The best small business health insurance plans are an affordable benefit that can boost your bottom line
Starting a small business is difficult enough, and choosing the best group health insurance plan isn’t any easier. For most small business owners, the idea of creating an employee health benefit can seem financially out of reach.
But the smart ones know this: Employee health plans are the single most effective way to attract new talent, drive productivity, and increase employee satisfaction.
If your small business has fewer than 50 full-time employees (FTE), then you are not legally required to provide health insurance under the Affordable Care Act (ACA). However, you can create a valuable incentive package for employees.
In this quick guide, I’ll walk you through 4 of the best small business health strategies on the market.
What are my options for small business health insurance?
Here are the options you have when setting up a small business health plan:
- Let employees choose their own coverage
- Traditional small group health insurance
- Group direct primary care (DTC)
- Group healthshare plans
Let’s explore each in more detail:
1. Let Employees Choose Their Own Coverage
Some employers opt to provide a fixed stipend or allowance for employees to purchase their own health insurance, though this is taxable income for the employees.
You can also choose Health Reimbursement Arrangements (HRAs) where Employers can reimburse employees for individual health insurance premiums and out-of-pocket medical expenses.
2. Traditional Small Group Health Insurance
Group health insurance isn’t as expensive as most people think. Merely offering a health benefit can lead to increased employee satisfaction, which can have a big impact on your bottom line.
You can purchase a group health insurance plan for your employees either through the Small Business Health Options Program (SHOP) or directly from private insurers.
These plans generally offer lower premiums and better benefits than individual plans due to risk pooling.
3. Group Direct Primary Care (DPC)
DPC is a healthcare model where employers pay a monthly or annual fee to a primary care provider or clinic for comprehensive primary care services.
DPC does not replace traditional health insurance but can be paired with a high-deductible health plan (HDHP) to cover major medical expenses.
4. Group Healthshare Plans
Healthshare plans, also known as healthcare sharing ministries, are arrangements where members share healthcare costs.
Healthshare plans are not considered insurance and do not guarantee payment of medical bills. However, they are generally more affordable than traditional insurance but come with limitations and exclusions, particularly for pre-existing conditions and certain types of care.
| Comparison Criteria | Let Employees Choose Their Coverage | Traditional Small Group Health Insurance | Group Direct Primary Care (DPC) | Group Healthshare Plans |
Description | Employees select and purchase their own health insurance plans. Employers reimburse or provide stipends. | Employers purchase a single group health insurance plan for all eligible employees. | Employers pay a monthly fee to a primary care provider for comprehensive primary care services. | Employees share healthcare costs through a cooperative, often faith-based arrangement. |
Cost Control | High: Employers set fixed contribution amounts. | Moderate: Premiums may increase annually, but risk is pooled. | High: Fixed monthly fees for primary care services. | High: Generally lower monthly costs compared to traditional insurance. |
Administrative Burden | Low: Simplified administration, but requires clear communication about reimbursements. | High: Requires managing enrollments, renewals, and compliance. | Low to Moderate: Simple for primary care but may need additional insurance management. | Moderate: Less administrative burden than traditional insurance, but still requires management of contributions and claims. |
Flexibility | High: Employees choose plans that fit their needs. | Low: One plan for all employees, less individual customization. | Moderate: Comprehensive primary care, but additional insurance needed for full coverage. | Moderate: Flexibility in choosing healthcare providers, but limited coverage options. |
Coverage | Varies: Dependent on individual plans chosen by employees. | Comprehensive: Typically includes a wide range of medical services. | Limited: Covers only primary care services. | Limited: Often excludes pre-existing conditions, mental health services, and other specific types of care. |
Tax Benefits | Moderate: HRAs can offer tax advantages; stipends are taxable income. | High: Employer contributions are tax-deductible; employee contributions are often pre-tax. | Moderate: No specific tax benefits; primary care fees are an expense. | Low: Contributions are not tax-deductible, as healthshare plans are not considered insurance. |
Employee Satisfaction | Varies: Depends on the plans employees select and their coverage levels. | High: Comprehensive coverage generally well-received by employees. | High: Enhanced access to primary care can improve satisfaction. | Varies: Community aspect valued, but coverage limitations can cause dissatisfaction. |
Regulatory Compliance | Moderate: Must comply with HRA and reimbursement regulations. | High: Must comply with ACA and other regulations. | Low: Not regulated as traditional insurance, but must ensure proper primary care provision. | Low: Not regulated like traditional insurance, potentially higher risk. |
Predictability | High: Fixed contribution amounts, but variable employee plan costs. | Moderate: Annual premium increases, but costs are pooled. | High: Fixed monthly fees for primary care services. | High: Generally predictable monthly contributions |
Provider Availability | High: Employees can choose any available plan in their area. | Moderate: Limited to the network of the chosen group plan. | Low to Moderate: Depends on the availability of DPC providers in the area. | Moderate: Depends on the network of healthcare providers participating in the healthshare plan. |
Compare Pricing on the Best Insurance Plans Available
How Health Reimbursement Arrangements (HRAs) Work for Small Businesses
Health Reimbursement Arrangements (HRAs) offer a flexible and tax-advantaged way for small businesses to provide health benefits to their employees.
