Let’s suppose you are a small business owner with 50 full-time employees that are paid at market value and bring in an average salary of $50,000 a year. You also understand how integral happy and healthy employees are to your business’ success. That’s why, this year, you’re going to offer your hardworking and loyal employees health benefits.
The question you’re asking now is, where do I begin?
On the other hand, maybe your small business has 20 full-time employees, and you’re beginning to hear some rumblings that your employees are thinking of leaving if they don’t get some affordable healthcare options.
Similar to the first scenario, you just aren’t sure where to begin.
These are dilemmas many small business owners face, so don’t worry if you’re confused. Between dense language and ever-changing rules, it’s easy to lose sight of what is required of small business employers in relation to employee health benefits. In this article, we’ll give you an overview of what you can expect when it comes to group health insurance plans, how you can find the right plan for you and your employees, and how to implement an employee benefits package.
Where to start
A quick Google search will help give you a roadmap to begin your healthcare journey. You want to first make a list of a couple of key points that you’ll need to know before you really start to investigate adding small business healthcare benefits for your employees.
- Make a list of the types of benefits you want to include. If you’re unsure where to start, consider your own healthcare needs over the past few years, or others in your circle of family and friends. What are some of the challenges they faced in regards to their health and the cost of healthcare? This will hopefully enable you to narrow your thinking down and give you a good place to begin.
- Determine if you want to do the work on your own or work with a healthcare insurance broker. The best way to make this decision might be to consider how much free time you have to do the research. Getting health insurance for your small business is a time-consuming process with a lot of ins and outs. It will take time to get it all squared away. Think about whether you truly have the time, in addition to all of your other responsibilities related to your business.
Once you’ve considered these two issues, you’re ready to really start doing the work on employee health insurance.
Know the rules about offering health insurance
When it comes to healthcare benefits for employees, the rules for small businesses are actually pretty straight forward. You’re required to offer your employees health insurance if you have 50 or more FTEs (full-time employees). Additionally, the health insurance you offer must be considered “affordable” for your employees. In nuts and bolts, that means that the health insurance benefits must not cost employees more than 9.86% of their annual income. In general, that’s not a hard bar to clear.
If your company falls into the above category, then you’ve got your marching orders. However, if your company is structured differently, then you’ll need to make other considerations. For example, if you only have 20 full-time employees, you aren’t required by law to supply your employees with health insurance benefits; however, if you do, you’re eligible for a tax credit.
Here is an overview of how a small business can qualify for a tax credit when offering employees health insurance:
- Have 25 or fewer FTEs
- Offer health insurance to all full-time employees
- Pay your FTEs an average of $50,000 a year
- Pay at least 50% of the health insurance costs
If you meet all of these above requirements AND purchase your employee health insurance plan through the Small Business Health Options Program (SHOP) Exchange, your business will qualify. The SHOP portal was created as a result of the Affordable Care Act and is maintained by the federal government. Your total tax credit could equal up to 50% of the health insurance employee premiums you’ve already paid.
Where to find the right coverage
For finding the right coverage, some can use SHOP to source and sign up for employee health insurance plans. But, for others, it’s not as straightforward. While anyone can use SHOP, there are a few other options open to employers with 50 or more FTEs. Here are those options:
- Get some help and work with an insurance broker.
If reaching out to insurance companies on your own seems daunting, don’t worry – you can ask someone else to do it. Licensed insurance brokers are a great resource for small business owners and will greatly help you circumnavigate all of the paperwork and popular pitfalls of finding an employee health insurance plan. Intuit has recently added this service as an add-on to its Payroll offerings. By partnering with SimplyInsured, Intuit Payroll customers can choose to purchase this surface and work with licensed and knowledgeable insurance brokers. It’s all part of Intuit’s full-service small business solutions.
- Reach out directly to insurance companies.
If you’ve had some experience with purchasing health insurance before, this might be your best option. Not all health insurance companies will work directly with businesses, but some do. Make sure to conduct due diligence and check out ratings on sites like Consumer Affairs and the National Committee for Quality Assurance (NCQA). JD Power also publishes an annual ranking of the best health insurance options by state.
- Investigate the feasibility of partnering with a private health exchange.
Also known as purchasing alliances or associations, working with one of these can help decrease overall costs. Here’s how they work: a bunch of small businesses interested in purchasing employee health insurance are grouped together. This allows businesses to increase their leverage and buying power by increasing their numbers. Working with a purchasing alliance is very beneficial for your employees – it gives them a lot more choices so that they can better tailor their health insurance plan to their needs. However, this option doesn’t offer any of the tax credits that using SHOP does.
- Consider using a Professional Employer Organization (PEO).
PEOs are similar to purchasing alliances in that they help to lower the overall costs of the healthcare benefits. However, PEOs also can help with additional information like payroll management and tax filings. If you need help with some of these administrative tasks, working with a PEO might be the best option.
