Healthcare for startups: now or later?

When you look at the list of to-dos for startup execs, where does healthcare for startups land? One expert says to prioritize things like “give direction,” “shape your team,” “establish structure,” and “be responsible.” Forbes approaches it a bit differently, telling readers to focus on “customer development and support,” “hire A-players,” and “sell the product and the vision.”

You can search the web for trustworthy advice, but you’ll be hard-pressed to find much about where healthcare for startups comes in. You need healthcare you can understand so you can determine what’s best for your new business.

If you are a startup CEO or other executive, you know that building out your team is critical. Yes, you want the “A-players,” but how do you do that? Salary is king, right? Perhaps, but a prince is waiting in the wings.

While salary is, of course, top of the list for most people, a close second is a solid benefits package that includes health insurance with dental and vision coverage. A 2020 Metlife study on employee benefit trends found that health insurance is the most prioritized benefit, with 86% of employees saying health insurance is a “must-have” and only 12% saying it is a “nice to have.” 

The study also showed that employees with health benefits are more loyal and productive than employees that lack them. With COVID-19 still in our midst, employees value those health benefits even more than before, citing a comprehensive benefits program as the third most crucial driver of holistic well-being. 

Related: 5 small business health insurance trends in 2021

So, at what point do startups begin offering health insurance? Years ago, you may have had a little breathing room as you laid the groundwork for your new business first. Today, however, most startups offer health insurance immediately, making it part of their business plan and including it in their compensation budget. Why?

It’s all about shaping the team and hiring A-players. If you want quality employees who are loyal, productive and drive positive outcomes, you’re going to need to offer them a good benefits program as part of their compensation package. 

Few people will wait until your company turns a profit or has time to deal with health insurance. There are plenty of other companies out there that are offering benefits plans already. If you want to get the best, you have to act like you are the best, even when you’re just getting started.

Is healthcare for startups feasible?

Now that you know healthcare is essential for startups, you’re probably wondering how you can make it work. You have a laundry list of expenses and a fixed budget. Can you afford healthcare?

The U.S. Chamber of Commerce agrees that to attract and maintain top talent, a company needs to have an excellent benefits program. It also recognizes that healthcare is costly, and many companies struggle to pay for it. Here are a few of the ways they say you can afford employee benefits:

• Set a budget. “By starting with a set amount of money, you know what benefits are within reason and how much you have to work with. As your business grows, you can increase your budget and offer more.”
• Split the cost with employees. “Look at benefits where your employees pitch in to see how much more added benefits they get. It may be worth it to them to pay a little to gain more.
• Offer well-being benefits and discounts. “Providing discounts to local businesses and gyms encourages your employees to be more active and proves to them you care about more than just their work output.”

Another way to reduce healthcare costs for startups is to look at options outside of conventional health insurance plans. Fully-funded health plans, a type of employer-sponsored plan, are expensive for small businesses and startups with fewer employees. Self-funded plans can be less expensive and more flexible, but they present incredible risk for having to pay unexpected, unbudgeted claims costs that devastate cash flow. 

Instead, look at level-funded health plans that give you the predictability of a fully-funded plan and the flexibility and cost savings of a self-funded plan. With a level-funded plan, your costs remain level, meaning they are predictable month to month. They are also more customizable to your business and employee needs and come with significant savings.

Related: Why level-funded health plans are becoming the new normal for small businesses

Your company and your employees contribute a set amount each month to pay medical claims as they come in. If your claims total less than what you contributed, you get reimbursed the difference at the end of the year. If claims total more than what you claim, the plan covers the difference with stop-loss insurance. Either way, you only pay for actual medical claims as there is a cap on your maximum out-of-pocket expenses. 

As a startup with a small staff, you could also end up paying way less because there are likely fewer claims to pay. With fully-funded plans, you pay an annual premium whether your employees made a ton of claims or hardly any, resulting in wasted spend. And while your monthly costs for a fully-funded plan are constant, your annual premiums will likely increase year to year without much notice as to the new amount.

There are also tax advantages with level-funded plans. Unlike fully-funded plans, level-funded plans do not have certain federal and state taxes, depending on the state. You can save up to 3% of the premium dollar value, and you are not subject to state-mandated benefits. 

You can also choose benefits services you want to pay for in your plan versus paying for a comprehensive package of services you may not need. For example, you can decide eligibility requirements, exclusions, cost-sharing amounts, and policy limits.

Do you need someone dedicated to benefits or an HR team?

Health insurance has a bad rap for being complicated with lots of paperwork. Thankfully, healthcare has matured somewhat, and benefits are easier to manage with forms, reports, and payments now online in most cases. 

At Sana, for instance, we provide employers and administrators an easy-to-use dashboard. You can add new employees, update an employee’s contact information, change an employee’s benefits (such as when they have a Qualifying Life Event), or remove an employee from the plan with just a few clicks.

We also provide free access to ThinkHR for plan administrators. ThinkHR is a people risk management company that makes software for integrated HR and compliance support. With ThinkHR, administrators can get their questions answered and seek advice from a team of HR advisors. They can get a compliant employee handbook with pre-written and automatic policy updates and access an award-winning resource center.

Whether you have a dedicated benefits person on staff, an entire HR department, or someone who can step in when needed, managing the plan is easier than ever. You also have the option of hiring a Third Party Administrator (TPA). A TPA is a company that provides operational services such as claims processing and employee benefits management on a contract basis.

Congratulations on getting your company off the ground. It is an exciting time, and knowing that you can support your employees’ well-being must feel great. Health insurance for startups may sound complicated, but companies like Sana are here to help guide you along your journey.