A Guide to Small Business Health Insurance
Posted: March 17, 2022
For a small business, navigating health insurance can seem confusing at first glance. There are many options available for insurance plans and tons of rules to sort out.
If your company lacks a human resources department, figuring out health insurance can become part of your job as an owner. You will need to educate yourself on small business health insurance options and everything you need to consider before purchasing a plan.
Providing medical coverage might be one of the best things you ever do for your company and employees alike. Learn more about how it all works with this insurance guide for small businesses.
Health Insurance for Small Business Owners
Many small businesses choose to provide their workers with health insurance. There are some important considerations for finding the best plans for your team. When shopping for coverage, you must understand your employees’ needs and budgets.
Because every company’s needs are unique, finding the right plans can take some time. This is why every small business owner interested in providing health insurance should know the requirements they must meet and the advantages of providing health insurance.
Advantages of Health Insurance for Small Business Owners
There are many benefits for small business owners who offer health insurance to their employees. The following are some of the advantages of providing health care for your team:
- Lower premiums: If a business chooses to participate in group insurance plans, the associated premiums tend to be cheaper than individual plans on average. Business health insurance plans have cheaper per-person costs, though the number of employees can impact premiums.
- Tax incentives: Business owners can deduct the costs of health insurance premiums when it is time to file their federal business taxes. Small businesses occasionally qualify for a tax credit, as long as they meet all requirements set forth by the Affordable Care Act (ACA).
- Recruiting: Offering health insurance benefits to employees is a great way to attract potential new hires. Both recruiting and hiring practices benefit when a business provides health care since it adds so much value for workers. Many job candidates make their final employment decisions based on available medical coverage from potential employers.
- Employee retention: In addition to boosting recruiting efforts, offering insurance also helps improve employee retention and loyalty. Employees at companies with health insurance benefits often stay in their positions longer than those working for businesses that do not provide health care.
- Job satisfaction: People are generally more satisfied and happier with their jobs when they have paid time off and health insurance.
- Productivity: Workers with health insurance often have fewer worries about their health. They are less likely to need sick days, which means fewer absences and better productivity. When people have the health care they need, they are more likely to be healthier and more present.
- Company culture: By providing health insurance, a small business communicates that it values its employees’ health and wellness. This helps to foster a better company culture and encourages healthier living. By increasing your staff’s attention to wellness, employee morale will often get a boost.
- Pre-tax benefits: Employees can enjoy lower monthly premiums when they work for a business that offers health insurance. Workers can also pay their premiums from their pre-tax salaries.
- Accessibility: Health insurance can be expensive and feel out-of-reach for individuals. When employers provide medical coverage, it is more accessible and affordable.
5 Factors to Consider
When deciding on what health insurance plans to offer your team, consider the following five factors:
Every small business looking to offer health care to their employees should familiarize themselves with the various options out there. Different types of insurance and network types impact the amount of coverage and costs to employees.
Health insurance plans fall into four metal categories:
- Bronze: This category has the lowest monthly premium and is a low-cost way to protect individuals in the face of illness and injury. However, this category also has the highest costs when someone needs care.
- Silver: With a moderate monthly premium and moderate costs when one needs care, silver plans usually have lower deductibles.
- Gold: The gold category has a higher monthly premium than bronze and silver. There are low costs for care and deductibles are usually low as well.
- Platinum: This category has the highest monthly premium and the lowest costs when one seeks care. Deductibles are especially low for the platinum tier.
In addition to different categories, there are also plan and network types to be aware of. Some options allow employees to visit nearly any healthcare facility or doctor. Others restrict the network and allow people to only use providers within a specific network.
Another consideration for small businesses is the costs of insurance. Factor in both your small business’s budget and your employees’ budgets. Small businesses that provide health insurance to their employees have both monetary and time costs.
Monetary costs will change depending on the following factors:
- The type of insurance you offer
- The benefits you provide
- If you cover employees and dependents
- Monthly premiums
- Third-party help
For small businesses, time is money. Many owners neglect to consider the costs of their time spent on health insurance. The following tasks will contribute to time costs:
- Finding a health insurance plan
- Searching for providers
- Learning your employees’ needs
- Setting up the insurance carrier plan
- Educating employees on the plan
- Maintaining the plan
Owners should also consider their employees’ expenses. The following are factors that contribute to employees’ costs:
- Premiums: Employers typically deduct these from these employees’ paychecks. It is a fixed price similar to a monthly subscription.
- Deductions: Each policy has a deductible which refers to the amount that an employee pays before insurance benefits.
- Out-of-pocket expenses: Before choosing what plans to offer your employees, consider the expenses that insurance will not cover and employees will need to cover on their own such as copays.
Before choosing a health insurance plan for your small business, you must review the criteria for eligible employees.
