How to Pick the Best Small Business Health Insurance
Are you a small business owner looking to get the right kind of health insurance for your employees? If so, you might be a little confused — or even intimidated — by the complexities of health insurance. Keep reading for information about providers, plans, tips and advice to help you pick — or decide to forgo — health insurance for your small business.
Do I need to offer health insurance to my employees?
If you have fewer than 50 full-time equivalent employees, you do not have to offer health insurance. If you have 50 or more employees, you need to provide health insurance for your workers. The rule is part of the ACA’s employee mandate, which came into effect in 2016. Businesses with 50 or more employees that don’t offer health insurance face thousands of dollars in penalties.
What kind of small business health insurance providers are there?
There are two main types of insurance providers — the Small Business Health Options Program and the Professional Employer Organization. There are also independent insurance brokers who can help you find providers and plans. Which one you choose depends on what works best for your business — review some pros and cons of each to help you decide.
Small business health options program (SHOP)
The government administers SHOP, which is part of the Affordable Care Act. SHOP is an online marketplace that offers a variety of plans and vendors to help you compare prices and coverage. There is no open enrollment period, and small business owners can apply for SHOP at any time.
As of Jan. 1, 2018, business owners no longer need to use HealthCare.gov to enroll, manage and pay premiums. Instead, you contact your insurance company directly. You can also work with a SHOP-registered agent or broker.
To use SHOP, a small business has to meet certain requirements. These are the two most important ones:
- The business must have from one to 50 FTEs. There are four states with an exception to this rule — New York, Colorado, California and Vermont — where business can have up to 100 FTEs and still qualify. This is because of the PACE Act of 2016, which allows individual states to extend the definition of small employer.
- A certain percent — usually 70 percent — of employees must enroll in your offer. Employees from another source (like Medicaid or individual health insurance) don’t count if they reject your SHOP offer. Some states have different minimum participation rates — you can find those requirements here.
Is SHOP right for you? Consider these pros and cons:
- Tax credits. Certain businesses can qualify for the Small Business Health Care Credit. The credit can save up to 50 percent of health care costs (35 percent for nonprofits) for your employees. Your business will need to have less than 25 FTEs, have an average salary of $50,000 a year or less, pay at least 50 percent of employee premiums and offer SHOP coverage to all your FTEs. Smaller businesses — with 10 or fewer people — receive larger credits.
- Cost comparisons. It’s easy to shop for carriers and markets. If a carrier wants to increase your prices, you can hop on SHOP and look for other carriers to find a better price or discounts. This can help when money is a big factor, according to Jeffery Howard, vice president of New-Orleans-based insurance broker Gillis, Ellis and Baker. “Playing one [carrier] off the other is a good idea in a situation when you’re trying to do whatever you can to control the costs,” Howard said.
- Questionable future. The Trump administration wants to repeal the ACA — and it also has SHOP in its sights.
- Eligibility requirements. Businesses seeking tax credits with more than 25 FTEs won’t be able to get credits, and businesses with more than 50 FTEs can’t qualify for SHOP.
- Costs vary. SHOP isn’t always the cheapest option, depending on your location.
Professional Employer Organization (PEO)
A PEO is an outside business that handles management task, such as benefits, human resources, compliance, safety training and payroll. PEOs are co-employers, and businesses looking to pay another organization to take the helm of a lot of administrative and managerial duties typically use them. PEOs, however, can also offer low health care costs. For some businesses, this makes sense. For others, it might not.
- Healthcare costs. PEOs have a lot of buying power because they work with thousands of other businesses simultaneously. As such, they have access to cheaper health care options.
- Less hassle. PEOs can get rid of the hassle of all those tasks that eat up time you could spend growing your businesses and working on other important tasks.
- Less management. Because a PEO is your co-employer, onboarding employees and managing the payroll will be the PEO’s problem. Creating certain policies and writing employee handbooks will also fall under the PEO’s umbrella.
- Less control. A PEO takes some of the risks and liabilities of your employees, and as such, you need to give up some control. A PEO can mandate your business adopt certain policies and procedures that you’ll have to follow. A PEO might not be a great option for business owners who want to be hands-on at all levels.
- They can be faceless. Some PEOs might interact with you primarily online, which could be annoying for business owners who prefer to speak with someone face-to-face. If that’s the case, you’ll want to look for PEOs who can offer on-site support.
