can control costs more predictably, while employees might save on premiums and out-of-pocket expenses.
- Enhanced Employee Satisfaction: Offering various health insurance options can increase employee satisfaction and retention. Employees value the ability to choose plans that best suit their personal and family health needs.
- Increased Coverage Options: From telemedicine services to mental health support, health insurance alternatives often cover a broader range of services not always included in traditional plans.
- Tax Benefits: Certain health insurance alternatives come with tax advantages. For example, contributions to an HSA can be made pre-tax, reducing taxable income for employees and tax liabilities for employers.
- Adaptability to Life Changes: Health insurance needs will evolve as employees' life circumstances change. Alternatives to traditional health insurance can offer the flexibility to adjust coverage as needed without being tied to the employer's chosen plan.
- Promotes Healthy Living: Some alternatives focus on preventative care and wellness programs, encouraging a healthier lifestyle among employees. This can lead to reduced healthcare costs in the long run.
By incorporating health insurance alternatives, companies can offer more dynamic, adaptable, and cost-effective health benefits. This approach supports the business's financial health and contributes to a healthier, more satisfied workforce.
What Are My Options Besides Group Health Insurance?
Traditional group health insurance has many drawbacks for business owners. It can be expensive, with pricey yearly renewals, and doesn’t offer the flexibility modern business owners need—the ability to work with a remote and mixed workforce. These obstacles send business owners looking for alternatives to group health insurance. So, what options are there besides the traditional group health insurance route?
Don’t offer any health benefits
While technically legal (if you have 50 or fewer full-time employees), we don’t advise this if you want to attract and keep good talent. There will always be another company that offers health benefits, so make sure you’re not missing out on great team members by choosing not to offer coverage.
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- Gives employees funds for health coverage: No
- Offers a tax advantage for your business: No
Offer health stipends
This option lets you provide some health benefits, but your business has no tax advantage. Employees get a fixed, taxable stipend to purchase the individual health insurance plan of their choice and use it on out-of-pocket expenses, but your business has no tax advantage.
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- Gives employees funds for health coverage: Yes
- Offers a tax advantage for your business: No
Increase employee salaries
When you dig deeper into what this entails, it’s not as attractive as it sounds. When you increase employee salaries, you and your employees take a tax hit – more payroll taxes for you and more income taxes for them. So a portion of that extra cash goes to income taxes.
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- Gives employees funds for health coverage: Yes…but part is lost to income taxes.
- Offers a tax advantage for your business: No,…more like a tax disadvantage.
HSA (Health Savings Account)
An HSA is a tax-advantaged savings account designed to be used with a high-deductible health plan (HDHP). It allows employees and employers to contribute pre-tax dollars, which can be used for qualified medical expenses. This setup provides a way to save on taxes and empowers employees to manage their healthcare spending more directly.
- Gives employees funds for health coverage: Yes, for qualified medical expenses.
- Offers a tax advantage for your business: Yes, contributions are tax-deductible, and funds grow tax-free.
PEO Plan (Professional Employer Organization)
Partnering with a PEO allows small and medium-sized businesses to offer a broader range of health benefits by co-employing their staff with the PEO. This relationship enables businesses to access the PEO's larger pool, often more favorable health insurance rates, and administrative services for managing the plan.
- Gives employees funds for health coverage: No, but it provides access to potentially better plans.
- Offers a tax advantage for your business: There is no direct tax advantage, but it can reduce insurance costs.
Telemedicine
Offering telemedicine as a health benefit is an increasingly popular option, especially with the rise of remote work. It provides employees convenient access to healthcare professionals via phone or video conferencing, often resulting in lower healthcare costs and increased accessibility.
- Gives employees funds for health coverage: No, but offers direct access to medical services.
- Offers a tax advantage for your business: Although there is no direct tax advantage, it can be a cost-effective addition to health benefits.
Association Health Plans (AHPs)
AHPs allow small businesses to band together to purchase health insurance, leveraging their combined numbers to access better rates and more comprehensive coverage options, similar to larger corporations. This can be particularly advantageous for small businesses seeking to enhance their benefits package while managing costs.
- Does it give employees funds for health coverage? No, but it provides access to potentially better plans through collective bargaining.
- Offers a tax advantage for your business: There is no direct tax advantage, but it can reduce insurance premiums.
Offer a Health Reimbursement Arrangement
A health reimbursement arrangement is an affordable, tax-advantaged alternative to traditional insurance, where employers reimburse their employees for individual insurance premiums and medical expenses (if applicable). HRA coverage is done on a pre-tax basis and is often considered the best health insurance for small business option.
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- Gives employees funds for health coverage: Yes
- Offers a tax advantage for your business: Yes
Ask us about tax-free health insurance reimbursement!
→ Check out our 5 tips for choosing a small employer health insurance plan
→ Compare QSEHRA vs ICHRA to see what's best for you.
