Have questions about small business health insurance? You probably know that having a competitive benefits package is a key to recruiting and maintaining the top talent in a tight job market. Your company is only as good as the team you build, and it's just common sense to ensure that those valuable team-members remain loyal. Compensation is a driving factor for effective retention strategies, but benefits and culture are also important to today's workforce. Let’s explore your options for health benefits for small business.
The good news?
You probably have more options for employee insurance than you realize!
Small business health insurance options
Let's talk about health insurance for small business. Historically, small-group insurance has been the primary option for many small employers who are looking to offer health benefits for their employees, but that's just not the case anymore.
While small group health insurance plans are the most widely known and understood, they are not the only option. You actually have THREE options! What works best for you depends on how your company is set up, how individual and group plan costs vary in your geographic area, and the health of the individual market near you.
Let's look briefly at each option.
Small group insurance
In the past, small-group insurance—or fully-funded insurance—has been the primary option for many small employers who are looking to offer health benefits for their employees. It is geared toward businesses with less than 50 full time employees everywhere except four states where it applies to businesses with up to 10 employees.
Group Insurance health plans provide coverage to a group of members, usually made up of company employees or members of an organization. Group health members usually receive insurance at a reduced cost because the insurer’s risk is spread across a group of policyholders.
With the cost of healthcare continuing to rise, some employers are looking to self-funding as a means to save on costs. Technically speaking, self-insured employers pay for claims out of pocket when they arise as opposed to paying a predetermined premium to a carrier for a small group plan. This type of plan, also known as a self-insured plan, is usually seen with a large enterprise as a means to control their healthcare spend and manage their own risk pool.
Health reimbursement arrangements
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.
Unlike Health Savings Accounts (HSAs) and Flexible Spending Accounts (FSAs) that are accounts, HRA stands for Health Reimbursement Arrangement, meaning that the model operates on reimbursements. Employees will pay the insurance company or doctor’s office directly and then submit a claim to get reimbursed for their expenses tax-free.
The use of new reimbursement models of HRAs put the employer's reimbursements on nearly the same tax playing field as traditional small group plans, but without all the hassles and requirements.
Before, a big advantage for group plans was that they were deductible expenses for employers and were taken out of employee paychecks on a pre-tax basis. With an HRA, employers can make reimbursements without having to pay payroll taxes and employees don’t have to recognize income tax. In addition, reimbursements made by the company count as a tax deduction.
→ For decision making support, check out our post on what the best insurance is for your business.
Are small businesses required to offer health insurance?
Great question. Small businesses in the United States are generally not required by federal law to provide health insurance to their employees. However, there are some important considerations to keep in mind:
Affordable Care Act (ACA) Requirements: The Affordable Care Act, also known as Obamacare, introduced certain requirements for employers regarding health insurance. Large employers with 50 or more full-time or full-time equivalent employees are subject to the Employer Shared Responsibility Provision, which may require them to offer health insurance to full-time employees or potentially pay a penalty if they don't. Small businesses with fewer than 50 full-time or full-time equivalent employees are generally not subject to this requirement.
State-Specific Requirements: Some states have implemented their own health insurance requirements for small businesses. These requirements can vary significantly from one state to another, so it's important for small business owners to be aware of and comply with any state-level regulations.
Tax Benefits for Small Businesses: While not required, small businesses may be eligible for tax incentives and credits if they choose to provide health insurance to their employees. The Small Business Health Care Tax Credit is one such incentive available to qualifying small businesses.
Marketplace Coverage: Small businesses that do not provide health insurance may direct their employees to the Health Insurance Marketplace (Exchange) where employees can purchase individual health insurance plans. Depending on their income, employees may be eligible for premium tax credits and subsidies to help make coverage more affordable.
Employee Expectations and Competition: While not legally required, offering health insurance can be a competitive advantage for small businesses. It can help attract and retain employees, especially in industries where health benefits are commonly provided.
It's important for small business owners to consult with legal and financial advisors, as well as review federal and state regulations, to understand their specific obligations and options regarding health insurance for their employees. Regulations can change over time, so staying informed about any updates to healthcare laws and requirements is crucial for small business owners.
