What Can Small Business Owners Do for Health Insurance?
Do Small Businesses Really Need to Offer Health Insurance?
Small businesses are the backbone of this country, employing more than 47 percent of the U.S. private workforce, or 60 million people. Chances are, you are part of a small business. And like many startups and small businesses, health insurance is likely a topic of conversation, with the cost of plans being the focus.
At some point, every small business was in your shoes. They had to determine what to do for health insurance. According to the SBA, almost 50 percent of small businesses with 3-9 workers offer their employees health insurance benefits. Approximately 71 percent of small businesses with 10-24 employees offer health insurance benefits, and 85 percent with 25-49 employees offer them.
The Affordable Care Act stipulates that small businesses with fewer than 50 employees are not required to offer health insurance benefits to their employees or pay a no-coverage penalty to the IRS. That doesn’t mean they shouldn’t provide health insurance benefits.
No matter the size of the employer, health insurance benefits are a big deal to employees. A 2020 survey of 2,000 people found that 84 percent put health insurance at the top of their most desired benefit list, and the Society of Human Resource Management (SHRM) reported that 92 percent of employees say benefits are important to their overall job satisfaction.
These numbers prove that benefits are a major contributor to talent acquisition and retention. Happy, healthy, cared-for employees are more loyal, productive, and complimentary of your business. Yes, health insurance plans can be costly, but with so many small businesses (your competition) offering health insurance benefits, can you afford not to? Think of health insurance benefits less of a cost and more as an investment, one that will result in higher-quality employees.
How to Reduce Your Health Insurance Costs
There’s no getting around the fact that healthcare, in general, is expensive. But, there are ways to reduce your health insurance costs while still providing great benefits to your employees. While traditional, fully-funded plans are the most common (think the big guys, like Blue Cross Blue Shield, Aetna, Humana, United, etc.), their cost and unpredictability drive many small businesses to look elsewhere. And where there is demand, a solution is sure to follow.
Self-funded plans are an alternative to traditional plans and are attracting small businesses across the country. It’s essential to understand the difference between a fully-funded health plan vs. a self-funded health plan.
Fully-Funded Health Plans
A fully-funded health plan is sponsored by the insurance carrier rather than the employer. The carrier assumes all risk and holds the policy. Your company pays a fixed monthly premium for the carrier to pay your employees’ claims, and manage/administer the plan for you. No matter how many claims your employees make or how expensive those claims are, the carrier, not your company, are on the hook for paying them (or declining them).
While a fully-funded plan is predictable from month-to-month, it is highly unpredictable from year-to-year. You may know precisely what you will pay during an annual term, but there is no way to know what you will pay the following year. If your company’s overall healthcare claims exceed what your carrier anticipated with their premium fee calculation, you can expect your rates will increase the next year.
Additionally, healthcare costs have risen every year, and with insurance carriers trying to cover their 2020 COVID-19 costs and anticipating additional COVID-19 costs in 2021, many experts anticipate carriers will increase their premiums significantly in 2021 and beyond.
Self-Funded Health Plans
A self-funded health plan is sponsored by the employer instead of the insurance carrier. That means your company takes on all of the risk and pays your employees’ claims as they come in. Your company will also be responsible for managing and administering the plan.
This may seem overwhelming, but there are significant cost advantages with a self-funded health plan. First, by eliminating the carrier, you avoid markup fees and get some tax advantages. You are also paying only for the healthcare that employees use. You pay less when employee claims are low and more when they are high. A traditional carrier works like your auto insurance: you pay a fixed premium whether there were claims or not.
For even more protection against high claims costs, there is a type of self-funded health plan called a level-funded health plan. A level-funded plan includes stop-loss insurance to protect you from “catastrophic” claims that could overwhelm your budget. Stop-loss insurance covers the overage above a set limit (a cap) you would be required to pay. If claims are higher than your cap, the stop-loss insurance kicks in, and if claims are low, your company receives a rebate to cover the difference. You’ll never see a rebate from a traditional, fully-funded plan.
Another benefit of some level-funded health plans is that your employees will not be required to choose “in-network” providers, no matter what type of plan they choose. For instance, employees who want the least expensive plan with high deductibles do not have to sacrifice the ability to choose their own doctors and specialists. Giving your employees this flexibility is a great way to sweeten the benefits package that businesses with traditional health insurance can’t do.
The Sooner, The Better
If you are a startup or a small business without health insurance benefits, now is the time to find a plan if you have the budget. The longer you wait, the greater the chance you will lose good talent and hear office mumbling from people who wished you offered health benefits. To keep morale high and build your brand reputation, health insurance benefits have to be a priority.
Offering health benefits may depend on the size of your company. If you only have a handful of employees, you may not be ready to jump in just yet, preferring to grow a bit first. Just remember that benefits have become an expectation, even for employees at the smallest companies. Some companies view their plan as another “hire,” allocating part of a budget they would spend on a new employee for a health insurance plan to cover all employees. Startups often build in the cost of a benefits package into their financial plan they fund from investors.
The Best Time to Offer Health Insurance to Your Employees
Once you decide you can invest in a plan, you can consider what type of plan is best for your budget and your employees. Talk with a broker or individual carriers and providers to see your options. Traditional plans are much less flexible than self-funded/level-funded plans, especially for smaller businesses. You will likely be able to customize your plan much more with these non-traditional options.
Either way, you will be able to offer health insurance to your employees as soon as the provider gives you the green light. Open Enrollment is the period of time your employees will have to sign up, and it is set by the insurer. Not all employees have to sign up, as some may be covered already by a spouse’s or parent’s plan, or choose to seek their own health insurance.
Healthcare coverage is exciting, so market it to your employees in creative ways across multiple channels. Make sure you allow time for Q&As, and any questions you can’t answer, your provider will be able to. Your employees have different healthcare needs and budgets, so offering various plan options is the best way to ensure those who want to participate can find a plan that works for them.
When the open enrollment is over, employees who didn’t participate cannot sign up until the next open enrollment period, typically a year later. There are exceptions, such as if an employee has a “qualifying life event” that includes losing their current health plan coverage, getting married or divorced, having a baby or adopting a child, or a change in residence. New hires can sign up at the time of their hire, despite open enrollment dates.
Offering employees health benefits is one of the best investments small business owners can make. Research your options and find a plan that aligns with your goals and your budget. It may take thinking outside of the “traditional” box, but the reward is a health plan that is actually a benefit to your employees.