Small Business Guide to Health Insurance

The government defines a small business as one that employs 50 or fewer full-time equivalent employees. To determine whether you are classified as a small business, you can use our Full-Time Equivalent calculator. For purposes of this discussion, we will focus on small businesses.

Small Business Requirements

Small businesses are exempt from the Affordable Care Act healthcare law, meaning they are not required to offer health insurance to their employees and they will not be penalized for doing so. However, all small business employers are required to provide a notification to all employees about the Health Insurance Marketplace (otherwise known as “The Exchange”) and inform their employees that they may be eligible for a premium tax credit if they purchase coverage through The Exchange. For examples of these notices, you can visit:

Even though small businesses are not mandated to provide health insurance, many are choosing to do so. In fact, the majority of newly insured individuals over the last year are covered under their employer-sponsored plan rather than going to The Exchange. Small businesses are taking care of their employees and their health and here is why:

Tax Credits

The new healthcare law provides incentives for small businesses to provide health insurance to their employees through tax credits. Tax Credits can help offset up to 50% of the business’s contributions and up to 35% for a non-profits contributions. In order to be eligible for the credit, a small business must meet the following criteria:

  • Have less than 25 employees
  • Average salary of all employees must be less than $50,000
  • Pay at least 50% of the employee-only premium
  • Offer a SHOP plan to your employees

Small Business Health Options Program (SHOP)

In order to receive the tax credit, the group plan must be obtained through The Exchange. The SHOP program is designed specifically for small business owners to help reduce their cost and administrative burden of providing healthcare to their employees.

Partially Self-Funded Plans

While the SHOP plans and tax credits can be an incentive for many small businesses, often a partially self-funded plan can be a more affordable option. Partial self-funding is a fairly new concept in the small group market that is gaining momentum as healthcare costs continue to escalate for small business employers. It is an approach to healthcare involving greater employee education on how they seek services, involvement in the process, and recognition of actual healthcare costs.

With a partially self-funded plan, a business pays premiums just as they would with any major medical plan but they can receive money back if their claims are low. Moreover, if claims are high, they would never have to pay more than their monthly premium, so there is virtually no risk and great opportunity for reward.

Partially self-funded plans typically work best for businesses with 10 or more employees who tend to employee young, healthy individuals (construction companies, IT companies, etc.).

Employee Retention

According to a study done by MetLife, 49 percent of employees polled said benefits were an important reason they came to work for a company, while 60 percent said benefits are an important reason for staying. Additionally, a study done by Principal Financial found that health insurance is deemed the most important benefit by 90 percent of employees.

A competitive benefits package is vital to the successful attraction and retention of quality employees. It is important to meet with your insurance broker on a regular basis to make sure your benefit offerings are competitive, attractive, and affordable.

Factors to consider when choosing a group plan

When choosing a health insurance plan, consider these factors:

  • Network: Is there a wide variety of doctors and hospitals in the network? Will it cover any out of state employees?
  • Benefits: What is the deductible? Maximum out-of-pocket expenses? Coinsurance? RX Benefits?
  • Plan Design: HMO, PPO, HAS, Partially self-funded… what makes the most sense for my business?
  • Price: Is coverage affordable for my employees and their dependents? What about my business?

It is important to meet with an agent or broker that can help you find and compare plans that meet your needs, give you exact prices, and help your employees enroll. They can also help small business owners fill out the necessary paperwork to establish a group health plan.

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