The Ultimate Guide To Small Business Health Insurance
|5 Steps To Purchasing Health Insurance|
|Step 1:||Set A Budget|
|Step 2:||Know What Plans & Benefits You Need|
|Step 3:||Gather The Proper Documents|
|Step 4:||Start Shopping|
|Step 5:||Compare Quotes|
Health care is daunting, complicated, and time-consuming. So, for small businesses without a large HR department, navigating the health insurance process can suck up time and energy that you simply don’t have. Are you required to have health insurance for your employees? If you aren’t required to have health insurance, should you? And how much is it all going to cost you?
The potential questions and concerns can become overwhelming. That’s why we’ve created this complete guide on small business health insurance. We want to break down this process for you to make it easy and understandable, so you can get back to what matters most — running your business. We’ll talk about what health insurance is, when it’s a legal requirement, why it benefits your business, how much it costs, where to find the best plan, and much more.
Read on to familiarize yourself with the world of small business health insurance.
Table of Contents
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.
If you want to provide health insurance but you have no idea where to start, keep reading.
Am I Legally Required To Have Health Insurance?
The answer to this question is going to come down to the size of your business. Here’s a break down of the recent health insurance laws and what they mean for your small business.
In 2010, the Federal Government passed the Affordable Care Act (ACA) and through that health care mandate, over twenty-million more Americans have had access to health care. Better known as “Obamacare,” the health mandate extended to 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. Read on to learn the benefits of offering small business health insurance to your employees.
The Basics Of Health Insurance
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, annual tests. The amount of money a person might pay for a routine visit or an emergency visit or surgery 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 health 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 under your specific health insurance plan. Here are some of the most common health insurance terms and what they mean for you:
- Deductibles: This is an 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 your limit, the 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: A specific list of providers/specialists your insurance will accept.
- Out-Of-Network: Providers and specialists that your insurance may not pay for or will cover a smaller portion of the expenses.
In order to highlight how all of these terms work, here is a quick breakdown that I’m going to call “The Tale of Two Insurance Options.”
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 $6000, of which she is responsible for $1200. That visit = $1800 ($100, $500 for the deductible, plus the $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 $1200 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 knowledgable about these terms and insurance options and how each one might affect 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?
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 of offering health insurance that may make it more than worth it for your business. Plus, with this guide, setting up your small business health insurance isn’t as much of a hassle as you might think. In this case, the pros definitely outweigh the cons.
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 other reality is that employees want health insurance and are looking for businesses that offer it.
A small business committed to recruiting and maintaining talented employees needs to remain competitive in the job market. Talented employees know their worth and may not consider job offers that can’t offer health insurance. According to a 2018 Harris Poll commissioned by Glassdoor, 63% of job recruits apply for a job based on benefits offered. Health insurance is something potential employees rank as second only to salary when considering a new job offer.
If you want your business to be competitive and to grow, health insurance is a must.
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 eligible for tax credits, 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!
I mean, yeah, if your friends jumped off a bridge…but when we frame what the people around us are doing as a positive, then take the plunge! More and more 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 size of the in-network
- 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 each of the major health insurance plans and what they mean for your small business.
Health Maintenance Organization (HMO)
An HMO is a type of health insurance plan where there is a network of doctors that accept your insurance. Your employees only have access to providers employed through the HMO and out-of-network care is often not covered (except in an emergency). The HMO provides a lower cost option to employees but lowers the choices of providers/hospitals where they can be treated.
The HMO plan is ideal for:
- People who want to know exactly what each visit will cost
- Young and healthy people
- People with known health procedures and a significant number of appointments (for example, pregnancy)
- People who don’t need many specialists
- Focused on prevention and wellness
With an HMO, the insured must retain a Primary Care Physician and go through that doctor for referrals to specialists. That means this plan is not ideal for people who need care across a wider geographical area (people who travel). However, out-of-pocket expenses tend to be lower and more predictable.
Preferred Provider Organization (PPO)
A PPO is a type of health insurance plan where a network of doctors agrees to accept a set payment. Unlike the HMO, you aren’t limited to in-network provers, so you have access to any health provider you choose (out-of-network providers just cost more). You also do not need a referral for specialists. While you are not limited to in-network providers, using in-network providers is cheaper. Since there are most choices, the premium costs of a PPO are generally higher.
