Understanding Business Health Insurance Small for Your Company

Business health insurance can be a complex topic, but it's essential for small business owners to understand the basics. Research shows that 62% of small businesses have fewer than 10 employees, and 45% of these businesses have no health insurance coverage.

Health insurance premiums for small businesses can be a significant expense, with an average cost of $500 per employee per year. However, having health insurance can also be a valuable benefit for attracting and retaining top talent.

Small businesses can choose from a variety of health insurance plans, including group plans and individual plans. According to the article, group plans are often more cost-effective for small businesses with fewer than 25 employees.

Small businesses often wonder if they need to offer health insurance to their employees. The answer is a bit more complicated than a simple yes or no.

Employers with 50 or more full-time equivalent employees (FTEs) must provide an affordable benefit with minimum essential coverage (MEC) and minimum value to their employees, or face a tax penalty.

Small businesses with 50 or fewer employees are considered small groups, but the exact definition depends on state law. This means that some states may have different requirements.

Most health insurance plans offer national network coverage, so employees can be located anywhere in the United States. However, your business must be headquartered in Minnesota, Wisconsin, North Dakota, South Dakota, or Iowa.

Some plans may depend on the exact number of employees you have or the county your business is headquartered in. We can help you understand your options.

If your business has more than 50 employees, you'll need to look into large group plan options instead.

Small group insurance rates vary depending on the employees' zip codes, which are used to determine the cost of coverage.

If you're wondering how many employees you need to provide health insurance, the answer is 50 or more full-time equivalent employees. This is according to the Affordable Care Act (ACA), which requires employers with 50 or more FTEs to offer affordable health insurance and minimum value to their employees.

The ACA's Employer Shared Responsibility Provision is the law that governs this requirement. Companies that fall under this requirement must offer health insurance to their full-time employees and their children up to age 26, or they may face a penalty.

If you have fewer than 50 FTE employees, providing health insurance is optional. However, it can still be a great way to attract and retain top talent by improving employee satisfaction and morale.

Here's a quick rundown of the number of employees that determine whether you must provide health insurance:

Small business health insurance options can be overwhelming, but let's break it down. There are four main methods to provide benefits for your employees: Small-Group Insurance, Self-Funded Plans, Level-Funded Plans, and Health Reimbursement Arrangements (HRAs).

Small-Group Insurance is the most widely known option, but it's not the only choice. Historically, it's been the primary option for many small employers.

Self-Funded Plans and Level-Funded Plans are alternatives to traditional small-group insurance. Self-Funded Plans mean you pay for claims as they arise, while Level-Funded Plans share the risk with the insurance company.

Health Reimbursement Arrangements (HRAs) are another option, allowing you to reimburse employees for medical expenses.

Here are the four main methods to provide benefits for your employees:

The type of provider network you choose can also impact costs. The most common options are Health Maintenance Organizations (HMOs), Preferred Provider Organizations (PPOs), Exclusive Provider Organizations (EPOs), and Point-of-Service plans (POS).

In 2019, 44% of covered workers had a PPO, according to The Kaiser Family Foundation.

Self-funded business health insurance is a type of plan where the company pays for its employees' medical expenses with its own funds rather than leveraging an insurance carrier.

This type of plan is often used by larger companies with plenty of cash flow to handle the totality of incoming employee claims and mitigate potential risk, as 81% of covered employees who work for a company with more than 200 employees were part of a self-funded plan.

With a self-funded plan, the company assumes all the health risk instead of an underwriter, and the employer sets up a trust fund to earmark money to pay for claims.

According to the Self-Insurance Educational Foundation, cost savings in non-claims expenses compared to group health insurance can range from 10% to 25%.

Self-funded plans can be managed by a third-party administrator (TPA), which can help with claims adjudication and payment.

However, self-insurance is considered risky, and larger-than-expected claims could put a small business out of business, which is why self-funded health insurance is more common among larger firms.

Here are some key pros and cons of self-funded health insurance:

Self-funded plans can also be paired with a stop-loss insurance policy to limit the business's potential risk, and the average cost for stop-loss insurance premiums in 2019 ranged from around $25/mo to $142/mo depending on the desired deductible.

Level-funded business health insurance is a hybrid model that combines the benefits of self-funded and fully-funded insurance plans. It's a great option for small employers who want predictability and peace of mind.

In a level-funded model, the employer contributes a monthly payment to a TPA or carrier, which is held and used to pay claims throughout the year. At the end of the year, any unused funds are refunded to the employer, minus admin fees and payments on stop-loss insurance.

Level-funded plans work similarly to self-funded plans in terms of flexibility and customization, offering employees a high degree of choices and options.

One of the benefits of level-funded insurance is that it can save employers money if the employee group remains healthy. However, there are also some potential downsides, such as partial exposure to high risk and vulnerable to substantial premium increases.