Some insurance plans require you have a certain number of employees to enroll. Small businesses often must have up to 50 or up to 100 employees for most insurance plans.
For employees to get coverage, they often must work full-time hours and be W2 employees. Most 1099 contractors and part-time employees are not eligible for health insurance through their employer.
Some insurance plans also require employees to pass a waiting period before receiving coverage. This probationary period usually lasts about 60 days.
Companies of all sizes are more likely to have employees operating from all over the world nowadays. The influx of remote work means not everyone on your team lives in the same state as you. This can make health insurance options complicated.
Before choosing a health insurance plan for your employees, you should consider their locations and the best plans for people who live in other states.
Some businesses choose to provide health insurance stipends or health reimbursement arrangements (HRAs) for employees. Both options have a fixed monthly allowance that helps to reduce administrative confusion.
Different health insurance plans for small businesses have different tax implications. The following are considerations for taxes when a business provides their employees with qualified health plans:
- Tax exemptions: With some insurance plans, employer contributions are tax-exempt. This can lower tax payments and, in some situations, eliminate them entirely.
- Deductions: The funds business owners contribute to their employees’ insurance plans can sometimes be considered a business expense.
- Tax credits: A small business healthcare tax credit helps business owners by covering up to 50% of the premiums paid. To be eligible for this tax credit, you must have 25 full-time employees and pay at least 50% of employee premium costs.
- Payroll taxes: Employees who pay for health insurance with their income before taxes reduce their taxable income. This leads to lower business payroll taxes for small business owners.
Are Small Businesses Required to Provide Health Insurance?
According to the Affordable Care Act, businesses with 50 or more full-time employees must provide health benefits with minimum essential coverage. However, small businesses do not have the same obligations. Instead, smaller organizations with fewer than 50 full-time employees do not have to provide their workers with health insurance.
While most small businesses are not required to offer health insurance to their workers, many choose to provide benefits to give back to employees and accommodate their wants and needs.
The Affordable Care Act’s Essential Health Benefits
Though small businesses are not always required to provide health insurance to their employees, if they choose to do so, then they must cover the Affordable Care Act’s essential health benefits, including the following:
Ambulatory Patient Services
Any services that the patient receives outside of the hospital as outpatient care, such as any home health services or doctor’s office visits. Ambulatory services also include outpatient surgery centers.
Coverage must extend to crisis situations like a trip to the emergency room or an ambulance ride. Emergencies like a heart attack or stroke do not require prior approval, and insurance cannot charge extra for an out-of-network hospital’s emergency room.
Health insurance must cover inpatient stays at hospitals needed for situations like surgery or childbirth, including the following:
- Room and board
Plans sometimes limit coverage in the event of an extended hospital stay.
From pregnancy to newborn care, health insurance must cover medical services for both mother and child. This should include the cost of delivery as well as breastfeeding services and birth control.
Mental Health and Substance Abuse Services
Health insurance must cover both inpatient and outpatient care treatment of mental health disorders or substance abuse. This includes behavioral health treatments such as counseling and psychotherapy.
Health insurance often covers medications that a doctor prescribes to treat a health condition or illness. Insurers do not cover all types of drugs, but they have an approved list of medications that they pay for some of the costs.
Rehabilitative and Habilitative Services and Devices
Small business insurance should cover services and devices associated with rehabilitation and habilitative services.
These services help individuals with the following:
- Recovering from injuries
- Coping with disabilities
- Dealing with chronic conditions
Different types of therapies, such as occupational or physical therapy, fit into this category as well.
Health insurance coverage needs to extend to pediatric services, such as the following:
- Dental care
- Vision care
- Well-child visits
Children through age 19 need to have options for two routine dental exams and one eye exam annually.
Laboratory Services and Tests
Laboratory services are another benefit of health insurance. Plans should cover the testing needed for the following purposes:
- Diagnosing illness or injuries
- Gauging effectiveness
- Conducting preventative screenings
Health insurance coverage must extend to the following services:
- Preventative care
- Wellness services
- Chronic disease management
This means annual exams and vaccinations accompanying routine doctor’s office visits are typically covered, though not every service will qualify for coverage.
Types of Small Business Health Insurance
There are many types of small business health insurance. The following are common options and some of the plans associated with them:
Small Business Health Options Program (SHOP)
The Small Business Health Options Program (SHOP) is a way for small employers to offer health insurance to their employees through a group health insurance plan. Your business needs to have one to 50 employees to be eligible.
SHOP insurance gives the employer flexibility to provide one or multiple plans for workers to choose from. Business owners can pick how much to pay towards their workers’ premiums.
You can also decide whether or not you want to offer coverage for your employees’ dependents and determine the waiting period before employee enrollment.