The PPO plan is ideal for:
- People who might spend more for more specific care
- People who want choice on which medical professionals to visit
- People who visit specialists and want the option to choose their own
The PPO plan is more choice for more money and gives greater flexibility on which care providers you can see.
Exclusive Provider Organization (EPO)
An EPO is a type of health insurance plan where you can only go to the doctors and hospitals offered in-network (except in the case of an emergency). It is similar but less expensive than an HMO plan, and there is a larger selection of in-network providers than with the HMO.
The EPO plan is ideal for:
- People who don’t mind what doctor they visit
- People who will benefit from lower deductibles and out-of-pocket expenses
- People who might need to see specialists
- People who might need care across a wider geographical area (people who travel)
EPO plans are similar to HMOs with the biggest difference being that you may not need a referral to see a specialist within the provider’s organization.
Point Of Service Plan (POS)
The POS plan is an insurance plan that falls somewhere between an HMO and a PPO. With A POS, you have to select a Primary Care Physician and go through that doctor for referrals to specialists. You can still go to out-of-network providers; you’ll just pay more. You will pay less if you go to the list of doctors in-network.
The POS plan is ideal for:
- You don’t mind choosing a doctor within a provider list
- Young and healthy
- Have no plans for any long-term health needs
- Have out-of-network specialists they want to see (counseling, therapy, dermatology)
Even though a POS plan is not as common as an HMO or PPO, it provides a hybrid of coverage that may be the best fit for your employees.
High Deductible Health Plan (HDHP), Health Reimbursement Arrangement (HRA), & Health Savings Accounts (HSA)
These plans are designed for someone who anticipates no looming need for health care. Every month, employees can pull out money pre-tax and shelter it in a Health Reimbursement Arrangement (HRA) or Health Savings Account (HSA). In a High Deductible Health Plan (HDHP), preventative care is often covered at 100% but any additional health costs would be paid by the employee from their HRA or HSA.
Qualified Small Employer Health Reimbursement Arrangement (QSEHRA)
This is not technically an insurance plan but an arrangement between an employer and an employee to cover medical expenses. An employer will agree upon a certain amount of money they will reimburse the employee over the course of a year to go toward medical care. Employees may enroll in the Individual Health Marketplace and then use their QSEHRA to pay for the coverage.
Which Type Of Health Insurance Is Right For Your Business?
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
- How many visits are needed to a doctor per year?
- What specialists are provided, if any?
- Specific employee medical needs and history
- Any plans you have for pregnancies, etc.
It is illegal for you as a business owner to ask your employees for health information. (For example, you have women of child-bearing age that you want to provide good health insurance for, but you cannot ask your female employees if they plan on becoming pregnant!) But 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. Read on to figure out where to find health insurance and how to purchase the perfect health insurance plan.
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 insurance for you and your employees. There are several places to look, depending on your needs. Here are the main places to find small business health insurance:
Small Business Health Options Program (SHOP)
If you run a small business with fewer than 50 employees, you may be eligible to enroll in the Small Business Health Options Program (SHOP). If you qualify, you will need to fill out a SHOP Eligibility Determination Form.
Then you can choose to sign-up directly through the insurance platforms offered in your state or work with a SHOP broker who can walk you through the process. You will need to have information on:
- Your business address
- How many employees you are insuring
- Employee ages, zip codes, number of dependents (sometimes tobacco use)
- Business Name
- Tax ID
Sole-proprietors and the self-employed may register through the Individual Marketplace during open enrollment. Businesses with 50+ workers can explore health insurance costs through a variety of insurance companies that offer larger programs and plans (but are specifically ineligible to apply for the SHOP) year-round.
Online Insurance Carriers
Contact online insurers directly to get a quote and see what plan could work best for you. A simple Google search can lead you to many providers that will sell to you and your business directly. Those businesses include but are not limited to Kaiser Permanente, UnitedHealthCare, JustWorks (the platform for Aetna and Metlife), Humana, etc.
Join A Purchase Alliance
A purchase alliance is a private version of the government’s SHOP options. With a purchase alliance, you pick a private health exchange. Then you agree to a pay a specific amount for coverage per employee. Your employees will choose a plan offered by the purchasing alliance.
With a private health exchange, you are not eligible to receive a tax credit. However, it can be more competitively priced — and if your employees are paying for their medical care from pre-tax money, it can be a cost-effective program for you both.
