The Ultimate Guide To Small Business Health Insurance
Providing health insurance for you and the employees of your small business doesn't have to be a daunting task. Start here to learn everything you need to know about small business health insurance.
If you are a small business, are you required to provide health insurance for your employees? If you aren’t, should you offer it anyways? How much will it cost you?
In this guide to small business health insurance, we’ll discuss what health insurance is, when it is a legal requirement, why it benefits your business, how much it will cost, where to find the best plan, and much more.
Read on to learn more about the world of small business health insurance!
Table of Contents
- What Is Small Business Health Insurance?
- Why Should I Offer Health Insurance As A Small Business?
- Main Types of Health Insurance Plans
- Choosing The Right Health Insurance Providers For Small Businesses
- Getting Started: Where To Find Small Business Health Insurance
- How To Purchase Health Insurance In 5 Steps
- Health Insurance For Small Business FAQs
What Is Small Business Health Insurance?
At the most basic level, health insurance refers to insurance policies that cover medical expenses. Small business health insurance is group insurance designed to meet the needs of a smaller organization that may not have a full HR department to organize health benefits.
Some employers are legally required to provide health insurance to their employees depending on the size of their business. But even if it’s not legally required, health insurance is a competitive benefit that can help set your small business apart and increase employee loyalty and, you guessed it, health.
Am I Legally Required To Provide Health Insurance
The answer to this question is going to come down to the size of your business. Here’s a breakdown of recent health insurance rulings and what they mean for your small business.
In 2010, the Federal Government passed the Affordable Care Act (ACA), and through that healthcare mandate, over twenty million more Americans have had access to healthcare. The health mandate included employers and required businesses of a certain size to provide health insurance.
So, what exactly does the Affordable Care Act mandate? If your business is considered an Applicable Large Employer (ALE) with 50 or more full-time employees for more than six months out of the year, then you will need to provide your employees with health insurance as a legal requirement of the ACA.
If your business is not an ALE, then supplying health care for your employees is a choice, and a good one at that.
The ACA also provided resources to make it easier for small businesses that want to provide health coverage to their employees.
How Does Health Insurance Work?
Health insurance is just like any other insurance: it protects people if they need medical care due to an illness or an injury and it provides preventative care: routine check-ups, and annual tests. The amount of money a person might pay for these services will vary depending on the health plan, however, and so understanding how health insurance works is an important first step in deciding how best to cover your employees.
There are many ways that healthcare providers share the cost with the consumer and these choices can have a drastic effect on the out-of-pocket costs you and your employees pay. Here are some of the most common health insurance terms and what they mean for you:
- Deductibles: This is the amount of money you will pay before your health insurance takes over and pays for you. (Lower premiums per month might result in a higher deductible.)
- Copayment (Copay): This is the fixed amount you pay for services. (For example, every office visit is $20 or every prescription is $10.)
- Coinsurance: This is the percentage of the cost you will pay for services after you’ve reached your deductible. (For example, with a 30/70 coinsurance, you will pay 30% of the cost for services and your insurance will cover 70%.)
- Out-Of-Pocket Limit: The maximum amount of money you are expected to pay for services in a calendar year. After you reach this limit, your insurance covers 100% of services.
- Health Care Provider Network: This is a list of doctors and other providers that will accept your insurance.
- In-Network: Providers/specialists your insurance will cover.
- Out-Of-Network: Providers and specialists that your insurance may not pay for or will only cover a smaller portion of the expenses.
In order to highlight how all of these terms work, here are two fictional examples:
Employee A, aka Jenny:
Jenny is 25-years-old and doesn’t have any major health complications. Her employer has offered insurance through a Health Care Provider Network. She pays no out-of-pocket fees per month for her health insurance, but she has a $500 deductible (which she hasn’t hit yet) and a co-insurance policy of 20/80 for services.
One day, Jenny gets a massive headache and temporary blindness. She calls her doctor and her doctor says to go to the Emergency Room to rule out any major medical issues. At the ER, she pays a $100 copay to be seen, but then the tests they run are billed to her on the 20/80 scale. The ER visit ends up costing $6,000, of which she is responsible for $1,200. That visit = $1,800 ($100 copay, $500 for the deductible, plus the remaining $1,200).
