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Small Business Employee Benefits and HR Blog

10 Signs You Should Switch to Individual Health Insurance

Many small employers and nonprofit organizations are looking for alternatives to traditional group health insurance. One of the most popular health insurance alternatives small and medium-sized business owners are investing in is reimbursing employees' individual health insurance premiums with a premium reimbursement plan.signs_to_switch_to_individual

Premium reimbursement plans are considered an alternative health benefits strategy because the business offers health insurance allowances, rather than a specific health insurance plan. With a premium reimbursement plan, employees purchase any individual or family health insurance plan. Is a switching employees to individual health insurance the right approach for your business?

Here are ten signs your business or nonprofit should switch to reimbursing individual health insurance with a premium reimbursement plan.

Sign #1: You Can't Afford (or Don't Want to Pay the Price Tag of) a Small Group Plan

If you want to contribute to employees' health insurance expenses, but cannot afford a small group health insurance plan, then reimbursing employees' individual health insurance premiums may be a better solution for you.

With a premium reimbursement plan your business names the price. When you set up a premium reimbursement plan, you determine the amount to contribute to employees' health insurance allowances and there are no minimum contribution amounts.

Sign #2: You Need Custom Health Benefits to Recruit and Retain Key Employees

If you need to strategically offer different health benefits to different types of employees, then reimbursing employees' individual health insurance premiums is an ideal decision. For example, if Senior Programmers are especially hard to recruit and retain in your competitive labor market, design your health benefits with a higher allowance for this class of employees

Sign #3: You Need Predictable Health Benefits Costs Month to Month and Year to Year

If you need predictable health benefits costs short term and long term then you should switch your employees to individual health insurance. As mentioned in #1, a premium reimbursement plan allows your business to name the price. The healthcare allowance amounts can be adjusted to fit (or grow with) your budget. Additionally, there are no annual renewal increases or fees as is common with traditional health insurance.

Sign #4: You Have Limited Time and/or Personnel to Administer Health Benefits

Reimbursing employees' individual health insurance premiums is a smart choice for businesses with limited time and personnel to administer health benefits. This is especially common at small and growing businesses and nonprofits. Administering health benefits often falls on the business owner or office manager. This is time taken away from making the organization successful.

Premium reimbursement plans are administered online with the assistance of a premium reimbursement software provider. Once set up online, administration takes 5 minutes per month. 

Sign #5: You Want to Get Out of the Health Insurance Business

Many small business owners value offering health benefits, but find that researching and dealing with the health insurance is an administrative drain. Switching employees to individual health insurance allows businesses to get out of the health insurance business, while still offering employees a valuable health benefit.

With premium reimbursement plans, your small business sets up the plan and allows employees to purchase their own insurance - just like car insurance. Employees can be reimbursed for their insurance from their healthcare allowance.

A premium reimbursement plan eliminates the business to insurance company relationship, and it allows employees to select the health insurance that best fits their unique health and financial situation.

Sign #6: You Want to Give Employees and their Family Members Access to the Health Insurance Tax Credits

Switching employees to individual health insurance is a smart decision for businesses who want to give employees and their family members access to premium tax credits.

Under the Affordable Care Act (ACA), a healthcare allowance does not count as qualified health insurance; therefore, having a healthcare allowance does not disqualify employees from the health insurance tax credits. Employees can be reimbursed from their allowance for the non-subsidized portion of their health insurance premium.

With a traditional group health insurance plan, just offering health coverage (considered "affordable" and "qualified") disqualifies employees -- and often their family members -- from accessing premium tax credits, even if employees don't enroll in the offered coverage.

Sign #7: You Want to See a High Return on Investment (ROI) on Health Benefits

More and more, small business owners are looking to quantify their spending in all areas, including health benefits and personnel. If this describes you, then a premium reimbursement plan is a smart choice because you will see more value - and therefore higher ROI - on health benefits.

That's because individual health insurance premiums, on average, costs less than group health insurance premiums. A $200/month contribution to a premium reimbursement plan will go farther than $200/month to group health insurance premiums.

Sign #8: You've Seen Your Small Business Health Insurance Costs Increase, and Coverage Levels Decrease

If you've seen your small business health insurance costs increase, and as a result had to decrease coverage levels, pass more costs on to employees, or drop health insurance all together, then individual health insurance is a good decision.

As discussed previously, that's because the costs are controllable and predictable. Many businesses who switch from traditional group health insurance to reimbursing employees' individual health insurance premiums see their overall cost go down, and employees' coverage level go up.

Sign #9: You're Open to Using Innovative and Cutting Edge Solutions to Achieve the Same or Better Results

If you're open to using innovative and cutting edge solutions to gain a competitive edge, then your small business should switch your employees to individual health insurance. Using a premium reimbursement plan is not a new strategy, but it is really taking off now due to healthcare reform's advantages to individual health insurance (guaranteed-issue and premium tax credits).

Businesses who see the benefits and take advantage of individual health insurance are on the forefront of this new health benefits trend that is soon to become mainstream for small and mid-size employers across the U.S..

Sign #10: Your Employees Have Diverse Medical Needs

Lastly, you should switch to reimbursing employees' individual health insurance premiums if your employees have a diverse medical and coverage needs. With traditional group health insurance, it's most common for small businesses to offer one health plan. Businesses with diverse health needs have a hard time meeting the needs of employees with a one-size-fits-all plan.

With the reimbursement of individual health insurance premiums, employees can work with a health insurance broker to purchase any health plan from any carrier, with access to their preferred doctors. 

What other signs are there that you or a client should switch to reimbursing employees' individual health insurance premiums? Leave a comment on question below.