Small businesses are often known for a company culture centered around community. Small teams and close relationships create a company that cares about employee success and overall job satisfaction. For small businesses with leaner operating budgets, though, the cost of employee benefits can seem unaffordable; however, health insurance might be required for your business.
Is your business legally required to offer health insurance to employees? This article will explain whether your business is required to offer health care coverage, how you can find a health insurance provider, and what can influence the cost.
Do You Need Small Business Health Insurance?
The Affordable Care Act (ACA) requires small business owners to provide dental and health coverage to employees. Under the Small Business Health Options Program, business owners must offer affordable health care coverage options if they have 50 or more full-time and/or full-time equivalent employees (FTE).
To determine whether this rule applies to your business, you'll need to determine the number of FTEs at your company using this formula:
| FTE Number | |
|---|---|
| = | (Total hours worked by part-time employees weekly / 30) + Number of full-time employees |
If the FTE number ends up being above 50, at least 95% of employees must be covered. However, if you have 49 FTEs, you are not legally required to cover health insurance to employees.
Regardless of the size of your business, you might still consider offering health insurance coverage. Providing health benefits can help improve recruitment, acting as an incentive to potential employees and setting your business aside from others. Aside from recruitment, offering health care insurance can help with employee retention and loyalty.
Additional benefits include:
Small Business Tax Incentives
- Small Business Health Care Tax Credit: Do you have a business with fewer than 25 full-time employees? If so, you're eligible for a tax credit. To receive this benefit, you'll need to enroll in a SHOP plan, which can be purchased by a licensed insurance provider or the Small Business Health Options Program (SHOP) Marketplace.
- Deduct premiums: Small employers can usually deduct 100% of the cost of monthly health care premiums from federal business taxes.
- Deduct HSA contributions: Employers can typically deduct health savings account (HSA) contributions from their small business.
Lower Premium Costs
Individual health insurance plans are more costly than group coverage. In most cases, group health insurance plans for small businesses have lower per-person costs, which include deductibles.
Employee Satisfaction and Productivity
Employees are more likely to achieve and live happier lives when the resources they need are available to them. When wellness is made a priority with affordable access to health care, employees take fewer sick days and are more productive.
What to Look for in a Small Business Health Insurance Provider
There are three plan options for small business health care. Although small group insurance is most commonly used for small employers, it's not the only option. The "right" option for your small business will depend on a number of factors, including the market and costs in your area.
Small Group Insurance
Small group insurance, otherwise referred to as fully-funded insurance, is the most common among small business owners. This is because it was designed for businesses with less than 50 full-time employees (except for in four states, in which it only applies to businesses with no more than 10 employees). There are several options small employers can choose between, such as high-deductible health plans, indemnity plans (which allow you to choose almost any doctor or hospital to visit for care), and managed care (HMO, POS, and PPO).
Group health insurance plans provide coverage to group members at reduced costs because the risk to the insurer is lower. Since the risk is spread across multiple policyholders, members can receive health insurance at a lower cost.
To get group plan coverage, though, at least 70% of the group must participate. As you may have assumed, the cost of coverage is shared between the group. Additionally, employers can decide if they'd like to cover any of the individual premiums. Although it might seem like something you can easily pass up, potential employees might be less attracted to a job in which they have to foot high health insurance premiums. For this reason, it's recommended to cover a portion of the premium costs.
Once a company chooses a group plan, members can accept or deny health coverage. Plus, they can often choose between different coverage tiers, with some offering advanced add-on options. During this step, it's important to consider whether coverage will be extended to dependent family members.
Health Reimbursement Arrangements (HRAs)
A health reimbursement arrangement (HRA) is a fairly affordable health insurance option. Employers can reimburse their employees for their individual insurance premiums and medical expenses before taxes. This is a completely reimbursement-based model.
When an employee visits the doctor's office, they pay the insurance company and doctor directly. From there, they can submit a claim to their employer and be reimbursed tax-free.
Self-Funded Plans
Another option is self-funded plans. Reacting to the soaring costs of health insurance, some employers are opting for self-funded plans. These plans are seen less frequently with small businesses and are usually better suited for larger enterprises, though.
When employers are self-insured, they pay for claims out of pocket whenever they arise. Employers with self-funded plans set up a trust fund to pay for claims. A third-party administrator handles the claims process and may offer other services, such as premium collections and PPO services contracting.
How to Find a Health Insurance Provider
Now that you understand the different health insurance plan options for businesses, it's time to choose a plan that works for your team. The best health insurance companies should have flexible plan options, a large network of health care providers, and good and accessible customer service.
Many health insurance providers specialize in small business health insurance plans. To find the right plan and provider, consider what your team needs. Is cost the most important factor, or is your priority finding an option with unique member benefits? Answering important questions can prove helpful when making a shortlist of potential plans.
At the end of the day, choosing the right coverage for your small business requires a bit of digging. Some health insurance providers for small businesses include:
- UnitedHealthcare: This nationwide company offers a variety of plan options and rewards programs.
- Aetna: This nationwide company has flexible HSAs that include investment options.
- Blue Cross Blue Shield: This nationwide company has the largest provider network.
- Humana: This nationwide company has HSAs that cover a large variety of services and procedures.
- Gusto: This company has plans available in 38 states and Washington, D.C., and is known for exceptional customer service.
How Much Does Small Business Health Insurance Cost?
Unfortunately, there's not a simple answer to how much health insurance costs for a small business. The cost depends on a number of factors, such as the ages of the people in your group and their locations, coverage, and out-of-pocket expense preferences.
- Premiums: Insurers set premiums based on the age and location of employees in the group. Additionally, premiums are set based on coverage levels in the plan.
- Deductibles: This is the amount of money the policyholder is required to front before their insurance kicks in.
- Copayment: A copayment, or copay, is a cost your employee may have to pay for medical services and supplies.
- Out-of-pocket costs: These are usually payments that an individual has to make for their medical services. There is a set threshold for this, which is determined by the plan your employee elects. In most cases, health insurances will pay 100% of covered health care once the employee has met their out-of-pocket threshold.
- Out-of-pocket maximums: These are the limits the employee is responsible for in a year. They don't apply to monthly premiums or services that the employee's insurance plan doesn't cover. The out-of-pocket maximums depend on the type of health insurance plan chosen.
As you can see, there are many factors that can impact the cost of health insurance for small businesses. Aside from shopping around for the best health insurance company, you should consider your business's needs and what's most important for your team.
Effectively Manage Your Business Finances With Skynova
As a small business owner, deciding which health insurance plan is best for your team based on their needs and your budget can be challenging. Skynova's accounting software allows you to easily track business expenses. This can be helpful when determining your budget for health insurance before you begin shopping for a comprehensive plan.
Providing you with quick access to financial statements, Skynova gives you everything you need for the financial aspect of your business in one place. Visit our website for additional small business resources.
Notice to the Reader
The content within this article is meant to be used for a general understanding of health insurance coverage for small business owners and may not apply to your specific situation. Always consult with a professional to ensure you're meeting legal standards.