Health Insurance for Small Business 2021:
The Only Guide You’ll Ever Need
Nearly everything you need to know about creating an affordable
health benefit for employees
By Wiley Long III, President – HSA for America
Thinking about getting health insurance for your small business employees, but don’t know where to start? This step-by-step primer breaks everything down into simple, easy-to-understand terms, all backed by the knowledge and experience of our in-house small group insurance experts.
In this guide, small business owners can learn everything they need to know about the four options that they have for providing health benefits, and the pros and cons of each.
These options include:
- Small employer Health Reimbursement Arrangements (HRAs)
- Traditional group health insurance
- Group health sharing plans
- Employee Health Savings Accounts (HSAs)
Afterwards, we’ll offer a few tips on how to choose an insurance plan for your small company.
Small Business Health Insurance Related Resources
In This Health Insurance for Small Business Guide:
Small business health insurance options
HRAs for Small Business
Health Sharing Plans for Employees
Group Health Insurance for Small Business
How to Choose the Best Health Benefit for your Small Business
Since 2004, HSA for America has been helping individuals and small business owners navigate the complex maze of health coverage.
We’re big fans of innovative, hassle-free, and non-traditional options, and we will never stop looking for a better deal.
Our team’s specialized knowledge about HRAs, HSAs, and health sharing plans can make health benefits a reality for your small business. No matter which solution you’re interested in, we can help make group benefits easier, faster, and more affordable.
Small Business Health Insurance Options
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:
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.
|It’s easier than choosing and administering a health benefit||Offering no health benefits can make it hard to attract new talent|
|Your employees might already be covered, or eligible for a cheaper plan with an ACA tax credit.||Wage increases (as opposed to some benefit offers) are taxable to the employee|
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).
|Employer and employee contributions are both tax-deductible||Group coverage is not always more affordable than individual plans|
|Offering health insurance can reduce turnover, increase productivity, and attract new talent to your company||Employees have less choice (or no choice) in their plan and coverage options|
|Businesses with fewer than 25 employees may be eligible for a big tax credit worth up to 50% of total plan contributions|
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.
|Employers choose how much to contribute (there are no contribution minimums)||HRAs require the employee to have their own individual coverage|
|Employers can set the rules of their own HRA, making them very flexible||Most HRAs are incompatible with the ACA subsidy, meaning some employees may have to choose between the two|
|Employees get to choose their own plan, and take it with them if they are no longer employed with the company|
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.
|Health sharing is one of the most affordable benefit options available||Health sharing is not ideal for individuals with significant medical needs|
|Health sharing is a unique benefit opportunity only available to small employers||Health sharing contributions are not tax-deductible|
The Best Small Business Health Benefit for your Company
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 chooses a plan, or a selection of plans.
This is the most difficult part of the whole process, but can be easy when working with an advisor. Choosing a plan means considering the needs of your employees and dependents. What kind of benefits will they need, and who will be covered? Will the plan cover dependents?
Enrolled employees will have a monthly premium, a set deductible, and an out-of-pocket maximum.
This information is all available beforehand, and can help convince an employee to enroll.
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:
PROS of Small Group Health Insurance
|The employer decides how much is contributed. Because businesses with fewer than 50 employees are not required to provide access to health insurance, there is no minimum contribution limit if they do. That means that once you have a plan picked out, you can decide precisely how much the company will contribute. This is unlike larger group options which require a contribution of 50% or more.|
|Group plans make it possible to set up an employee HSA. Health savings accounts (HSAs) are gaining momentum as one of the most popular investment strategies of the decade. These flexible tax-deferred accounts give your employees a better way to save money for healthcare. Because of this, HSAs for small business are becoming a staple in benefits packages across the country.|
|Some businesses are eligible for a big tax credit. Depending on which state you’re in and which provider you are purchasing from, you might be eligible for the Small Business Health Care Tax Credit. This is a major tax benefit that can be as much of 50% of your overall contributions. Not everyone is eligible, and the credit is only available for the first two years. However, the initial savings can make it easier to launch a new group plan. You can use the Healthcare.Gov website to estimate your Small Business Health Care Tax Credit.|
|There’s no special enrollment period for group plans. Unlike health plans purchased on the individual market, business plans have no enrollment periods. That means that your employees can buy into the plan immediately, or whenever the need arises.|
CONS of Small Group Health Insurance
|Group insurance can be more expensive for the employer. In the last few years, the average cost of group health insurance plans has gone up. While plans on the individual market have also gone up in price, the premiums and deductibles for group plans have gone up at an even higher rate. However, it is still possible to find affordable small group insurance.|
|Group health insurance is not individualized. The nature of group insurance plans is that all employees have only one option. While it is possible to offer more than one plan, the employer still has to select a single provider. This means that employees have less control of what kind of coverage they’re buying.|
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.)