Employee B, aka John:
John is 25-years-old and doesn’t have any major health complications. His employee health insurance is through a Health Maintenance Organization and he pays a pre-tax out-of-pocket amount of $100 a month to cover his own insurance needs. (So, over the course of the year, he will pay $1,200 toward his own insurance costs.) He is having a major blinding headache, so he goes to the ER. He pays only a $100 ER copay and nothing else. That visit = $100.
These are only two scenarios, but they highlight how each type of health insurance can dramatically change how you and your employees are billed for medical expenses. It’s crucial for you to understand as an employer how nuanced the health care choice can be for your employees.
Health insurance is a specialized type of insurance and your dedication to getting it right will go a long way in establishing a positive relationship with those you employ. You want to save on cost and navigate the marketplace. Your employees want to know they are covered if they become sick or injured.
When insurance is employer-provided, employers have the final choice about the structure of benefits, and while bigger costs upfront might lead to lowered costs down the road and vice versa, it’s an employer’s responsibility to become knowledgeable about these terms and insurance options and how each one might affect future health care choices for employees. The growth of your business may depend on it.
Not only will understanding the basics of health insurance help you choose the right insurance plans, but the burden to explain the options may fall to you, so knowing the basic principles of how health insurance works are key.
Why Should I Offer Health Insurance As A Small Business?
You may be legally required to provide this option to your employees, but if you aren’t you may be asking yourself, “Why is health insurance worth the cost and the hassle?”
Even though you may not be legally obligated to offer health insurance, there are several key benefits that may make it more than worth it for your business. Plus, with this guide, setting up your small business health insurance isn’t a hassle as you might think. In this case, the pros outweigh the cons.
Here are just some of the benefits of offering health insurance as a small business owner:
- Happy Employees, Happy Life: First and foremost, humans need to be happy and healthy, and happy and healthy employees work harder, faster, and contribute more. Worries about money and health are high on the list of what creates stress in an employee’s life, but health insurance can relieve that stress and make an employee feel valued.
- Keep Your Businesses Competitive: The reality is that employees want health insurance and are looking for businesses that offer it. You need to remain competitive in the job market to recruit and maintain talented employees. These target employees may not consider job offers that come without the benefit of health insurance.
- Save On Taxes: If you have fewer than 25 employees and your average yearly income is less than $50,000, then you may be eligible for tax credits. Even if you aren’t, the money you spend on employee health is tax deductible. Employee-paid premiums are tax-exempt. Talk to your accountant or tax professional to see if you qualify.
- Your Peers Are Doing It: More and more small businesses are offering health insurance to their employees, which means that soon it could be industry standard.
Main Types of Health Insurance Plans
As you start to shop for health insurance, you will find that there are several specific health insurance plans for you to choose from. The main differences between these plans come down to:
- Size of the network
- The cost for you and for your employees
- The ability to see specialists without referrals
- The number of in-network providers
- Cost coverage for out-of-network services
Benefits for each choice vary, so it’s important to figure out which health insurance option is the best for your business type and size. Here is an overview of major health insurance plans and what they mean for your small business.
Choosing The Right Health Insurance Providers For Small Businesses
In order to determine which health insurance is right for your business, you’ll have to decide how much of the upfront costs you are willing to contribute to your employee premiums and what kind of insurance options would be the best fit. Here are the biggest factors in health insurance costs:
- Medical history
- Prescription drug coverage
- Number of doctor visits a year
- Available specialists
- Specific employee medical needs
- Any plans for pregnancies, etc.
As a business owner, it is illegal for you to ask your employees for health information. (For example, you have a female-identifying employee that you want to provide good health insurance, but you cannot ask them if they plan on becoming pregnant!) Knowing your employees and their needs should direct your choices.
So, ask yourself the following questions: What benefits do my employees need? How much choice am I giving my employees? What will their out-of-pocket costs be?
The answers to these questions should guide you to the right health insurance benefits.
We’ve stressed the importance of health care and the ways plans can differ. The most important part of this entire process is what plan you choose for your employees. Start with understanding the basic terms (co-pay, deductibles, co-insurance, out-of-pocket expenses), decide how much you can afford, and then move on to comparing which networks will work best for your employees.
