With open enrollment less than a month away, startup businesses are facing important decisions regarding employee healthcare benefits, especially with all of the new opportunities that the Affordable Care Act (ACA) has created for small business health insurance. Just like large corporations, some startup businesses choose to offer health insurance to their employees as a part of their recruiting and retention strategy.
With limited capital, many startup businesses have a hard time coping with the cost of traditional group health insurance. In addition, the startup may not have enough employees to meet the minimum participation requirements for group health insurance. So, how do startup businesses know whether and how they can offer health insurance to their employees? Here are three things your startup should consider before selecting healthcare.
1. You Should Offer Healthcare to Your Employees-- And You Can Afford To
In order to compete with larger companies, your startup should offer healthcare to your employees. While most startup entrepreneurs agree that healthcare benefits play an important role in employee compensation packages, recruiting and retention, most do not think they can realistically afford healthcare benefits. When considering offering healthcare benefits, consider the following:
Healthcare benefits can be a cost-effective way to add to your employee compensation package.
If your startup business has less than 50 full-time equivalent employees, you will not pay a fine for not offering healthcare.
Providing healthcare benefits is a great way to boost employee morale and loyalty.
The ACA has created new opportunities for small businesses and startups to provide more affordable healthcare to their employees.
2. Your Healthcare Budget
In order to effectively implement a healthcare benefit strategy for your startup, it is vital to set up a budget. Ask yourself: now that you know you want to offer healthcare to your employees, what can you afford to invest?
If you are already offering healthcare benefits to your current employees, you may already have a set budget. Chances are, however, that you are like a majority of startups who do not offer healthcare benefits. Some startups will set their budget first and evaluate their options second. Other startups will assess current premium rates to build their budget around.
For example, according to a recent survey, in 2014, the average group health insurance premium for a single employee is $6,025 annually ($502 per month), and for family coverage, $16,834 annually ($1,403 per month). This is an increase of 26 percent in the last five years and 69 percent in the last ten years. The premium is usually shared between the employer and employee. If you are eligible for the small business tax credits, you may find less expensive rates through your state SHOP Exchange.
3. You Have Options
Due to changes implemented by the ACA, startups have more options for healthcare benefits than ever. Most choices essentially fall into two strategies: a traditional group health insurance plan or individual health insurance.
Group health insurance: usually covers all employees and their family members. These plans are generally uniform in nature, offering the same benefits to all employees or members of the group. Group health insurance is chosen and purchased by the startup business, and employees are usually asked to share the premium cost. Additionally, there are minimum participation requirements and a minimum percentage the startup must contribution to the employee premiums.
With group health insurance, the risk is spread over the company -- the number of employees covered. That means that with a group health insurance plan, if one employee has a baby, a surgery, or is diagnosed with a chronic illness, the employer and the other employees are likely to see a large premium rate increase at annual renewal time.
Individual health insurance: is a policy that is purchased by an individual and their family based upon their personal needs and budget, just like car insurance. A common misconception about individual health insurance is that it is more expensive than group health insurance coverage through an employer. In fact, individual health insurance costs up to 60 percent less than group health insurance.
Right now, there is a trend among small businesses and startups who are dropping their group health insurance policies to fund their employees’ individual health insurance policies. With this approach, employers give employees a tax-free healthcare allowance to spend on individual health insurance - instead of purchasing a group health insurance plan. Employees use their healthcare allowance to purchase an individual health plan of their choice and those eligible can access the premium tax credits.