Health Insurance Alternatives For Self-Employed
If you’re self-employed, you are the business owner, which means you’re responsible for getting your own health coverage and health benefits, and company group coverage isn’t an option.
So, what are health insurance alternatives for the self-employed?
Health insurance marketplace
Thanks to the Affordable Care Act (ACA), people who don’t have employer-sponsored health insurance plans can find affordable individual health coverage plans, like Blue Cross health insurance self-employed. Our individual health insurance platform can help you shop for the best plan.
Health care sharing ministries
(HCSMs) are cost-sharing membership groups available to people who share religion or ethical beliefs. Members pay monthly dues (like a premium) that cover medical costs for other members. These can be tricky since it’s not an insurance plan; they’re not required to pay out anything or follow (ACA) mandates. Read our CEO's review of Medi-share here.
A health reimbursement arrangement
is an affordable, tax-advantaged alternative to traditional insurance, where employers reimburse their employees for individual insurance premiums and medical expenses (if applicable) on a pre-tax basis.
Check out our new small business health insurance guide to dive deep into these ideas.
Bonus! You can reimburse employees who have both an individual and a Medicare plan. Through your HRA, you can reimburse Medicare premiums for Medicare-eligible employees. Read more about that process here and how Take Command can help you.
Self-employed ICHRA Insurance
If none of the above health insurance alternatives for self-employed work for your specific situation, you may qualify for an even better option – an HRA for self-employed. This is a great affordable health insurance alternative for self-employed people. For a business owner to participate in an HRA, they must be considered an employee of the business and depends on how the plan and business are set up. These are some common ways companies are set up and what that means for HRA eligibility.
- C- Corps are legal entities separate from the business owners. Under a C-corporation, the business owner and dependents can utilize an HRA!
- S-Corps prevent businesses from taxing by passing any profits and losses through shareholders' income tax returns. Because of this setup, an S-Corp owner who owns more than 2% of the company is considered self-employed, not an employee, which means they can't participate in an HRA.
- Partnerships are also not subject to income tax. Partners are directly taxed, making them self-employed and not eligible for participation. The Loophole: if the partner’s spouse is a W-2 employee (and not a partner spouse), then the owner can participate in the HRA as a dependent of the spouse.
- Sole proprietorships are unincorporated businesses owned and operated by one individual, with no distinction between the business and owner. The owner is not an employee and will not qualify for the HRA unless their spouse is a W-2 employee; then, the owner can access the HRA as a dependent of the spouse (for QSEHRA only).
“As a self-employed individual, you are generally not eligible for an HRA because you are not an employee; your spouse can be an employee and eligible for an HRA and health plan that covers you.”
- Even though you're self-employed and can't directly qualify for an HRA, you can still take advantage of everything an HRA offers. Here’s how to make an HRA work for you if you’re self-employed (and have no employees other than yourself) and married.
- Hire your spouse as a W-2 employee.
- Make your spouse the primary member of your family health plan.
- Cover yourself as a dependent on your spouse’s major medical health plan.
- Set up a One-Person 105 HRA, ICHRA, or QSEHRA for your spouse.
- Save all your medical bills and records and have your company reimburse the bills each month from a separate account.
- If you’re self-employed with no employees and you’re married, this post walks you through the steps to participate in an HRA.
Please note: This strategy only works if you don’t hire any other W-2 employees that would be eligible for either ICHRA, QSEHRA or a One-Person 105 HRA (make sure to look at those rules closely) and assumes that you and your spouse don’t own any other businesses that have employees (common ownership rules would likely apply and the plan would fail to meet Section 105 requirements). And remember to keep good records!
Take Command can help with ICHRA for the self-employed!
We’re ready to chat on our site if you have specific questions about your business and how HRAs could help. Setting up an ICHRA is simple and quick, and our team is here to help if you need it. You should also check out this amazing guide to learn everything you need to know about individual coverage HRAs. And we have resources available to you specifically for small business owners so you can learn all about ICHRA; think of this as your ICHRA for dummies guide! Learn more about details like administration costs, how to set up your HRA, ICHRA rules 2022, ICHRA vs group plan and ICHRA vs QSEHRA for your small business or self-employed plans.
When is open enrollment for health insurance 2023? Open enrollment starts November 1 so hop over to our handy tool to help you navigate the healthcare marketplace, and check out our open enrollment resource guide.
Health Insurance Alternatives 2023
As we enter open enrollment season and you're browsing the healthcare marketplace on healthcare.gov or considering health insurance alternatives, keep in mind that you have options regarding healthcare coverage.
Our team can help you decide what type of health insurance alternative is best for you and your business – whether it's a health care sharing ministry or health reimbursement arrangement – with our step-by-step tools and resources to help you find the best fit.
You can access many valuable resources, including FAQ pages for the ICHRA and QSEHRA and many informational posts on our blog. You can also chat with one of our team of experts anytime!
Ask our experts how to get started with a plan that works for you!
