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Nearly anyone can start a business, but it takes a lot of hard work and dedication to lift it off the ground. A significant milestone for any business owner is offering group health insurance plans to employees, but it also comes with numerous challenges.
Navigating health insurance plans is no picnic, especially when choosing a plan for your organization. But providing health insurance to employees is a good business practice and, in some cases, a legal requirement.
So, how can a small business offer health insurance and remain profitable? Many effective solutions are available, and it’s essential to understand all the factors that make the right decision. This guide will prepare you for taking the first step in offering medical insurance to employees.
One of the first questions any newbie business owner might ask is whether they are legally required to offer health insurance to their employees.
That strictly depends on whether your company falls into one of two categories – small or large employer. According to the Affordable Care Act (ACA), large employers are defined as having 50 or more full-time employees who must offer health insurance.
On the other hand, small employers, defined as those with fewer than 50 full-time employees, do not have to offer health insurance.
Still, even small to medium-sized businesses want to stay competitive. A 2018 survey showed that nearly 97% of all companies with 3-199 employees include health benefits for their employees.
This data shows that there’s clear value in offering employees health insurance. Small business owners might not be obligated to include health benefits with employment contracts, but there are a few reasons why that’s the correct move.
When a company has an opening and includes the type of health insurance they offer in the job listings, they’re more likely to get a response.
If their health insurance plan is comprehensive, it’s almost guaranteed they’ll receive more applications. A 2015 Glassdoor survey confirmed this by discovering that four out of five employees would rather accept an increase in benefits than a pay raise.
Even via anecdotal evidence, most of us know this to be true. People are likely not going to leave a job with excellent health benefits on a whim, especially if their spouse and children are covered too.
Business owners are also aware that one of the best ways to recruit and retain top talent is to offer excellent health benefits.
Providing insurance for employees can result in tax benefits, depending on the plan you’re offering. For example, a Minimum Essential Coverage (MEC) relieves small businesses of paying income tax. Also, Health Reimbursement Arrangements (HRAs) are entirely tax-free for small employers.
Offering medical insurance to employees delivers a long-term positive outcome in several ways. If your employees have access to health care, they’re less likely to use extended sick leave and are more likely to be productive.
Not having to worry about taking their kids to see a doctor is good for the mental health of your employees as well. A great health insurance plan reduces the risk of employee burnout and promotes their overall wellness.
Before we move on to the cost and types of employee healthcare insurance plans, we have to address the rules and regulations that could impact your organization. Every business owner should understand two healthcare reform regulations when thinking about providing health insurance to employees.
First, the Employer Mandate, an essential part of the 2010 Affordable Care Act (ACA) or Obamacare, requires large employers to offer health insurance to all full-time employees.
Providing healthcare is no longer optional if your business has reached 50 employees. Employers failing to offer healthcare will be taxed with different penalties until they comply.
Another important regulation we’ve touched on is the Minimum Essential Coverage (MEC,) another vital element of ACA.
It is a provision requiring every citizen to enroll in an insurance plan that meets “minimum essential coverage.” This can be privately purchased insurance, a government program such as Medicaid, Medicare, or CHIP, and job-based plans provided by employers.
Most small business owners would love to provide health insurance to their employees but are worried about whether they can afford it. Even with tax advantages and other clear benefits, it might not be feasible for everyone.
Fortunately, many solutions are available, and many businesses find one that keeps their employees covered and their business thriving.
Still, what’s the average cost of offering health insurance to employees? Small businesses will pay on average $5,700 per employee and around $14,000 for family coverage per year.
But these are only averages, and perhaps there is a more accurate way to understand the cost of a healthcare plan from the employer’s perspective.
According to the Bureau of Labor Statistics (BLS), around 8% of total employee compensation goes to health insurance benefits.
It’s also crucial to remember that employers of any size are not legally required to pay 100% of premiums for their employees, and only around 25% of them do.
How can small businesses offer health insurance to their employees? It all starts by weighing in the options you have available.
Which plan you’ll choose will depend on several different factors, including the size of the provider network. Every insurance plan operates within a select group of providers, referred to as a “network.”
However, some health care plans include out-of-network coverage, allowing better access to medical care. Most small businesses will choose between four types of health insurance plans, and here’s a brief breakdown.
This is probably the most sought-after choice as PPO plans usually have the most prominent provider networks and offer the most flexibility in accessing specific providers.
Unsurprisingly, unfettered access to preferred medical care is most expensive, and the cost of PPO premiums reflects that.
The PPO pays for out-of-network coverage, though it often includes copays and deductibles. Another benefit of this employee insurance plan is that it doesn’t require referrals to see a specialist.
If you’re wondering how to offer health insurance to employees at a lower cost, the HMO is a solution to consider. The HMO plans usually have a lot of restrictions and work within smaller networks but can be a good option for new businesses.
Unless it’s an emergency, HMO plans don’t cover out-of-network care and require referrals from a primary care physician (PCP) to see a specialist.
