Your micro business may be facing the challenge of offering health benefits to employees for recruiting and retention purposes. And since the 2014 health care reform, you may be left with questions as to what health insurance options you have. As such we’ve put together a two-minute guide to help you know what will work for you and your employees.
Three Micro Business Health Insurance Options
As you evaluate health insurance options for your micro business, there are three core options:
Offering a traditional micro business health insurance coverage (i.e. a small group plan)
Offering your employees a healthcare allowance to reimburse them for individual health insurance coverage (i.e. a premium reimbursement health plan).
Understanding Insurance Options
There are two primary categories of health insurance for your micro business 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. Micro business owners who can’t offer group coverage due to 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.
If you decide on the individual health insurance route, consider offering your employees a healthcare allowance to use on individual premiums. This type of offering is called a premium reimbursement 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 two minutes? Read more: Individual Health Insurance vs. Group Health Insurance Comparison.
Micro Businesses and Health Reform
Listed below are four key health reform components you should consider when choosing health insurance.
1. Individual Health Insurance Tax Subsidies
As of 2014, individuals have access to tax subsidies to buy private health insurance through the public health insurance exchanges. In 2015, the subsidies cap the cost of individual health insurance at 2% - 9.6% of their household income - if their household income is less than 400% above the federal poverty line.
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.
3. Micro Business Health Insurance Tax Credits
Micro businesses may qualify for a tax credit for offering employee health benefits. As of 2014 the tax credit is up to 50% of a micro business’s health insurance costs. Also, the tax credit is only available for plans purchased through the small business SHOP exchanges.
The Future of Micro Business Health Insurance - Premium Reimbursement Plans
Premium Reimbursement Plans allow you to offer health benefits without offering a traditional group health insurance plan. Instead of paying costs for a specific group health plan, you allocate monthly allowances to your employees to spend on private health insurance. Micro businesses find this an attractive solution because of these benefits:
Happier Employees – Employees choose a health insurance plan that best fits their needs. Individual health plans costs 20-60% less than traditional group plans, and tax subsidies are available to eligible employees.
Controllable Costs – You fix your employee costs by setting the allowance amounts they can afford. There are no minimum or maximum contribution requirements and you can vary allowance amounts based on job criteria.
What questions (or advice) do you have about micro business health insurance options? Leave a comment below.