The importance of health insurance for employees
While you might not be required to offer health insurance for your small business, health insurance for employees is important for several reasons, both from the perspective of the employees and the employers. Here are some key reasons why it is crucial:
Employee Well-being: Providing health insurance shows that the employer cares about the well-being of their employees. It ensures that employees have access to medical care when they need it, promoting their physical and mental health. Healthy employees are more likely to be productive and engaged at work.
Attracting and Retaining Talent: Offering health insurance can be a powerful tool for attracting top talent and retaining valuable employees. In a competitive job market, good benefits, including health insurance, can set an employer apart from competitors.
Productivity and Attendance: When employees have access to health insurance, they are more likely to seek timely medical care when they are sick or injured. This can lead to quicker recoveries and less time off work, ultimately improving overall productivity and attendance.
Financial Security: Health insurance provides a safety net for employees and their families in the event of a major illness or injury. Without insurance, medical expenses can quickly become overwhelming, leading to financial stress and potential bankruptcy. Health insurance helps protect employees from these financial hardships.
Preventive Care: Many health insurance plans cover preventive services like vaccinations, screenings, and wellness check-ups at no or low cost to the employee. This encourages employees to take proactive steps to maintain their health, potentially preventing more serious and costly health issues down the road.
Legal Requirements: In some countries, providing health insurance to employees is a legal requirement. Failure to comply with these regulations can result in fines and legal consequences for employers.
Tax Benefits: Employers often receive tax incentives for providing health insurance benefits to their employees. These incentives can help offset the cost of offering insurance.
Employee Satisfaction and Morale: Having health insurance as part of a benefits package can boost employee satisfaction and morale. When employees feel that their employer cares about their health and well-being, they are more likely to be satisfied with their job and committed to the company.
Reduced Turnover: Employees are more likely to stay with an employer that provides health insurance. Lower turnover rates save employers the costs associated with recruiting, hiring, and training new employees.
Legal Protections: Providing health insurance can also protect employers from potential legal issues related to employee health. It can help establish clear policies and procedures for managing employee health-related matters.
In summary, health insurance for employees is important because it promotes the health and well-being of employees, attracts and retains talent, enhances productivity, provides financial security, and helps employers comply with legal requirements. It's a valuable investment in both the health and success of the workforce and the overall success of the organization.
The best health insurance for small business
There are 2 types of HRAs that allow small businesses to reimburse their employees for health insurance tax-free. This is in our humble opinion the best way to offer health care for small business.
QSEHRA: To cut quickly through the insurance jargon (it stands for “Qualified Small Employer Health Reimbursement Arrangement” by the way), a QSEHRA allows small employers (businesses with less than 50 FTEs) to set aside a fixed amount of money each month (up to $5300 a year for individuals and $10,700 for families in 2021) that employees can use to purchase individual health insurance or use on medical expenses, tax-free.
ICHRA: The individual coverage HRA has all the same benefits as QSEHRA, but with no maximum contribution limits and no company size limit. In addition to the flexibility of varying rates based on age and family size like QSEHRA, the hallmark feature of ICHRA is that benefits can be scaled across different classes of employees. That means an employer can offer one reimbursement amount to seasonal workers, another amount to part-time, and varying amounts based on geographic area, allowing further streamlining of total benefit spend. An ICHRA can also be integrated with a group plan, which is another distinction.
Want to learn more about small business health insurance?
We are ready to chat on our website if you have any specific questions about your business and how HRAs stack up against group plans in your area. Setting up a small business HRA or setting up an ICHRA is simple and quick, and our team is here to help if you need it.
Here are a few other helpful resources if you want to learn more:
- The Official Small Business Health Insurance Guide
- The best options for health insurance for companies
- Health insurance for employees: where to start?
- How much does health insurance for employees cost?
- The best strategy for health insurance for small business
A wife to one and mother to four, Keely does all of the things. She’s also dabbled in personal finance blogging and social media management, contributed to MetroFamily magazine, and is passionate about good food, treasure hunting and upcycling. With a B.S. in Psychology from the University of Oklahoma and a knack for a witty punchline, it’s no surprise that Keely’s social posts are as clever as they get. In her (very little) free time, you’ll find Keely with her nose in a book or trying out a local restaurant with her family.