- Costs might not add up. You’ll want to run the numbers on how much your administrative tasks and health care are costing your business and do a cost comparison. PEOs make money by either charging a certain percent of employee wages or a monthly flat fee per employee. Costs will vary per PEO. According to the PEO Einstein HR, PEO costs can range from 2 percent to 12 percent of the payroll, or from around $40 to $160 for the flat-fee model. On the flip side, the PEO cost could end up saving your company money, especially when it comes to health care.
- Contracts can be difficult to leave. According to Howard, leaving a PEO can prove difficult. “If you decide to change benefits, or want more control, leaving [a PEO contract] is a headache,” Howard said. There might also be fees associated with leaving. “Read the fine print and understand what your obligations are from the get-go,” he said.
Using an insurance broker
A broker is an independent, third party that helps a business owner find different kinds providers and plans — they’re middlemen with an expertise in insurance. They’re often paid through commission, the details of which should be clearly stated on their disclosure statements. This fee usually comes from a percentage of the policy’s premium. A good broker will look out for your business’ needs and interests, find the best possible plan at the best possible rate and come to your business and explain to your workforce what insurance plans are available.
A good health insurance broker will be an expert in the industry and should be able to answer whatever questions you have. This can help clear up confusing topics and help you figure out exactly what kind of insurance you want to offer. Howard says asking more questions can only help you out. “You get out of it what you put in,” Howard said. “If you just want a quote and wash your hands of it, then often times that’s the relationship you’ll get from the broker. If you ask good questions, take the time to understand the program, you’ll get a lot more out of it.”
Quality can vary: Not all brokers are created equal, and it’s possible you might get stuck with a broker that’s just looking to “skate by” by doing the bare minimum, Howard said. A bad one is “someone who doesn’t clearly explain what’s going on, doesn’t explain the pros and the cons, doesn’t help communicate that to your employees and leaves you with a take-it-or-leave-it mentality,” Howard said. That can be a good indicator you should take your business elsewhere.
Types of small business health insurance plans
There are four common types of insurance plans you should consider for your small business: Health maintenance organizations (HMOs), high-deductible health plans (HDHPs), point-of-service plans (PPS), and preferred provider organizations (PPOs). Each has pros and cons associated with it.
HMOs are affordable plans with some of the lower copays and coinsurance rates available. That’s because an HMO plan pays only for doctors within its own network — and although this keeps costs down, it’s also and HMO’s biggest drawback. Your employees will all have to see a primary care physician in that network, which limits the selection of healthcare practitioners (some HMO plans might assign a physician and not let the employees choose). That primary care physician acts as the employee’s gatekeeper and is tasked with managing the employee’s treatment and referrals.
HMO plans are comparatively cheap. “HMOs are normally a more cost-effective solution versus a PPO or PPS,” Howard said. This health care plan might be better for small businesses where a low-cost solution is a primary concern.
Needing to see a doctor across town can inconvenience employees, or they might need to wait a long while for appointments in a clogged network. Because employees will be forced to stay within the HMO network, they might not be able to see their own, preferred doctor. To see a specialist, employees must get a referral from the primary care physician.
PPOs are similar to HMOs in that they have their own networks, but unlike HMOs, PPOs will extend partial coverage outside of their network. Health care services from within the PPO’s own network receive a discount and coinsurance and deductibles are higher when you use services outside the PPO’s network.
Your employees will probably like PPO coverage better because they aren’t restricted to networked services. PPOs have no gatekeeper, so employees can visit other specialists without referrals. This plan is good for businesses in rural areas where the nearest HMO network is far away. A preferred network copay is typically inexpensive.
PPOs are expensive. Expect higher premiums and cost-sharing. Depending on the PPO, there might be limited coverage and lower maximum payouts for out-of-network services. There might be more healthcare service providers in your area under HMOs than PPOs, which would cancel out the benefits of a PPO plan. If your employees are largely staying within the PPO network, you could be wasting money on this more expensive plan. When employees use out-of-network providers, expect to file a lot of paperwork for reimbursement.
POS plans are a mix of a PPO and HMO. They have a preferred network with primary physician gatekeepers, but they also allow for out-of-network care like PPOs. POS premiums costs aren’t as high as those for PPOs, but they aren’t as low as HMO premiums.
