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Small Business Employee Benefits and HR Blog

5 Questions All Small Employers Should Ask About Health Insurance Options

twopathsAs a small business owner, you likely have questions about how the ACA impacts your business. Small business owners need to understand their options under the ACA. Savvy employers are using the advantages of the ACA to offer better, more affordable employee health benefits.

There are several options available for small businesses who are not required to offer health insurance under the ACA, but wish to for employee recruiting and retention purposes.

What Is the Small Business Health Care Tax Credit?

Since 2010, tax credits have been available to qualifying small businesses who offer a group health insurance plan. In 2014, the tax credit is worth up to 50% of your contribution toward employees' eligible premium costs (up to 35% for tax-exempt employers). The tax credit is highest for small businesses with fewer than ten employees who are paid an average of $25,000 or less. The smaller the business, the bigger the credit.

To be eligible for the small business health care tax credit you must:

  • Employ fewer than 25 full-time equivalent (FTE) employees, and

  • Pay an average wage of less than $50,000 a year per employee, and

  • Pay at least half (50%) of employee health insurance premiums (for full-time employees only), and

  • Purchase the health insurance plan through your state’s Small Business Health Options Program (SHOP) Marketplace; unless there are no SHOP plans offered in your region.

The credit is available to eligible employers for two consecutive tax years.

What Is the SHOP Marketplace?

As part of the ACA’s Health Insurance Marketplaces, there is an option for small businesses called the SHOP Marketplace. This is a new way for small businesses with fewer than 50 employees (or fewer than 100 in some states) to purchase a traditional group health insurance plan.

As mentioned previously, if you want to access the small business tax credits you must purchase a SHOP plan (unless there are no SHOP plans available in your region). However, if your small business hasn't been able to afford or qualify for group health insurance in the past, the SHOP doesn't offer much to change this.

How is the ACA Impacting the Cost of Small Business Health Insurance?

Small businesses who offer group health insurance are likely to see premium increases because of the ACA. Why? New ACA taxes and fees are being passed on from insurance carriers to businesses and their employees, and there are new plan and coverage requirements that impact cost.

In fact, the Centers for Medicare & Medicaid Services (CMS) reports that 11 million small business employees (65%) will see health insurance premiums rate increases as a result of the Affordable Care Act (ACA).

But it’s not all the ACA. The cost of traditional group health insurance has been steadily climbing over the last decade, causing many small businesses to drop coverage or increasingly shift costs to employees.

According to a National Small Business Association 2014 survey, small business health insurance costs have nearly doubled since 2009, with 91% of small businesses reporting increases in their health plan at their most recent health insurance renewal.

It’s no surprise that fewer than half of all small businesses offer traditional group health insurance to employees; it no longer works for small businesses or their employees.

Do I Have Any Other Health Insurance Options?

Yes. In light of the ACA changes, and opportunities, the best health insurance option for small businesses is individual health insurance and a premium reimbursement program.

With this approach, your business gives employees a healthcare allowance to spend on individual health insurance - instead of purchasing a group health insurance plan.

Your business sets the healthcare allowance amounts, so you have full control of the cost of health benefits. Unlike group health insurance, there are no minimum contribution amounts and no minimum participation requirements.

Employees use their healthcare allowance to purchase an individual health plan of their choice and those eligible can access the premium tax credits.

How Can Employers Help Employees with Health Insurance Costs?

Employers can provide their employees with a valued health benefit, while offering all of the benefits and flexibility that individual health insurance policies offer by:

  • Not offering traditional, job-based health insurance. Just offering job-based health insurance disqualifies employees (and often their families) from premium tax credits

  • Implementing a premium reimbursement plan to reimburse employees for individual health insurance premiums

Do you have any questions about health insurance options for small employers? Leave a comment below.

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