Whether you are developing a small company with under 50 employees, or you are holding it down as employer and the only employee, health insurance must be a primary concern of your business. Health insurance is of course a requirement for all Americans, but it can also be a major worry due to the potential for it to cost way too much in the wrong circumstances.
What is Required for Health Insurance by my Small Business?
The Affordable Care Act or ACA states that health insurance is required to be provided by large companies. The ACA defines a large company as any company with a combination of 50 full-time and full-time-equivalent employees – effectively, multiple part-time employees whose hours equate to that of a full-time employee or more than 30 hours weekly.
The mandate requires these larger companies to provide their employees and their families with insurance that covers at least 60% of services. Employers can offset this cost by requiring employees to help pay for their insurance, as long as the cost to the employee is not more than 9.86% of the entire household’s income.
Now if your company counts as a small business and has less than 50 full-time-equivalent employees, you are not required to provide insurance for your employees. However, it still may be the right call to make for two reasons. The first reason is that you need healthcare, and even if you are the only employee in your company, you have an obligation to provide healthcare for you and your family. We will go over more options soon for how to do that.
The next reason to consider seeking healthcare if you have a small company with a few employees is that taking care of your employees is the best way to take care of your company. With health insurance an issue that your employees have to fend for themselves, their stress level will rise, and it may become such a large concern that they need to seek other employment. Health insurance may seem like a significant investment, but not providing health insurance will force your employees to need more money to afford it. If you want quality employees, you have to treat them well.
What are the Health Insurance Options for Small Businesses?
If you have a small company or work as both captain and crew of the ship, there are a few different options available to you. Some of them are dependent purely on the size of the company, and some options may be based more on your company’s region or even the relative health of your employees or yourself.
1. Direct Purchase of Health Insurance
This option is as just about exactly what it sounds like, and it is most likely as poor an option as it sounds like. While it has the potential to save you money on the plan, it requires incredible diligence on your behalf to avoid the plan going horribly awry.
You will have only a few options for providers who will do direct purchase, and less options generally means less quality options. You as the business owner will have to do all of the relevant paperwork with enrollment every single year as well as enrollment for new employees. You will still have to do paperwork for all eligibility, claims, and billing. Not only is this inefficient, but it only weighs you down more as your company grows. You may even just choose a suboptimal plan due to your unfamiliarity with the insurance industry.
Unless you are an expert on health insurance matters, this is the wrong choice. Even if you are, if you are running a company more than just a few employees, directly purchasing your health insurance will bog you down with paperwork and prevent you from simply running your company. Whether you trust the insurance agencies or not, at the end of the day, they likely know how to help you better than you do in terms of finding the right plan.
2. Informal Stipend by Small Business
Informal stipends are sort of the roundabout way of providing health insurance. Effectively, the idea is the provide the extra funds to the employee to go out and search for their own insurance, paying for it themselves. This does provide quite a lot of flexibility for the employee since they can choose whatever they want in this case, though of course, you as the employer will be deciding how much the stipend for insurance will be.
The issue here ironically may be the attraction to it actually. The employee has no hard obligation to spend this stipend on health insurance, and they may not seek out insurance at all. For a healthy, young employee with no family who needs the extra cash right away and is willing to take the risk of getting sick or injured, this might make sense. It is incredibly risky, however, and it should greatly concern you as an employer.
This option may save you some paperwork, but it will only cause you as the employer a headache in the long run. It allows your employees to be risky, and that will eventually lead to major problems.
3. Health Reimbursement Arrangement
An HRA is what the informal stipend plan should be. Here, you are not writing a blank check and telling your employees to please go buy health insurance. The money is only provided after the fact, hence the word reimbursement.
You as the employer will decide on a monthly tax-free allowance, and your employees will go and make their medical trips and purchase their health insurance. They will be reimbursed for their expenditures up to the predetermined allowance amount. They are welcome to pay higher than that amount, but it will come out of pocket. This plan is incredibly flexible, and that may be the attraction.