Unlike traditional group health insurance plans where employers purchase insurance policies, HRAs allow employers to reimburse employees for their medical expenses, including individual health insurance premiums, out-of-pocket costs, and other eligible medical expenses, as a tax-free benefit. This approach can provide both cost control for employers and greater choice for employees.
One of the primary benefits of HRAs is their flexibility. Employers can design an HRA plan that suits their budget and the specific needs of their workforce. For example, employers can decide the maximum amount they will reimburse each employee annually, giving them control over their healthcare spending.
This fixed contribution helps employers predict and manage their healthcare expenses more effectively than traditional group insurance, which can have variable costs and annual premium increases.
Types of HRAs Available
There are several types of HRAs that small businesses can utilize.
The Qualified Small Employer HRA (QSEHRA) is available to businesses with fewer than 50 full-time employees and allows for the reimbursement of individual health insurance premiums and qualified medical expenses.
The Individual Coverage HRA (ICHRA), on the other hand, can be offered by businesses of any size and provides even greater flexibility. With ICHRAs, employers can reimburse employees for individual health insurance policies that meet certain standards, and employees can choose plans that best fit their individual needs.
Advantages for Employees
For employees, HRAs provide the freedom to choose their healthcare providers and plans.
This can be particularly appealing to employees who prefer specific doctors or require plans that cover unique health needs. By allowing employees to tailor their health insurance to their personal situations, HRAs can increase overall employee satisfaction and well-being.
However, HRAs do have some limitations. They require clear communication with employees to ensure they understand how to obtain and submit reimbursements. Additionally, not all employees may be familiar with purchasing individual health insurance, which could necessitate some guidance and education from the employer.
Key Factors to Consider When Choosing a Health Insurance Strategy
When selecting a health insurance strategy or any of the alternatives shared above for your small business, several critical factors should guide your decision. These considerations will help ensure that the chosen plan meets both your business’s financial constraints and your employees’ needs.
1. Budget and Cost Control
Take your time to evaluate your budget and determine how much your business can afford to spend on health insurance premiums. This includes both employer contributions and any costs passed on to employees.
Remember that employer contributions to employee health insurance premiums are usually tax-deductible. Additionally, certain plans, like HRAs, can offer specific tax advantages.
2. Listen to Employee Needs and Preferences
You can conduct surveys or meetings to gather input from your employees about their health insurance preferences and needs. Understanding their priorities can help you choose a plan that will be well-received.
Consider whether your employees need plans that cover their families. Some employees might prefer plans with robust family coverage options. Be sure to choose a network of providers that are conveniently located and highly rated by your employees.
3. Plan Flexibility and Choice
Offering a range of plans, such as high-deductible health plans (HDHPs) alongside more traditional plans, can accommodate different employee needs and financial situations.
Health Reimbursement Arrangements (HRAs) such as QSEHRAs and ICHRAs, allow employees to choose individual plans that best fit their needs while still benefiting from employer contributions.
4. Legal and Regulatory Compliance
Ensure the chosen health insurance strategy complies with federal, state, and local regulations. This is particularly important if your business is close to the 50-employee threshold that triggers additional ACA requirements.
Health insurance regulations can change, so it’s important to stay informed about any new laws or guidelines that may impact your business.
5. Long-Term Sustainability
Choose a plan that offers predictable costs over time. While health insurance premiums generally increase each year, some plans may offer more stability than others.
Even more importantly, consider whether the plan can scale with your business as it grows. Will the plan still be a good fit if you hire more employees or expand operations?
By carefully considering these factors, you can select a health insurance strategy that aligns with your business goals, budget, and the needs of your employees, ultimately contributing to a healthier and more satisfied workforce.
Talk to your Personal Benefits Manager about finding a small business health insurance strategy for you
Want to get a free small business health insurance consultation with a real-life expert?
Call one of our Personal Benefits Managers to schedule an appointment. We’ll give you the tools you’ll need to choose the best option for your employees, and help you get your plan started fast.
Here are some additional articles on small business health insurance programs: Boost Your Company’s Benefits Package with A Small Business HSA: A Step-By-Step Guide | All You Need to Know About Healthshare Programs – Review & Video | Best Health Insurance for Small Business Owners: 5 Plans for Self-Employed Entrepreneurs in 2022
Hi! I’m Mike Montes, and I’m one of your Personal Benefits Managers. I like working with HSA for America because we’re creating solutions to healthcare problems. Our focus on money-saving alternatives like HSA plans and health sharing programs, and the variety of health share programs we offer, are what set us apart. Read more about me on my Bio page.
