Health Insurance for Small Business 2021:

Small Business Health Insurance Options
[Basic Overview]

There are a number of different group options available to small employers. Unfortunately, understanding the differences between them is easier than you think.

As an employer, there are four options to consider: (View Story)

OPTION ONE: Employees Obtain their Own Coverage

If your business has fewer than 50 employees, then you are not required to offer access to health insurance. But as many small business owners can tell you, it can be difficult to grow a young company without a competitive benefits package.

On the other hand, sometimes the smarter financial move is to not offer health benefits. For example, some low-income employees might qualify for an ACA subsidy on the individual market, making it the cheaper option. Or perhaps some of your employees are already covered by a spouse’s group plan. 

As you’ll find out in this guide, health insurance for small businesses is more affordable than you think. It also creates access to a number of valuable tax benefits for employer and employee alike.

OPTION TWO: Small Group Health Insurance

With small group health insurance, the employer chooses a policy plan and then pays a fixed premium for every enrolled employee. The employee pays their share from their paycheck, and is covered as long as they are employed.

It works just like a plan purchased on the individual market, only far more affordable in some cases.

Some group plans are also HSA-qualified. This means that you can offer an additional tax-free benefit in the form of a health savings account (HSA).

OPTION THREE: HRAs for Small Business

Health reimbursement arrangements, or HRAs, are a common benefit option for businesses with fewer than 50 employees. Small business HRAs let employers compensate their workers for their own individual health plans.

In most cases, reimbursements are used for plan premiums. However, they can also be used for eyeglasses, dental insurance, and other out-of-pocket costs. 

HRAs are popular with small companies because they are highly flexible. The employer can choose how much to contribute each month, without having to worry about unexpected fluctuations in cost.

HRAs are popular with employees because they allow the individual to choose a plan of their own, as opposed to being pigeonholed into a plan that isn’t a good fit.

OPTION FOUR: Health Sharing Plans for Employees

For businesses and employees alike, health sharing for employees can save a bundle on monthly premiums. In fact, the average health sharing plan is about half the cost of unsubsidized health insurance.

Health care sharing is not actually health insurance at all. Instead, it is a membership-based cost sharing program. In exchange for a monthly contribution, members can have their medical expenses shared according to a fixed-price reimbursement model.

But like any health care strategy, health sharing isn’t for everyone. These plans come with waiting periods for pre-existing conditions, and coverage is usually less comprehensive.

Group Plan Health Insurance for Small Business – Comprehensive Coverage to Boost Your Benefits Package

In fact, there are some significant financial benefits to group health insurance that small business owners tend to overlook. 

For one, both the employer and employee can pay their portion of the premium with pre-tax money. And if you qualify for it, the Small Business Tax Credit is worth up to 50% of employer contributions.

But small group insurance isn’t for everyone. It can be cost prohibitive for some companies, and limits the amount of choices that your employees have regarding plan options. 

How do small group health insurance plans for small business work?

Group health insurance is perhaps the most common form of employment benefit. With small group health insurance, the employer chooses a plan or selection of plans to offer their employees.

Next, the employer then decides how much they want to contribute to the cost of the plan. The employee pays the rest of the premium out of their paycheck with pre-tax dollars.

How group health insurance for small business works in 4 easy steps:

The employer decides how much to contribute.

This can be a number that makes sense for your company’s financial needs. Usually, premiums for small group coverage are split in some way between the company and the employer.

The cost of the premium is a shared, pre-tax deduction from the employee paycheck.

After the plan is chosen and the employees are enrolled, administration is a piece of cake. As long as the employee continues earning a paycheck, they will remain covered. Payments are automatic and handled via payroll. 

Pros and Cons of Small Group Health Insurance

Small group insurance plans are quite varied in terms of cost and coverage options. But in general, you can count on group insurance plans to come with the following pros and cons:

First Steps: How do I set up a group health insurance plan for small business?

Setting up a small group plan for your business isn’t as easy as snapping your fingers. But it doesn’t have to be rocket science either. The first step is creating an overview of your company and employee needs. You should begin by asking questions like:

• How much can the company afford to pay for group insurance?
• What kind of plan is best suited for my employees?
• What benefits and plan options will help attract top talent?
• What kind of group plans are available in my state?