This plan will not be attractive to employees who do not want to go and do all the paperwork and research necessary to selecting an insurance setup and their own doctors. However, someone has to do it, and you have a company to run. Making insurance decisions for all of your employees is a bit time-consuming, and this frontloads that effort onto the employees while granting them the flexibility that comes with it.
4. Group Health Insurance for Small Businesses
Even if your company only has one employee (you), your company may still qualify for group health insurance depending on your state’s laws. If the company has at least an owner and one employee, it certainly qualifies. This option is not restricted to large companies, but it still may not be a good fit for your small business.
The nice thing about group health insurance is that you and your employees are probably familiar with how it works if you came from larger companies where it is common practice. The downside is that premiums are high, and administrative fees are higher for small businesses. This is probably the most convenient option for all involved, but if your business has very few employees, it likely makes little financial sense.
5. Health Insurance Purchasing Alliances
Purchasing alliances and private health exchanges are solid options if the cons and pros are properly weighed. You might consider these similar to SHOPs but more personalized and privatized. You pick a health insurance exchange to work with and pay a flat fee for every person who works for you in your small business. You have the option to choose what percentage of medical costs you would like to cover, and your employees have the option to choose what specific plan they they would like from the private health exchange.
The con here is that you lose out on the possibility of tax breaks as a business owner. You also do not get to use the SHOP marketplace obviously, so you lose out on quite a bit of plan selection. The pro is that prices for these plans are often much nicer. You and your employees will still have excellent insurance agents to advise you on the right plan, and your employees will be able to spend money before taxes on their health insurance, which can save a few dollars in the long run.
6. Small Business Health Options Program (SHOP)
SHOP is a program produced by the Affordable Care Act. We have saved it here for last because it is the most complicated option, but it might be the best for your business. These plans are provided by the federal government, and you can shop for them online through the marketplace. Each state runs its own SHOP marketplace, so the exact plans and rules therein will be regionally dependent. You will pick an overarching plan – Bronze, Silver, Gold, or Platinum. Then, your employees will choose a specific plan to best fit their needs. This dual-level customization allows a strong possibility that this is a great option for both you as the employer and your employees.
No surprise, the bronze plan is going to be the least fancy, lowest cost plan. Monthly premiums are low, but deductibles are high. This is a great option for young and healthy employees with very little disposable income. Young single employees may prefer this plan most of all.
The silver plan is going to be the most popular option for most companies. It obviously is going to be right between bronze and gold in terms of both monthly premiums and deductible, and that balance will make it more valuable to young employees with families, or employees who have many dependents on their plan.
The gold plan is going to be fairly identical to the silver plan in terms of the value it affords, but will simply be a matter of details by region and family. Both of these plans will cover frequent doctor visits and any simple medical requirements. Neither are recommended for chronically ill employees.
The platinum plan is of course the most expensive premium with the lowest deductible, and it will provide the most coverage for those employees who need it. If the employee in question is older or chronically ill, or suffers from a life-threatening illness, this will likely be the necessary choice for them. It will cover the specialist visits, procedures, and expensive tests that they may need in their particular situation.
Making a Selection of Health Insurance for your Small Business
This decision is always going to have many factors: age and health of your average employee, how many employees you have, region of your company and state laws, time and effort on your behalf, and anything else that factors into costs of health insurance. SHOP is likely the most consistently useful option as it provides flexibility and consistency in plans, but it may not be what your group is looking for.
Purchasing alliances and private health exchanges may provide the more specialized plans your small business needs. There is less flexibility than the SHOP, but who needs choices if you already know what you need? Consider them carefully.
Always prioritize providing a plan for your employees – and yourself – to purchase health insurance. It will provide peace of mind to you, your employees, and all of your families. That peace of mind will attract better employees, and it will certainly make the employees you already have much better. Give them one less thing to worry about, and they will give you the production you hope for.