- Consider a Quality Small Employer Health Reimbursement Arrangement (QSEHRA), if you have less than 50 employees. A newer option for small businesses with fewer than 50 employees is to reimburse them for medical expenses and personal premiums through a QSEHRA. The benefit of these plans is that there are no monthly contributions for you – the small business owner.
Understand the cost to offer health insurance
Working with an insurance broker, PEO or private health exchange will give you an easy way to determine your costs. These organizations will need to provide that information. Keep in mind that any amount you pay towards your employees’ health insurance plan is tax deductible. So, it literally pays to offer your employees health insurance.
In general, most employers pay at least 50% of their employees’ health insurance premiums. And, since it’s tax deductible and allows some small businesses to apply for a tax credit, paying this amount is well worth it.
Evaluate employee benefits packages
When looking at all of the healthcare benefit options available, your head might start spinning. Here is a simple list of questions to ask and get answered when making a decision.
What is the cost share?
How much you can afford to pay toward your employees’ healthcare premiums is really the most important question. After figuring out what you and your business can afford, you may be priced out of certain healthcare networks or plan types.
What is covered?
You will often sacrifice broader coverage for lower monthly premiums. Here’s the best way to look at it: the more coverage that’s offered, the more your employees won’t need to worry about any recurring or acute health issues. The lower the monthly premium, the less coverage they have, meaning that a recurring health issue or a catastrophic health issue could cause your employees a lot of stress.
How extensive is the health care provider network?
A lower monthly premium typically translates to a smaller list of doctors that are considered “in network,” causing your employees to spend less out of pocket.
What is the plan type?
Health insurance is not a one-size-fits-all proposition. A variety of acronyms make up your choices: HMO, PPS, POS and EPO. The general consensus is that the HMO plans (Health Management Organizations) are the budget option, while PPOs (Preferred Provider Networks) are the BMW of plans. POS and EPO plans fall somewhere in-between the two. More details can be found here.
How much are deductibles, co-pays, co-insurance and premiums?
We’ve been discussing premiums throughout this article: they are the monthly amount that you and the employee pays for the health insurance plan. However, there are other costs that should be considered as well. A co-pay is the out-of-pocket amount someone pays for an office visit with any physician or specialist. This is a flat rate that doesn’t change during the calendar year.
A co-insurance is also an out-of-pocket cost, but it’s calculated by using a percentage of the appointment’s cost and not a flat rate. A deductible is a set amount of money that the employee must spend before the insurance plan will cover all or most expenses, with little to no cost to the employee. Typically, co-pays and co-insurance paid out of pocket counts toward the deductible, as does anything spent for prescriptions. Deductibles can range from zero to $10,000, $15,000 or more.
What benefits do you and your employees absolutely need?
You are not legally allowed to ask your employees about their medical history, but you can make some assumptions regarding how much coverage might be needed. If your employees are generally young and relatively healthy and single, then less coverage (and a lower monthly cost) might be sufficient.
If your employee base is a bit older, married, or has small or teenage children, then more coverage might be preferred. You can ask your employees things like, “Would you rather pay a lower monthly premium vs. a lower deductible?”
What is the reputation of the insurance company?
Make sure to take a look at customer reviews, ask other small business owners you know and check to see how financially viable the organization is before making a decision.
Gut feeling also isn’t a bad measure -if you don’t like the way they treat you when you’re first asking about plans or you find their website confusing, those issues will definitely not go away once they are dealing with your employees. Those issues can cause your employees massive amounts of stress if they need to interface with the company at all.
Integrate health insurance premiums into payroll
Health insurance premiums can either be deducted from an employee’s salary pre-tax or post-tax. Pre-tax saves the employee money in the long run, as the healthcare costs are removed from gross payroll and not subject to any federal, state, social security or Medicare taxes.
In most cases, employees who participate in employer health insurance plans have their deductions taken pre-tax. In order to make sure that you are in compliance with federal law, your employee health benefits plan must be compliant with IRS Code Section 125.
Post-tax deductions are normally calculated for employees who choose their own health insurance plans and opt-out of their employer’s pre-tax option.
Make a decision that best fits your business and employees
Based on all the considerations listed above, it’s easy to see how small business owners will need to devote a significant amount of time to vetting the different group health insurance options available. It’s important to remember that this won’t be a snap decision to make, and you don’t want it to be. You will be making a significant financial commitment, and it makes sense to take time making that decision.
Moreover, it’s important to get it right the first time. While it’s possible to switch plans during the open enrollment period (which typically falls around November, December or January), changing plans means you and your employees may need to find new doctors and adapt to the ins and outs of a brand new company. That can be highly annoying and stressful, too.
Offering your employees health insurance benefits makes you competitive in the job market, improves employee morale and can qualify you for tax breaks. It’s worth getting it right when you’re making such a huge decision that affects everyone on your staff.