Once you have a general view of your needs, your personal advisor can show you what’s available.

Group Health Insurance for Small Business: Frequently Asked Questions (F.A.Q.)

KEY TAKEAWAY: Small Group Health Insurance for Small Business

Giving your employees access to a group health plan can make them happier, healthier, and more productive. It also provides employers with the opportunity to offer a tax-incentivized benefit as opposed to base wage increases.

Not all businesses are able to afford the cost of a group insurance plan. In addition, group plans can limit the amount of options your employees have when it comes to selecting coverage.

Fortunately, there are a number of great alternatives to business insurance, including HRAs and health sharing plans. We’ll have a look at these options next.

HRAs for Small Business – A Flexible, Customized Benefit Option for the Small Employer

HRAs can come in a lot of different forms. The most popular HRAs, however, are designed to compensate an employee for their individual coverage premiums.

In either case, the benefit is totally tax-free and the amount is determined by the employer.

How does an HRA health plan work?

HRAs are one of the easiest benefits to get setup. To begin, the employer determines who will be eligible for the benefit, as well as how much that benefit will be. Then, it’s up to the employee to enroll in a health insurance plan and apply for HRA benefits.

The details vary a bit depending on which type of HRA you’re offering. But in general, they’re very simple to understand, purchase, and administer.

How HRAs for small businesses work in 4 easy steps:

The employee enrolls in a qualified health insurance plan.

HRAs require that the employee have their own health plan that meets minimum standards as defined in the Affordable Care Act. The employee is responsible for both choosing the plan and getting themselves enrolled

The employer reimburses the employee via paycheck.

Monthly HRA benefits are added to the employee’s regular paycheck without including it as gross income. Other benefits are paid out as they are approved by the company, as is the case with out-of-pocket costs.

Why HRAs are Popular with Small Business

For many employers, a group HRA is a good way to ensure that your company’s benefit program isn’t going to take up too much time, money, or energy.

With HRAs, it is the employee who is responsible for choosing a plan and getting themselves enrolled, not the employer. It also means that the employee can choose whichever plan is best for them. This is unlike group plans which only give you one or two options to choose from, if any.  

The Different types of HRA: QSEHRAs vs. ICHRAs

HRAs come in all shapes and sizes. One of the first things that you’ll encounter when shopping for small business HRAs is the terms “QSEHRA” and “ICHRA”. In essence, these are the same thing: A low-cost health benefit that requires the employee to purchase their own insurance.

The differences between QSEHRAs and ICHRAs is mostly about company size. For example, QSEHRAs are only available to companies with 50 or fewer employees. ICHRAs as a slightly newer form that is available to companies of all sizes, and as such tend to be slightly more advanced in terms of administration.

If you decide that you’re interested in getting an HRA for your business, you can read more about the difference between QSEHRAs and ICHRAs.

The Pros & Cons of HRAs for Small Business

HRA benefit offers can come in all shapes and sizes. But for the most part, they come with the same basic benefits and drawbacks:

First Steps: How do I set up a small business HRA?

Setting up a company HRA is very easy. Here is the process in three easy steps:

Decide how much you will be reimbursing your employees. This can be a flat rate limited to premium costs, or it can include out-of-pocket costs like deductibles or dental expenses. With HRAs, the company makes the rules.

Announce your company’s open enrollment period to your employees. They will have 60 days to sign up for a plan, and new employees can sign up when they are hired or after a pre-established waiting period.

Work with an HRA administrator to handle all reimbursements. HRA administrators not only save a lot of time, but will also keep your plan in compliance and provide you with detailed monthly accounting. 

Once your HRA offer is up and running, it can be a hands-off benefit system with hardly any maintenance required.

Small Business HRA: Frequently Asked Questions (F.A.Q.)

KEY TAKEAWAY: HRAs for Small Businesses

Small business HRAs are the perfect option for the fast, young company that doesn’t have the time or resources to administrate a comprehensive group plan.

In addition, they provide the employees with the rare opportunity to choose how they want to manage their healthcare. This is opposed to the big, bloated group offerings that force everyone into a single plan.