Q: What happens if I find a cheaper small group plan elsewhere?
Anytime you switch group plans, there is a chance that costs could go up or down for your employees. Your advisor can keep you updated on new plans and rate changes.
Q: Can I just reimburse my employees for the cost of an individually-purchased plan?
Q: How much does group health insurance cost?
Your specific plan’s rates will vary depending both the age of your employees and the zip code that your business is located in.
Q: Is my business required to provide health insurance?
Small businesses with 50 or fewer employees are exempt from this penalty. That means that these companies don’t need to offer any benefits at all. However, most of them do when they see the tax savings and bottom-line advantages that accompany employee health benefits.
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.
Read more about Small Group Health Insurance for your Small Business
If you’re interested in learning more about how to set up a group health insurance policy for your small business, check out “Everything You Need to Know About Group Health Insurance for Small Businesses”. This is a free comprehensive guide designed to simplify the group health insurance process.
Your personal benefits manager can help you sort through the many plans that are available. Give us a call anytime, or click here to schedule an appointment.
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 employer decides how much they want to pay as a benefit.
There are no minimum contribution amounts for HRAs. This means that small businesses can offer an amount that makes financial sense.
The employee submits proof of expenses.
While an HRAs are primarily used to pay monthly premiums, they can also cover the costs of some things not covered by insurance. After incurring an expense, the employee submits an invoice or receipt. An employee can also submit a description of benefits from their insurer if using their HRA to pay ongoing monthly premiums.
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:
PROS of HRAs for Small Business
|HRAs are tax-free. HRAs are a formal health benefit, and as such they are completely free of payroll tax. HRA benefits can also be income-tax-free, provided that the employee has minimum essential coverage under ACA. Because the employer chooses the benefit amount, HRAs can save up to 50% in taxes compared to a wage increase of the same amount.
|HRAs give employers more control. With HRAs, there is no minimum amount that the employer is required to contribute. This means that businesses can choose the amount of money that they want to spend on health benefits. This also means that it’s easier to create financial forecasts without having to worry about unexpected cost increases.|
|HRAs have no minimum participation requirements. Even if your company only has a single employee, you can still offer a tax-free HRA. This includes providing coverage options for employees who are on family plans or enrolled in health sharing. This is not how it works with traditional group insurance plans, which have stricter eligibility requirements.|
|HRAs are portable and personalized. With an HRA, your employees will have more complete control of their healthcare dollars. Employees are empowered to choose their own plan, providers, and service options all on their own. Aside from providing the benefit, the company is essentially removed from the health care process. In addition, employees can use their benefit to pay for things that might not be covered by a traditional group policy, such as vision, dental, and out-of-pocket costs.|
|HRAs can work across state lines. Unlike group insurance plans, HRAs are available to employees out-of-state without any additional administrative hassle.|
CONS of HRAs for Small Business
|Individual coverage is sometimes more expensive for the employee. Most HRAs require that the employee be enrolled in an individually purchased plan. While this does give the employee greater control of which plan to choose, they may pay more than they would per-month than they would with group coverage.|
Employees will not be able to use an ACA subsidy alongside their individual HRA. HRAs can only be used to reimburse for insurance premiums that are not subsidized through the Marketplace. If your employee signs up for a plan and receives premium tax credits to lower their premium, they cannot participate in the HRA.
