What You Need to Know About Small Business Health Insurance
The rising costs of health care are not only a problem for individuals; they also are a big concern for small businesses that make health benefits a priority for their employees.
Small businesses have been adversely impacted by the rising costs of health care because the cost to cover one employee under group health insurance increased from a little bit over $2,000 to almost $6,500. The costs of providing health insurance to employees have become unsustainable through the years, forcing many small businesses to drop health benefits. Small businesses are well aware that for the coming years, the competitive war of talents will have health benefits as a vital reason for success or failure.
The owner of a small business must be mindful of all his expenses and make sure that he stays within the budget. With that in mind, a small business owner is expected to question the necessity of providing health insurance if he has only a handful of employees. The small business owner might be tempted to drop the idea of providing health insurance to his employees but it could be counterproductive as it will be difficult recruiting talented employees if he does not offer health insurance benefits. Providing health insurance to employees is one of those things that work for the small business owner and lets him retain his competitive advantage.
Why get small business health insurance?
The following are the reasons why a small business owner must get health insurance for his employees:
1. It’s the law
Companies with 50 or more full-time employees are legally required to provide affordable health insurance under the Affordable Care Act. By affordable health coverage, the annual cost of employees cannot be higher than 9.86% of the annual income in 2019. Businesses that will offer coverage will be subject to a penalty of $2,320 for every full-time employee, excluding the first 30 employees.
2. Group coverage is better
The individual health plan covers only an employee or his family. Small businesses can avail of the group insurance plan that has more advantages than an individual health plan.
Group coverage is insurance purchased by a business and offers to eligible employees and their dependents. Generally, group plans require to have at least two members, but in some states, a group of one is allowed.
The insurance company will collect some basic demographic information about the group members, such as geography, before explaining the plan options. Group health coverage is usually more affordable for employees as it offers more extensive coverage. The company can split the premiums with the employees or cover the entire premium if the budget allows it.
3. Tax credits
Purchasing health insurance for yourself and your employees will help you qualify for tax credits. You can qualify for tax credits if you purchase a health insurance plan through the Small Business Health Options Program Exchange, an insurance portal created by the Affordable Care Act.
You are qualified for tax credits if you meet the following:
· Have less than 25 full-time employees, or the equivalent based on working hours
· Pay salaries of less than $50,000 per full-time employee, on average, each year
· Offer health insurance to all of your full-time employees
· Front at least 50% of the premium cost of health insurance.
The tax credit will you get for your small business will depend on those aspects of your company, which will halve your contributions toward the insurance premiums of your employees. This will significantly reduce the cost of giving health insurance for your loyal and hardworking employees.
4. Other tax benefits
Beyond the tax credit, small businesses will be able to recoup the premiums for health insurance as tax deductions, letting him save more money. Small business owners can save a lot of money by deducting expenses, health insurance premiums being one of the most common small business tax deductions out there.
With a bit of paperwork, an owner of a small business can set up his health insurance to let employees pay their share of the premium using their pre-tax money. They save money, making them more satisfied and happier.
5. Improving job satisfaction and recruiting
Health insurance is important for people who are searching for a new job. When a small business offers health insurance, it shows how much it values its employees. Caring for employees is not exclusive to big corporations.
Investing in health insurance will allow a small business to attract the best and the brightest talent out there. Studies have established that providing health insurance coverage will increase the loyalty of employees and reduce employee turnover. The majority of workers will choose a job from a small business that offers health insurance plans over another that does not.
6. Healthy employees are productive
You cannot expect an employee without health insurance coverage to get yearly checkups or to immediately see a doctor when sick. A sick employee could get sicker because of the absence of medical treatment, which makes him take more time off from work and be unproductive. Employers who aim to save money to the detriment of their employees’ health are hurting the company’s bottom line.
7. Job security for the self-employed
A self-employed individual who has no employee still needs health insurance. Health insurance provides protection for yourself and your dependents, your finances, and your business against possibly serious illnesses in the future. A self-employed person may, depending on where he lives in, qualify for health insurance plans for small or a group health plan.
Health insurance cost for small businesses
The cost of providing employees with health insurance coverage must be measured in both dollars and time. If the small business owner is shouldering some of the premium costs, he has to factor that cost. There is also the time element at play when searching for a plan that meets the small business’ needs, explaining to the employees the plan options, and the administrative task of setting the plan in place.
The monetary cost of providing employees health insurance depends on the scope of the benefits provided, who will be covered, and the percentage of the insurance premium that the small business owner will be willing to cover. If the small business owners use a PEO, broker, or another third-party service to choose the best health insurance for the company’s needs, the owner has to account for the fees that will be collected. Group health insurance plans for small businesses are generally cheaper and affordable than individual plans.