A middle-ground solution is the EPO plans which are less expensive than PPO but still cost more than HMO plans.
You don’t need a referral from your PCP to see a specialist, but out-of-network care is not covered unless it’s an emergency. In terms of network size, though, they are close to the range of PPO.
The POS plans are somewhat similar to PPOs but can vary depending on the insurance provider. While they offer out-of-network care, it tends to be more expensive.
In terms of referrals, the plans depend on the carrier as well, and the premiums are slightly less expensive than PPO.
We’ve established that providing insurance for employees is important and discussed the cost and available group plans.
But reviewing the healthcare plans from insurance providers can be an overwhelming experience for employers new to that space. There are two ways a small business owner can purchase employee health insurance.
Are you wondering, “How to offer health insurance to my employees, and where can I find the best plans?” For some business owners, buying directly from the private health insurance marketplace is the way to go.
Your location and other factors will impact the availability of the plans available, but if you have experience buying health insurance, this could be a great option. Some of the largest private health insurance exchanges include Right Opt, Aon, Mercer, and Via Benefits.
However, there is another option for buying health insurance for employees directly. You can search for the best health care plans via a federal program called Small Business Health Options Program or SHOP.
Every U.S. state has its own SHOP marketplace, though they’re similar in what they offer. To qualify for a SHOP plan, your business must have up to 50 employees, and 70% of them must be enrolled in the program. You also must have an office in the state where you want to access SHOP.
Manually comparing health care plans for employees can be incredibly time-consuming, and it’s too easy to make the wrong choice.
That’s why many business owners choose to rely on the service of a health insurance broker. A trustworthy and competent broker can break down the most complicated aspects of purchasing health care plans and explain them to you.
They are the expert that can provide an accurate comparison between all available policies and guide you in finding the best one for your team.
Ideally, they will be laser-focused on cutting back the cost of premiums and waste as little of your time as possible. Furthermore, if you need to file an insurance claim, brokers can help guide you through it.
Health insurance plans are not the only possibilities for health benefits an employer can provide. Many businesses use particular add-ons to health care plans to attract high-value employees. Here are a few examples to consider.
Most standard job-related health care plans don’t include dental and vision coverage. But given that visiting a dentist or ophthalmologist is a normal part of life, adding these benefits can set your business apart from the competitors.
A 2021 study found that adding these two types of insurance to the primary health care plan leads to lower turnover rates, better productivity, and overall lower health care costs.
This option allows employees to set aside pre-taxed funds for health care expenses, and in 2020, that amount was up to $2,750.
The employee doesn’t have the quality for a traditional health care plan to benefit from an FSA, though it has an expiration date.
For example, an employer can set aside $500 for the FSA fund of a specific employee, and they can transfer it to another year. However, past that point, they can no longer use it.
Another version of this benefit is the dependent care FSA, which can be used for childcare expenses for children up to 13 years of age. The flexible spending account can also be used for physically and mentally incapacitated family members.
If you’re curious about how to offer health insurance to employees in a more direct way, the HRA could be the answer. The HRA is often referred to as the Health Reimbursement Account, and it essentially allows businesses to help employees pay for out-of-pocket health care expenses.
The employer funds an HRA account chooses the eligible medical expenses, and the employees bring the receipts to receive reimbursements.
It’s a pretty straightforward operation, but the Internal Revenue Service (IRS) has oversight on which medical procedures are eligible, and you can find the complete list here.
Small companies often cannot provide HRA to their employees, but the good news is that they can utilize the Qualified Small Employer Health Reimbursement Arrangement or QSEHRA.
This provision is a part of the ACA and allows companies with fewer than 50 full-time workers to offer extra health benefits. It’s vital to keep in mind that HRA and QSEHRA are not replacements for a traditional health insurance plan.
Being a good business owner means caring about the well-being of your employees. That’s why health care insurance should be a must-have, as soon as you can afford to include it. Once you are ready to find the best coverage, the question, “How to offer health insurance to my employees” becomes the focus. If you’re new to the process, choosing the best health insurance plan could seem mission impossible. That’s why many business owners work with reputable health insurance brokers.
If you need help finding the most affordable yet comprehensive health insurance plan, the Taylor Benefits Insurance agency has the best practices acquired over 25 years of experience. Reach out for a free proposal today.
Todd Taylor oversees most of the marketing and client administration for the agency with help of an incredible team. Todd is a seasoned benefits insurance broker with over 35 years of industry experience. As the Founder and CEO of Taylor Benefits Insurance Agency, Inc., he provides strategic consultations and high-quality support to ensure his clients’ competitive position in the market.
Todd Taylor with Taylor Benefits gives our small business the kind of personal service we need. Insurance benefits are important to our employees and Todd helps us find a balance between benefits and value. Todd responds immediately to my phone calls & e-mails. He has even gotten in touch with me on a Sunday when we were in need of coverage answers immediately. We are very pleased with the hands-on service Todd and his staff provide.”
-Ken and Linda Orvick, Orvick Management Group, Inc.
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