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In September 2016, the NFIB Research Foundation published a report on the top problems facing small businesses. The research was done by asking 20,000 small businesses to rank 75 problems on a scale of 1 to 7 from ‘not a problem’ to ‘critical problem. In the report, cost of health insurance was the only one to be listed as a ‘critical problem’ among 52.3% of the respondents. This situation is yet to improve because latest statistics from the Bureau of Statistics show that only 55% of companies with under 100 employees provide health insurance. The health insurance problem is compounded when a small business may not have the resources to set up a complete HR department.
Therefore, it is even more important for small business owners to find a solution to this problem and bridge the gap between health insurance for small and large businesses. In this complete guide, you will find out why you may need a health insurance plan, the options that may be available to you and the costs involved.
Before even getting into the various insurance plans available and what they cost, the first thing you have to answer is whether you even need insurance. Most small business owners wonder about this especially if they only have a few employees. The answer is a resounding yes. Despite seeming like an unnecessary cost, health insurance actually works in your favor in several ways.
According to the Affordable Care Act, any business with over 50 full-time equivalents (FTE) employees must provide health insurance. An employee is considered full-time equivalent if they work an average of 30 hours per week. Once a business has 50 or more FTE employees, it is considered an applicable large employer (ALE) and is required to provide health insurance to its employees. This affordable coverage costs up to 9.86% of the employee’s annual income in 2019, up from 9.56% in 2018. Not offering this insurance when you’re an ALE will attract a $2,320 fine for every FTE employee excluding the first 30 of them.
The Affordable Care Act was supposed to encourage businesses to offer health insurance, but it didn’t work as planned. In a survey of small businesses in 2015, many were found to be offering reimbursements to employees who purchased individual health insurance. Although this was in violation of the law, a small proportion was considering paying the fine and keep issuing reimbursements.
When running a small business, you are eligible to receive group coverage rather than letting individuals purchase individual insurance covers. There are many options for a group coverage plan, but the specifics will depend on the demographics information. The insurance broker or company will assess various factors such as age to present an appropriate group health plan.
Group coverage is first and foremost more affordable. An insurance company will offer better rates because your business includes many people. This is possible because the insurance company gets to collect premiums from everyone in the group yet not all of them will need will make use of the cover. This is a good risk for the company, and they can lower the premiums to remain competitive. To increase their odds, they analyse the demographics data provided and structure the insurance plan accordingly. Once you have purchased the group cover, you can then decide whether to share the premium with your employees or cover all of it.
To promote the Affordable Care Act and motivate employees to provide health insurance to their employees, it was made possible for those that complied to receive tax credits. However, to be considered for these tax credits, you must purchase the plan though the Small Business Health Options Program (SHOP) Exchange. Apart from that, you must also fulfil some requirements such as:
These factors will be considered when deciding on the tax credits to be received, but it can be as high as 50% off your contributions to the employee health premiums.
Besides receiving tax credits, there are other tax benefits to be realized. The health insurance premiums you pay would be written off as tax deductions and you can also have your employees pay their premiums with pre-tax earnings. This saves the company money as well as the employees. For the company, there will be less expenses because insurance premiums are the most common tax deduction for small businesses. And if you can make it so that employees pay premiums before tax, they can earn more.
Nowadays, job-seekers could choose a company that offers health insurance over one that doesn’t. That was illustrated in a Harris poll that revealed 86% of workers would opt for the former. This makes you competitive in the market by attracting the best workers in the market, while keeping them loyal to your company. Furthermore, health insurance ensures that employees get annual checkups that keep them from getting ill and taking more time off. It’s a win-win situation.
It’s obvious there will be some costs incurred in purchasing the health plan from the insurance company. But did you know that you would have to factor in the cost of time spent researching on the best plans and educating your employees about it all? Time s money, and it is worth knowing just how much you’re spending.
The cost of the health insurance plan will depend on the scope of benefits you’re asking and the number of people covered plus their dependents (if applicable). These are the factors an insurance company considers before coming up with a tailored plan for your business. Then you have to ask yourself what percentage of the cover plan you will swallow as the employer. The industry average for small businesses in 2017 was 80% of the premium while employees contributed for the remaining 20%. This was the equivalent of $6,486 per employee per. There may also be some additional costs if you used a third-party service to identify a plan for you.
Most employees forget to factor in the time it takes to research various insurance providers online, asking their employees what they need and then consulting with other entrepreneurs and insurance experts. But once you factor these in, you start to look at the whole process as an actual cost to the business.
When it comes time to choose between the various plans available, there are certain factors you have to consider.
The right coverage comes down to how much you are willing to spend. Ask your employees what they need in a health cover while considering your budget. For example, if your employees need regular doctor visits with specialists, then you may have to pay for better coverage. Otherwise, chose the most basic coverage if your employees don’t mind paying for their health costs individually.
Different plans have different structures, and the main four to consider are:
Consider which hospitals and doctors have been contracted by your insurance provider. The insurer will find the cheapest options, hence you and your employees pay less for staying within the network. If you have employees already accustomed to particular doctors, it may be worth selecting a provider within that network.
Insurance payments are either in monthly premiums, deductibles, copays and coinsurance. Deductibles are paid once, premiums paid monthly while the rest are paid per visit. Therefore, if you and your employees need frequent doctor visits, opt for higher premiums and lower copays and coinsurance and vice versa.
The decision will come down to the budget for healthcare and the savings from tax deductibles. Generally, though, a business pays at least 50% of their employees’ monthly premiums.
Ultimately, you get to decide what plan to pick based on what you think the employees absolutely need. For example, a startup with generally healthy employees should go for lower premiums to save the company money because the employees don’t make regular doctor visits.