Cheap copays and a flexible network option can keep your employees happy.
Like PPOs, employees would need to go out-of-network to justify the cost. Expect lots of paperwork for employees who do go out of network. You might also have to pay out-of-network costs upfront, which can be difficult for some businesses. Employees need referrals from their primary care doctors to see specialists within the POS network.
HDHPs shift the burden of health care costs to the employee. These plans offer very low monthly premiums but your employees won’t see any of the benefits until they meet the deductible, which is usually thousands of dollars. In 2018, HDHPs have an out-of-pocket expense cap of $6,650 for an individual and $13,300 for a family. Plans with a deductible of at least $1,350 for the individual and $2,700 for the family are classified as HDHPs.
These plans are cheap and come with low monthly premiums. If your workforce is young and healthy — and doesn’t need family coverage — the high deductible might not be a problem. HDHPs might be the only option for businesses that need to cut costs but also provide health care. HDHPs might have a wider network available compared with HMOs, and they often include a health care savings account (HSA) option, which enables employees to invest pretax money to use at a later date.
Employees probably won’t like it. Employees will likely opt out of going to the doctor altogether to avoid high costs, which could lead to more people coming to work sick or taking more sick days due to prolonged illnesses. Older employees and those with chronic illnesses will feel burdened with extra medical costs.
What to do if your small business can’t afford health insurance
If your small business simply cannot afford health insurance — and provided you have fewer than 50 employees — you don’t have to provide it. But you can still offer your employees some assistance. One simple way is to offer a stipend.
“A $500 annual stipend is a way to show their employees they still care, while also showing the business can’t afford insurance,” Howard said. You can’t, however, tell employees they must spend the stipend on health care due to federal rules. Giving your employees a raise can also send the signal that you appreciate them, but you can’t afford health insurance.
Is it always smart to offer health insurance?
Aside from keeping your employees healthier and happier, offering health insurance is a good way to draw in new talent. “In some fields, it’s expected,” Howard said. “It’s all driven by industry and some business owners may not be able to recruit someone from a bigger firm, or even retain employees [if they don’t offer health insurance].”
If you open a small restaurant, you might be able to get away with not offering health insurance because it’s more common in that industry. But if you’re a start-up looking to attract high-level talent, not offering health insurance can severely limit your talent pool.
As a small business owner, however, your overall financial duty is to your shareholders. “And that’s yourself and your family; your stakeholders being the bank and others,” Howard said. “If health insurance is something you straight up can’t afford, and it does not jeopardize your employee retention or their ability to do their job, then yes, it can make sense to tell them to go to the marketplace exchange.”
Tips and advice
As a small business owner, you might want to offer the best healthcare available to attract high-level talent. Sometimes this could work. Other times … not so much.
“I’ll work with entrepreneurs with a five-person company and they’ll say, ‘I want to offer Google-level benefits to our people.’ But when it’s time to look at costs, that discussion changes quickly,’” Howard said. Keep your expectations realistic, know your budget and be informed before you go shopping for health care.
Resources at the local level can help educate you on health care for your employees. Howard advises owners speak with their peers and industry associations. Check with your local small business alliance or chamber of commerce for help or referrals to additional resources.
Also, keep in mind that not everything will be in your control. The size of your business and its budget are two main factors that will dictate what kind of insurance you can buy.
“If you’re a five-person architecture firm, your ability to negotiate terms at that size isn’t all that great,” Howard said. Small businesses might want to look for Association Health Plans — these plans involve groups of local businesses banding together to have more purchasing power and negotiate better rates. The Trump administration announced new federal rules for AHPs, effective September 2018, so business owners may be seeing more AHPs in the future.
The bottom line
Health care is important to many small businesses for attracting and retaining talent — and helping your business grow. Each provider and plan has its pros and cons, and only you can be sure of which one will be the best fit for your business. If you need help making a decision, reaching out to industry groups or contacting a broker for a better understanding can be immensely helpful.
If and when you do select a provider and plan, keep an eye on it. “Don’t just delegate it the HR person and never address it again,” Howard said. It’s wise to evaluate your plan at least once a year. It’s not uncommon for providers to make changes to your plan, so understanding what they are is important. And always try to negotiate, even if you don’t have a lot of employees.