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.)
Q: Does the HRA roll over from year to year?
Q: Who owns the HRA?
Q: How much can be contributed to an HRA account?
QSEHRAs on the other hand have annual contribution limits outlined by the IRS. The contribution limit in 2020 is up to $5,250 for a self-only employee and $10,600 for an employee with family dependents.
Q: What are HRA eligible expenses?
Here are just a few HRA eligible expenses:
- Body scans
- Ambulance services
- Bandages and first aid supplies
- Birth control
- Chiropractic services
- Hearing aids
- Hospital services
- Long-term care services
- Laboratory fees
The list goes on and on. HRAs can even be used to pay for the cost of Medicare Parts A, B, or C. This is one reason why small business HRAs are emerging as such a popular option for small companies. They create a lot of flexibility for the employee.
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.
Read more about Small Business HRAs, QSEHRAs, & ICHRAs
Our personal benefits managers are well-versed in all of the options that are available. You can call us anytime to talk details, or click here to schedule an appointment.
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:
1. The employer chooses a medical cost sharing organization.
There are a number of different health care sharing organizations that currently meet the government requirement. Mpowering Benefits and Sedera are perhaps the most popular group options. Each offers different levels of coverage. It’s up to you to choose one that has the right balance of pricing and coverage.
2. The employee signs a statement of faith or an equivalent member agreement.
Medical cost sharing organizations ask members to agree to live by a set of moral, ethical, and health-conscious principles. For faith-based health share organizations, this is referred to as a statement of faith.
3. The employer and the employee share the cost of the monthly member contribution.
Like with insurance or an HRA, the employer decides how much they want to contribute. The remainder is paid by the employee, usually directly from payroll. Unlike HRAs and group insurance, health share contributions are not tax deductible.
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:
PROS of Health Sharing Plans for Employees
|Health sharing is much cheaper than health insurance. On average, health sharing plans for business are between 30 and 50% more affordable than conventional insurance. If you are confident that health sharing plans can meet your needs, this is a great place to save big on monthly costs.
|Health sharing plans are portable. Even if your employee leaves the company, their health sharing membership will continue as long as they continue to pay their monthly share.|
|They encourage a healthy lifestyle. Health sharing plans are perfect for the individual who is relatively healthy. But even more, these plans actively encourage a health-conscious lifestyle. It’s the perfect arrangement for someone who doesn’t intend to use their coverage all that much.|
CONS of Health Sharing Plans for Employees
|There are waiting periods for certain pre-existing conditions. With few exceptions, health sharing plans are far more restrictive when it comes to pre-existing conditions. These waiting periods can be between 12 and 26 months depending on the plan.
|Health share contributions are not tax-deductible like insurance premiums. Health sharing organizations are completely separate from the government. This means that contributions are not tax-deductible the way that insurance premiums are. And yet, even without the tax savings health sharing plans are often cheaper than insurance.|
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.)
Q: Is health sharing available for small businesses?
Q: Can I still offer an HSA with a group health sharing plan?
Q: Are there any maximums for health sharing plans?
Q: Can an employee be dropped for excessive medical needs?
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.
Read more about Health Sharing Plans for Small Business
You can read more about health sharing for small businesses by checking out our comprehensive guide, “Everything You Need to Know About Health Sharing Plans for Small Business.”
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 ONE: Review Your Budget
Many small businesses forgo health benefits because of the high price. But there are some options like HRAs and health sharing that fit even the smallest company’s budget.
The first thing you need to determine is how much you are willing to contribute for health benefits.
STEP TWO: Consider your Employees’ Annual Income
The amount of money your employees are currently making may affect the affordability of their healthcare. For example, some HRAs are not compatible with the ACA subsidy, which could force your employees to have to choose one or the other.
Knowing how much your team is currently making will help your advisor find the right option for everyone.
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.
Learn More About Your Small Business Healthcare Options
Your personal benefits manager is an expert guide that can help you navigate the costs and coverage options of small business insurance.
Give us a call to get on the calendar for a strategy session, or click here to make an appointment.