SHOP makes it possible for a small business to reduce healthcare costs by giving workers the chance to contribute to their coverage if they need more comprehensive health care. SHOP also offers employers a potential business tax credit of up to half of the employer’s premium contribution.
Health Reimbursement Arrangement (HRA)
A Health Reimbursement Arrangement, sometimes called a Health Reimbursement Account, refers to employer-funded group health plans where workers receive tax-free reimbursements for qualified expenses up to a set amount for the year.
Some of the most common HRA plans for small businesses include the following:
- Qualified Small Employer Health Reimbursement Arrangement (QSEHRA): Employers reimburse their workers for their healthcare costs like individual health insurance premiums.
- Group Coverage Health Reimbursement Arrangement (GCHRA): Sometimes called an integrated HRA, GCHRAs are employer-funded and help offset workers’ costs for qualifying medical expenses.
- Individual Coverage Health Reimbursement Arrangement (ICHRA): Businesses of all sizes can reimburse workers for either all or some of the premiums paid for health insurance that the employee paid for on their own.
Health Savings Account (HSA) and Flexible Spending Arrangement (FSA)
Both employers and employees can contribute to HSAs. Workers can use the funds in their HSA to pay for deductibles or copayments. Some people choose to use this account to pay for medical expenses not covered by insurance. Each fund is untaxed and pairs with high-deductible insurance coverage. HSA funds do not expire.
FSAs are similar, but employees must use their funds in the same year. Employers take FSA funds from paychecks before taxes. There is a limit on how much you can contribute to an FSA. You can only add $2,650 per year. $500 can carry over from one year to the next if employers allow it.
Association Health Plans (AHP)
An association health plan is a group health plan that allows companies with one or more workers to band together and join other companies of similar size to purchase medical coverage at the same, lower rates as large corporations. Gig workers and self-employed individuals can also join in on AHPs.
When an employer picks an AHP, they can offer better insurance plan options to their employees and at cheaper rates. This is possible because there are more people in the group other than only your team and the association can negotiate lower rates from insurance providers.
In-Network Health Insurance
In-network health insurance plans provide access to a network of healthcare facilities and professionals. These plans typically have lower costs than out-of-network options.
Doctors and medical facilities have to meet certain requirements and accept discounted rates to be part of the network. Employees who opt for in-network health insurance must visit professionals within the network to maintain lower costs. The following are common in-network plan types:
- Health Maintenance Organization (HMO): This type of health plan covers care from doctors within the network of professionals unless there is an emergency medical situation.
- Exclusive Provider Organization (EPO): With an EPO, the insured has access to a local network of doctors and facilities. This type of health plan has lower monthly premiums and higher deductibles.
- Point of Service (POS): This plan type allows your employees to pay less when they use healthcare professionals within your plan’s network. If a worker needs to see a specialist, their primary care doctor must provide a referral.
Out-of-Network Health Insurance
Out-of-network health insurance plans tend to be more expensive with more options. These types of plans allow employees to visit doctors and facilities outside of their network.
Without contracted relationships with doctors, insurance providers cannot control how doctors charge for their services. Individuals do not have copays with out-of-network facilities and physicians.
Indemnity plans are an example of out-of-network insurance. With an indemnity plan, there are typically no network requirements and individuals can use any provider they wish. Patients do not need referrals from their primary care doctor for specialist care. They do, however, have to file claims for all covered services, and the insurance provider pays part of the costs.
A Preferred Provider Organization (PPO) is a health plan where employees pay a higher monthly premium and have access to a larger network of professionals. This plan is a hybrid of both in- and out-of-network insurance as there is a network, but there are many more doctors and facilities within it than other options.
How to Purchase a Small Business Health Insurance Plan
When the time comes to purchase a health insurance plan for your small business, it is important to understand how the process works. Before exploring the Marketplace, you will want to take inventory of your needs and budget.
Then you’ll need to decide if you want to recruit the help of a third-party insurance professional. Partnering with an agency can make the process more streamlined. Experienced agents can answer your questions regarding the insurance exchange and the best plans for your small business.
You’ll need to get a California health insurance quote before exploring your state’s Marketplace to find the plan or plans you want to provide to your team.
Ensure your small business meets the requirements of the plans you choose. If you qualify, you can apply. And if the insurance provider approves your application, you can then purchase and provide health insurance for your team.
Get Small Business Health Insurance With Help From Health for California
Finding the best insurance plans doesn’t have to be a challenge. At Health for California, we can assist you with finding the right medical coverage for your small business. Our agents have experience with the application process and knowledge of the insurance providers. We can help you with any questions or concerns that arise while you strive to get your team the plan that suits them best.
Interested in getting started? Request a quote from Health for California and let our agents help you with small business health insurance today!
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