Use A Professional Employer Organization (PEO)
A PEO is a business that outsources its human resources department. Since the hours required to do human resources are considered non-revenue generating, sometimes there is a question about whether or not it is worthwhile for an owner to spend their time working on payroll, insurance, claims, etc. Often, it seems more cost-effective to pay a flat rate for a different organization to take that off your plate.
If the administrative aspect of the job is taking over too many of your revenue-buildings hours and you have more than ten employees, it could be cost effective to invest in a PEO. (The cost varies per business but can run anywhere between $150-$1500 an employee.)
Hire An Insurance Broker
Sometimes you just need an expert. A broker’s job is to be the go-between an insurance company and your business. They will negotiate the sale of the insurance and they have a legal responsibility to get you the best price. An insurance agent at a firm is there to represent their firm, but an insurance broker is hired specifically to work for you.
How To Purchase Health Insurance
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.
|5 Steps To Purchasing Health Insurance|
|Step 1:||Set A Budget|
|Step 2:||Know What Plans & Benefits You Need|
|Step 3:||Gather The Proper Documents|
|Step 4:||Start Shopping|
|Step 5:||Compare Quotes|
Step 1: 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, but that also fits within your business’s budget. This will play a large role in which business insurance plan and 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 2: 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 both 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 go prepared into 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 3: Gather The Proper Documents
To receive an accurate health insurance quote from an insurance broker, you’ll need to provide some numbers and documentation. 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 4: 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 choose the broker approach or head 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 prices
- Policy offerings and coverage benefits
- Provider choices.
Step 5: 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, do your research.
Read on for more advice about choosing the right health insurance provider for your small business.
Choosing The Right Health Insurance Provider
We’ve stressed the importance of health care and the various nuanced ways plans can differ. Actually choosing the plan for your employees rests on your shoulders and choices. 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 how those 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 as well.
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 have an understanding of the rankings and you’ve researched the providers in your area, you are ready to pursue 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.
Frequently Asked Questions
Of all the business insurance options available, health insurance can be the most nuanced. Here are some of the most common questions small business owners have when thinking about small business health insurance:
How Much Is Health Insurance Going To Cost Me?
There is no number we can give without knowing more details. It may not be that much or it may be a ton, depending on a few important factors: how many employees do you have, how old are they, what kind of plan do you want to offer them, and how much do you intend to pay?
To give you a rough idea: A company in Oregon with 40 full-time employees that wanted to offer “Gold Level Benefits” (90% coverage) through a SHOP sponsored provider and cover 100% of the premium costs, could pay around $12,000 a month for health benefits. Deductible costs, out-of-pocket limits, PPOs or HMOs — all of those decisions factor into the cost as well.
Are There Any Ways To Save On Health Insurance?
Health insurance is expensive. The best way to save money while on the hunt for insurance is to shop around. Compare as many providers as you are able and explore the bottom-line numbers with each. Another way to save would be to switch your health plan to a more limited network of providers (an HMO or an EPO).
Where Do I Find Health Insurance?
If you have fewer than 50 employees, check the SHOP marketplace for information about what providers are available in your state. If are a sole proprietor or self-employed and you want to explore the individual healthcare marketplace, head on over to healthcare.gov and select your state to get started. (Note that for individuals the 2019 open enrollment period is over.)
When Can I Enroll in Health Insurance?
The next open enrollment period for health insurance starts November 1, 2019. However, if you are a business that needs to comply with the Affordable Care Act (ACA), there are private insurance companies that will assist you at any point in the year. Employees must also wait to enroll in their business’s provided health insurance until an open enrollment period (exceptions can be made for certain life events like getting married or having a baby).
What is the Affordable Care Act?
In 2010, the Federal Government passed the Affordable Care Act (ACA). There were many facets of the law, including lowering insurance premiums, mandating health coverage, and expanding Medicaid. One of the sections of the ACA was to mandate coverage for businesses with more than 50 full-time employees and offer tax incentives to businesses who provide health coverage.
Making the Leap
Phew. So, with all the various options for small business health insurance, the questions of cost and insurance type will come down to you and what your employees need. Ultimately, health insurance is a crucial cost of business because keeping employees happy and healthy goes hand in hand with running a successful company.
Make yourself acquainted with the terms of each insurance package and help employees understand their benefits, too. It’s easier than ever to find a way to insure your health and the health of your employees.