The best way to budget the costs is to consider it as a percentage of the payroll or a monthly, per-employee cost.
It takes time to find, analyze, and pick the best health insurance plan for a small business.
The owner of the small business will spend time and energy searching online for providers, completing the paperwork, consulting the employees about their needs, and discussing with fellow entrepreneurs and small business health insurance experts. The owner of the small business needs to revisit his health insurance plan every year for open enrollment to make sure that it is properly maintained on an ongoing basis.
Insurance options for small businesses
The costs of health insurance for small businesses have become unsustainable, coupled with the hassles of the one-size-fits-all nature of traditional group benefits, which have caused many small business owners to drop the idea of providing health insurance coverage for their employees. Fortunately, there are various small business health options today.
1. Individual coverage HRA
There are two health reimbursement arrangements (HRA) available to small business owners: the individual coverage HRA and the excepted benefit HRA.
The ICHRA is ideal for employers of all sizes because they are not restricted based on the number of employees. The ICHRTA works very similar to the qualified small employer health reimbursement arrangement (QSEHRA), but without the contribution limits. Businesses can offer various allowance amounts based on 11 employee classes. Also, the ICHRA is available only to employees who are enrolled in individual health insurance, with employees covered by a spouse’s group health insurance policy being ineligible to apply.
2. The qualified small employer HRA (QSEHRA)
The qualified small employer health reimbursement arrangement is becoming an increasingly popular option. The QSEHRA, as with other health reimbursement arrangements, offers businesses with less than 50 employees a monthly allowance of tax-free money. Employees enroll in an individual health insurance policy, with the business owner reimbursing them up to the amount of their allowance. The employees can use the QSEHRA to be reimbursed for eligible out-of-pocket expenses, which allows a business to control their budget while offering their employees meaningful benefits.
All reimbursements under the QSEHRA are payroll tax-free for both the business and the employees.
Reimbursements will be free of income tax for the employees if they are covered by a policy that provides minimum essential coverage. The QSEHRA is considered as the best option for small businesses as complete personalization is allowed. Employees are free to purchase the plan that fits their needs best, while small businesses have the freedom to set their own budget.
The QSEHRA also offers value to small businesses in some unique situations, such as employees who work in multiple states, employees who have coverage under the spouse’s group insurance, and those with employees with no health insurance.
Group coverage HRAs
High deductible health plans are often offered as group health policy because of the lower cost. However, the reason why they are less expensive is that they cover less than other insurance policies.
To cushion some of the losses, the small businesses offer a group coverage health reimbursement arrangement. With a group coverage HRA, a small business can offer employees a monthly allowance of tax-free money on top of the group policy. Employees may choose and pay for health care and the business will reimburse them up to their allowance amount.
Usually, employees use the HRA to cover expenses such as deductibles, copays, and prescription drugs. There are many items available for reimbursement, but the small business owner is allowed to limit the list if he chooses to.
Reimbursements through the HRA are payroll tax-free to both the business owner and the employees. They are also free of income tax for employees. A small business can structure its employee eligibility requirements as long as the employees participate in the group policy.
Traditional group health insurance
Most small businesses choose a group health insurance policy, a plan chosen by businesses that provide coverage to employees and their dependents.
Small businesses that offer group health insurance pay a fixed premium for the policy, although they may ask the employees to shoulder a portion of the premium cost. The deductibles and copays associated with the medical service they seek will be the responsibility of the employees.
Small businesses usually purchase insurance coverage from an insurance broker or the public Small Business Health Options or SHOP marketplaces.
Traditional group health insurance is a good choice for small businesses as it is relatively easy to obtain and employees are very familiar with how it works.
The premium prices of this type of insurance are quite a challenge because its cost can reach up to $15,375 per employee family for businesses with less than 500 employees, which is simply beyond the reach of most small businesses.
Self-funded health insurance
Some small businesses opt to self-insure to avoid the restrictions and expensive premiums of group health insurance.
The self-insurance arrangement lets the business assume the financial risk for providing health care benefits to its employees. Instead of paying a fixed premium to an insurer, the business pays for each employee out-of-pocket claims as they arise.
The terms and eligibility, as well as the covered benefits, are outlined in a formal document. The business often sets up a trust fund to earmark money, contributed by both the business and the employees, to pay for the claims. Businesses may also fair the fund with a stop-loss policy to limit the potential risk of the business.
Small businesses can save money by having self-funded insurance, particularly in administrative costs. Self-insurance, however, is risky and large claims could a small business out of business.