Building a successful business is hard work. This includes offering competitive compensation and benefits to recruit and retain the best employees. All small businesses face unique challenges when it comes to finding small business health insurance.
In 2014, health care reform provides small businesses with new opportunities to offer affordable health insurance coverage. This article provides small business owners a 2-minute guide to health insurance options.
Three Small Business Health Insurance Options
As small businesses evaluate health insurance options, there are three core options:
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Offering a traditional small business health insurance coverage (i.e. a small group plan)
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Offering employees a healthcare allowance to reimburse employees for individual health insurance coverage (i.e. a pure defined contribution health plan)
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Offering Nothing
Understanding Insurance Options
There are two primary categories of health insurance for small businesses to choose from - individual health insurance and group health insurance.
1) Individual Health Insurance
Individual health insurance plans are health insurance plans purchased by individuals to cover themselves and/or their families - just like car insurance. Anyone can apply for individual health insurance. Small business owners who can’t offer group coverage due minimum contribution (cost), or minimum participation requirements, typically purchase individual and family plans for themselves and their families.
As of 2014, insurance companies can no longer decline individuals for individual health insurance based on a pre-existing medical condition. Also, as of 2014, there are new tax subsidies available to businesses and employees when employees purchase individual health insurance. In some cases, self-employed persons who purchase their own health insurance may be able to deduct the cost of their monthly premiums.
When small businesses decide on the individual health insurance route, they often offer employees a healthcare allowance to use on individual premiums. This type of offering is called a pure defined contribution approach or a Healthcare Reimbursement Plan (or "ZaneHealth").
2) Group Health Insurance
Group health insurance plans are a form of employer-sponsored health coverage. Costs are typically shared between the employer and the employee, and coverage may also be extended to dependents. In certain states, self-employed persons without other employees may qualify for group health insurance plans. With group health insurance, the employer selects the plan (or plans) to offer to employees.
Have more than 2-minutes? Read more: Individual Health Insurance vs. Group Health Insurance Comparison.
Small Businesses and Health Reform
Listed below are four key health reform components to consider when choosing small business health insurance.
1. Individual Health Insurance Tax Subsidies
As of 2014, individuals will have access to tax subsidies to buy private health insurance through the public health insurance exchanges. The subsidies cap the cost of individual health insurance at 2% - 9.5% of their household income - if their household income is less than 400% above the federal poverty line.
Click here for more information on the health insurance tax subsidies.
2. Individual Health Insurance Tax Penalties
As of 2014, the "Individual Mandate" (also called Individual Shared Responsibility Payments) requires most individuals to purchase health insurance, or else pay a penalty on their tax return each year.
Click here for more information on individual mandate tax penalties.
3. Small Business Health Insurance Tax Credits
Small businesses with up to 25 full-time equivalent employees may qualify for a tax credit for offering employee health benefits. As of 2014 the tax credit is up to 50% of a small business’s health insurance costs. Also starting in 2014, the tax credit is only available for plans purchased through the small business SHOP exchanges.
Click here for more information the small business tax credits.
4. Small Business Health Insurance Tax Penalties
Starting January 1, 2015, employers with 50 or more full-time equivalents who do not offer affordable, minimum essential coverage can face monthly penalties if at least one employee uses a premium tax subsidy to obtain health insurance through the state health exchange. If you do not have more than 50 FTE employees, you are not subject to these penalties.
Click here for more information on the "employer mandate" business tax penalty.
The Future of Small Business Health Insurance - Defined Contribution Plans
Defined Contribution Plans allow employers to offer health benefits without offering a traditional group health insurance plan. Instead of paying costs for a specific group health plan, employers allocate monthly allowances for their employees to spend on private health insurance. Small businesses find this an attractive solution because of these benefits:
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Happier Employees – Employees choose a health insurance plan that best fits their needs. Individual health plans costs 20-30% less than traditional group plans, and tax subsidies are available to eligible employees.
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Controllable Costs – Employers fix their costs by setting the allowance amounts they can afford. There are no minimum or maximum contribution requirements and employers can vary allowance amounts based on job criteria.
Summary of Small Business Health Insurance Options
To summarize, there are three main options for small businesses to consider:
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Offering a traditional small business health insurance coverage (i.e. a small group plan)
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Offering employees a healthcare allowance to reimburse employees for individual health insurance coverage (i.e. a pure defined contribution health plan)
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Offering Nothing
What questions (or advice) do you have about small business health insurance options? Leave a comment below.