Health Sharing Plans for Employees: A Health Insurance Alternative That’s Designed to Save Money

Health sharing can save you and your employees a lot of money. In fact, the monthly cost can be about half the cost of an unsubsidized plan. But that doesn’t mean that they are for everybody.

The Difference Between Health Sharing and Health Insurance

Healthcare cost sharing for employees is an alternative to health insurance, but it is not insurance. This allows health sharing to be more flexible, but it also lacks some of the basic protections of ACA health insurance.

For example, health sharing comes with no federal guarantee that your employees’ health costs will be covered. Health sharing organizations share member contributions with members who have medical cost needs, and there is no insurance company providing financial backing.

Health sharing plans also tend to have waiting periods on pre-existing conditions. If you have employees with pre-existing conditions or frequent medical needs, a small business group plan or an HRA might be a better option. Those come with guaranteed enrollment, so none of your employees can be denied coverage.

How to Qualify for Group Health Sharing:

Another difference between insurance and health sharing is what it takes to qualify. Traditionally, all health sharing plans were offered by Health Care Sharing Ministries (HCSM). These organizations require a statement of faith in the non-denominational Christian tradition.

Today, not all health sharing is faith based. Many plans will still require a statement of responsibility or an equivalent. Like the statement of faith, this is a signed document where the potential member can commit to a health-conscious lifestyle. Most discourage smoking and prohibit the use of any illegal substances.  

How do Health Sharing Plans work?

Even though health share plans are not technically insurance, many of them are designed to work in a very similar way. These plans have monthly payments (called contribution amounts), co-pays, and annual limits that work like deductibles.

For group plans, health sharing costs can be split between employer and employee in any way. They can also be paid directly from payroll, just like regular insurance.

How health sharing for employees works in 5 easy steps:

4. The employee provides the medical with their membership card, or submits bills for review after an expense is incurred.

Many health sharing plans work very similarly to health insurance, with a PPO network. Others allow you to see any provider, and then require that the member submit their medical receipts for approval. 

5. The health sharing organization determines how much of the cost will be shared.

After the receipts have been received, the health sharing organization decides how much of the cost will be shared. This takes into account any amount the member is responsible for (like a deductible) as well as whether or not the incurred costs are qualified according to the membership guidelines.

The Pros & Cons of Health Sharing Plans for Employees

Just like group insurance and HRAs, health sharing for small businesses can come in a lot of different forms. But it’s possible to boil it all down to a basic set of pros and cons:

First Steps: How do I set up a health sharing plan for my employees?

Make a list of your company’s standard medical needs. This means seeking out the answers to questions like:

How often do my employees seek medical care?

What kind of options would be popular?

Would my employees benefit more from lower premiums or more options?

Also determine the amount that the company can contribute towards health benefits. From there, your personal advisor can help you find a plan that checks all the boxes.

Group Health Sharing Plans: Frequently Asked Questions (F.A.Q.)

KEY TAKEAWAY: Group Health Sharing Plans for Employees

Health sharing plans can be one of the easiest ways to save money on employee benefits. It’s not as comprehensive as regular insurance, and waiting periods for pre-existing conditions make it less ideal for employees with more health needs.

Even so, it’s hard to find a better monthly deal on health benefits than with a health sharing plan.

How to Choose the Best Health Benefit for your Small Business

• What options is your company eligible to offer?
• How much are you willing to spend on health benefits?
• How much time do you have to manage and administer benefits?
• Which benefit option would be of highest value to your employees?

STEP THREE: Consider your Employees’ Coverage Needs

It’s always a good idea to talk to your employees about their health needs before purchasing a plan. Try to get a feel for how often they use their coverage, and whether or not the benefit you’re thinking about would help them pay for their healthcare.

STEP FOUR: Talk to Your Personal Advisor about Small Group Insurance

Unlike traditional insurance, employee health benefits do not need to be “one-size-fits-all”. With HRAs, HSAs, and health sharing, it’s possible to create a flexible benefits package that encourages the employee to take ownership of their health decisions.

In addition, it’s possible to build different combinations of these benefits for added convenience. For example, pairing a health sharing plan with an employee HSA is a great way to offer balanced coverage without spending too much.