Here are some key pros and cons of level-funded insurance:

It's worth noting that level-funding is not available in some states due to specific state regulations, so it's essential to check the laws in your area before considering this option.

Overall, level-funded business health insurance can be a great solution for small employers who want flexibility, customization, and predictable costs.

Businesses have several health insurance options to consider, including traditional group health insurance, which can be costly for employees. Employers can contribute up to $6,575 per year towards single coverage premiums and $17,393 per year for family coverage premiums.

Small businesses with fewer than 25 employees may qualify for the Small Business Health Care Tax Credit, which can provide relief for rising premium costs. This credit can help offset the costs of group health insurance.

Employers can also consider alternative options, such as self-funded health insurance, which can save money on administrative costs, but comes with increased risk. Another option is health stipends, which can reimburse employees for medical expenses and provide more flexibility than traditional group health insurance.

Here are some key benefits and drawbacks of different options:

Employers should carefully evaluate their options and consider factors such as cost, employee choices, and administrative requirements.

Individual coverage is an option for employees who don't qualify for group health insurance or prefer to purchase their own plan. This can be a great choice for employees who have spouses or parents with group health insurance, as they can still receive tax-free reimbursements for their individual policy.

With an Individual Coverage HRA (ICHRA), employers can reimburse employees for the cost of individual health insurance premiums and out-of-pocket health costs. This type of plan has no minimum or maximum participation requirements, making it a flexible option for businesses of all sizes.

Employees enrolled in an ICHRA receive a monthly allowance of tax-free money, which they can use to purchase an individual health insurance policy that best fits their needs. The allowance amount can be different for each employee class, giving employers the flexibility to tailor their benefits to their workforce.

The ICHRA has no contribution limits, so employers can offer as much or as little as they like. This makes it a great option for businesses that want to offer a health benefit to their employees without breaking the bank.

Here are some common plan types that employees may choose from when purchasing an individual health insurance policy:

The ICHRA can also help organizations with 50 or more FTEs satisfy the ACA's employer mandate, making it a great option for businesses that want to comply with the law while still offering a valuable benefit to their employees.

Businesses have several options for providing health insurance to their employees. Small group health insurance is a traditional choice, but it can be costly, with employers contributing around $6,575 per year for single coverage and $17,393 for family coverage in 2023.

There are also alternative options, such as the Small Business Health Options Program (SHOP) Marketplace, which can provide affordable health insurance and dental coverage. However, employers must ensure they qualify for a small business health insurance plan before enrolling.

Employers with fewer than 25 employees may qualify for the Small Business Health Care Tax Credit, which can provide some relief for rising premium costs. But there are other ways to offset the costs of group health insurance.

Some employers choose to search for a small group plan on their own, using Healthcare.gov's SHOP Marketplace, a private exchange, or directly with the various carriers. Insurance companies review the employee census and determine the risk associated with the company, creating a fixed premium for the employees to offset the risk.

The Affordable Care Act (ACA) and prior state-specific regulations created "community rating" for small group health plans, meaning insurance companies cannot charge a small business client more or less because their employees are sick or healthy.

Employers can also offer a taxable stipend to their employees to help cover the cost of health insurance, but this option is subject to taxes and has payroll implications. Another option is group sharing plans, which don't involve major carriers but rather a group of people who agree to share medical costs.

Businesses with fewer than 50 employees are not required to provide insurance, so technically that is an option as well. However, this may not be the most beneficial choice for employees.

Here are some options for small businesses to consider:

Employers can choose from a variety of health plan designs, including traditional copay and coinsurance plans, "three for free" plans, high-deductible health plans (HDHPs), Health Reimbursement Account (HRA) plans, and Flexible Spending Accounts (FSAs).

A Qualified Small Employer HRA (QSEHRA) is a formal, IRS-approved benefit for employers with fewer than 50 FTEs. It works much like an ICHRA, but employees don't need qualifying individual health insurance to participate.

Finally, health stipends are another option for small businesses to help their employees with medical expenses. Employers can offer stipends upfront or through a reimbursement model similar to an HRA.

Business health insurance costs can be a significant expense for small businesses, but there are ways to manage these costs and provide valuable benefits to employees.

The nationwide average cost of insurance for an employee was $599/mo in 2019, according to the Kaiser Family Foundation. This cost can increase by 3% to 4% each year.

Several factors determine the cost of small group health insurance, including employee census, location, type of coverage, carrier selection, and employer contribution.

Here are the key factors that determine how much small group health insurance will cost for employers:

Small businesses often face higher per-employee health insurance costs than larger companies, primarily due to smaller risk pools and lack of bargaining power.

While the average cost of insurance per employee is $599/mo, employers are not responsible for paying the entire amount. In 2019, an average of 71% of premiums for families and 83% for single employees were covered by employers.

Employers should consult with a tax or benefits professional to understand the legal requirements for each situation.