Choosing between health benefits options can be difficult—especially for small businesses.
As a small business, you must balance the company budget, your recruiting and retention goals, and your employees’ wishes. With narrow margins for error, it can become overwhelming quickly.
In this post, we’ll walk you through the most important questions you should ask when weighing each option, including:
Based on eligibility criteria, which options can my business offer?
What is my business able and willing to spend on health benefits?
How much time do I have to administer the benefit?
What are my employees’ current insurance statuses?
What do my employees prefer?
For your information, we’ll be referencing several small business health benefits options including group health insurance, self-funded health insurance, association health plans, group-integrated health plans, and the qualified small employer health reimbursement arrangement (QSEHRA).
Let’s dive in.
1. Based on eligibility criteria, which options can my business offer?
The first step is to use eligibility criteria to weed out the options your business can’t offer.
For example, if you have just one full-time employee, you can’t offer group health insurance in most states. Similarly, if you’re unwilling to part with a group policy, you can’t offer the QSEHRA.
Once you’ve narrowed down your list, you can proceed to the next question.
2. What is my business able and willing to spend on health benefits?
For most small businesses, cost is the single biggest factor in their health benefits decisions. If this is the case for your business, you can use cost to help narrow your options down further.
First, determine how much your business is able and willing to spend on health benefits. In general, you should aim to spend as much as you can afford on health benefits; next to wages, they’re the top influencer on where people choose to work.
Once you’ve calculated this figure, compare it to the estimated cost of each health benefits option.
After comparing these projections to your budget, you may be able to eliminate some options. Many small businesses can’t afford traditional group or self-funded health insurance, for example. In these cases, a QSEHRA or association health plan is a better choice.
3. How much time do I have to administer the benefit?
Another consideration is how much time you or a designated employee has to administer health benefits. Small business owners and other employees wear many hats, so time is usually limited.
Some health benefit options require more administration time than others. Self-funded health insurance typically requires the most time, followed by a group-integrated HRAs and a group health policy. Association health plans and QSEHRAs, when administered by a provider like PeopleKeep, are much less onerous.
If you don’t have a lot of time to administer health benefits, consider one of the latter two options.
4. What is employees’ current insurance status?
Beyond business considerations, you should also evaluate each benefit option from your employees’ perspective. The first step is to consider their current insurance status and how you can work with it to provide value from your own benefit.
In truth, not every benefit will provide value to each employee. For example, employees covered by a family member’s policy or enrolled in an alternative benefit like a health care sharing ministry won’t benefit from a group health insurance policy, a group-integrated HRA, or an association health plan. A QSEHRA, by contrast, would provide value and depending on its terms, a self-funded health insurance benefit could too.
Similarly, employees who live out of state wouldn’t benefit from a group health insurance policy, a group-integrated HRA, or an association health plan based on geographic area. But an industry-based AHP, a self-funded health insurance benefit, or a QSEHRA would work for them.
If employees who fall into these categories are valuable to your small business, you should narrow your list of options to those that will best serve them. In general, only a QSEHRA provides value to all employees regardless of their situation—even if some reimbursements are subject to income tax.
5. What do my employees prefer?
Lastly, you should consider your employees’ preferences on health benefits. Your employees are more likely to use benefits that deliver on what they want, which ultimately helps you accomplish your goal of hiring and keeping them.
Employees generally evaluate health benefits by three standards:
How much the benefit will cost them
How the benefit will integrate with their individual health care preferences
How familiar they are with the benefit
Benefit cost affects employees with most health benefits options, but it’s especially true with group and self-funded health insurance. HRAs, by contrast, don’t involve employee contributions, though low allowances typically require employees to shoulder more out-of-pocket costs.
Employees also want to know how your benefit will integrate with their individual health care preferences. Will your group health insurance policy cover their doctor, for example? Or will your skinny association health plan provide coverage for mental health services? HRAs are typically the best way to ensure employees can use their benefit to cover the health care they value, with the QSEHRA being an even better choice than the group-integrated HRA.
Finally, employees gravitate toward benefits that are familiar to them. This generally favors group health insurance over newer offerings like the QSEHRA.
Making the final decision
Businesses must balance each of these considerations against each other to arrive at the best health benefits decision for their organization and employees.
Although each business is different, group health insurance is typically the least disruptive benefit offering. If the business can afford it and the majority of employees would receive significant value from it, group health may be the best choice.
This is not the case for most small businesses, though. Skyrocketing costs and increased administrative complexity have put group health insurance out of reach. What’s more, these benefits often fail to meet the needs of an increasingly diverse set of employees.
In this case, the QSEHRA is almost always the best choice. There are no minimum contribution requirements, no wrangling with health insurers, and no decisions that benefit some employees but not others. And rather than forcing businesses to select and sponsor a limited number of programs and services, the QSEHRA allows a company to give its employees tax-free money to spend on the health care services they find most valuable.
This relatively new benefit has already helped more than 6,000 small businesses offer health benefits and compete for the most talented employees.
Note: Much of this blog comes from our latest eBook, The Small Business’s Guide to Health Benefits in 2019. For more context, including in-depth discussions of benefits options, budget guidelines, and pros and cons of each approach, download the eBook here.