If you want to get down to the nitty-gritty of choosing providers, there are several ways you can compare and contrast providers and plans. Healthcare.gov offers ratings of health plans, and under an in-network plan, you can plug their name into the system and see availability and ranking. You can then sit down with the list of providers in your area and look at their rankings.
Here are some things to think about:
- Medical Care: Ratings of providers will tell you how well the plan does with managing their member’s health. Individual ratings for providers will let you know how well they manage the medical care of the people enrolled in their coverage and what percentage of people are happy with their coverage.
- Member Experience: Ratings about member experience also look at what percentage of members get preventative care, regular check-ups, and vaccines. Does the provider show a willingness to pursue healthier options?
- Wellness Programs: Does the provider give enrolled users access to wellness programs, including stress management, smoking cessation, or weight loss programs?
- Administrative Rating: An administrative ranking will look at the customer service rankings, overall health scores, and how well a member can access their health records online.
Once you understand the rankings and have researched the providers in your area, you are ready to purchase health insurance! Decide if you want to use a broker or go directly to talk to an insurance agent, sit down, and gather your quotes.
Getting Started: Where To Find Small Business Health Insurance
Once you have decided what kind of insurance you need, the next phase is to shop for it.
There are several places to look, depending on your needs.
Here are the main places to find health insurance for small businesses:
How To Purchase Health Insurance In 5 Steps
You have decided that purchasing health insurance for your small business is a great idea and now you are looking for the right way to start. The process of purchasing health insurance doesn’t need to be too overwhelming: the research beforehand is the most daunting part (which you’ve already got a leg up on simply by reading this post).
Now that you know the basics of health insurance, here are five easy steps to purchasing health insurance.
Step One: Set A Budget
Take a look at your business’s budget and ask yourself the following questions: How much money should I allot to health care? How much will I contribute per employee?
You want to choose a plan that offers good coverage to your employees while still remaining within your business’s budget. This will play a large role in which business insurance plan and the provider you choose. It’s vital to know exactly what you are paying for and what you might be asking your employees to pay for.
Step Two: Know What Plan & Benefits You Need
Now that you know how much you can spend on health insurance, it’s time to think about which plan fits within your price range and provides the benefits you’re looking for.
Here are some things to ask yourself to help pinpoint the right health insurance plan and level of coverage for your small business:
- How many employees do I need coverage for?
- How old are all my employees? How many of them are smokers?
- Am I going to add ancillary options to the insurance plan? (Vision or dental? What are you willing to pay for prescription drugs? Do you want to offer a wellness program?)
- How much of my employee’s premiums am I going to pay? (For tax credits, you will need to cover at least 50% of the premium coverage.)
- Will I also offer insurance to dependents and part-time employees?
- Am I going to have a waiting period before employees are eligible to collect insurance?
Your answers to these questions will help you know exactly what you need and where to look for the right health insurance providers. If you are prepared for your first meeting with an insurance agent or broker, you’ll be one step ahead of the game and off to the right start on your health insurance-buying journey.
Step Three: Gather The Proper Documents
You’ll need to provide some numbers and documentation to receive an accurate health insurance quote from an insurance broker. Before you call an agent or a broker, make sure you have gathered and prepared the proper documents. Most often, you’ll need to provide:
- Your business address
- How many employees you are insuring
- Employee ages, zip codes, number of dependents
- Sometimes the employee’s tobacco use
- Business Name
- Tax ID
Step Four: Start Shopping
Whether you pass along your information to a broker or head to the SHOP site or online sites, now you’re ready to actually start making purchasing decisions. Decide if you want to contact a broker or venture out on your own. (If you decide to outsource to a Professional Employer Organization, they will take it from here!)
There are a few things to consider when evaluating providers:
- The financial strength of the provider
- Customer service ratings for the provider
- Claims service ratings
- Plan pricing
- Policy offerings and coverage benefits
- Provider choices.
Step Five: Compare Quotes
Study the numbers and look at the plans. It’s safe to say that sometimes the cheapest plan may not be in your best interest as a small business owner. Examine how much you can buy and how the plans work for your employees. Don’t be afraid to ask questions, push for numbers, and run scenarios with the experts. When comparing quotes and choosing the right health provider, research and make an educated decision that is best for your business AND your employees!