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Small Business Employee Benefits and HR Blog

3 Alternative Approaches to Health Insurance

November 26, 2014
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It's that time of year when small businesses are looking at health benefits for 2015. They are evaluating traditional health insurance, as well as alternative approaches to health insurance.

During this renewal and open enrollment season, small businesses are in a unique position. Small employers with fewer than 50 employees are not mandated by the Affordable Care Act (ACA) to offer traditional health insurance. And because of the ACA there are new options for small businesses to afford health benefits - including small businesses that have been priced out of traditional group health insurance. These two factors create new alternative approaches to health insurance for small businesses.alternatives

Here are the top three alternative approaches to health insurance for small businesses to evaluate for 2015.

3 Alternative Approaches to Health Insurance

#1) Small Group Health Insurance Plan (The Non-Alternative)

The first on our list is the non-alternative - a small group health insurance plan. A small group health insurance plan is the traditional way for small businesses to offer health insurance, however there are new options for 2015. 

One of the new options is the SHOP Marketplaces. The SHOP marketplaces are new state- or federally-run health insurance exchanges for small businesses. Since 2014 when the SHOP Marketplaces opened, the plan offerings have expanded somewhat, and they are now more accessible online.

However, like traditional small group health insurance plans, there are certain eligibility requirements that make them prohibitive for some small businesses.

#2) Premium Reimbursement Arrangement  

The second option is a premium reimbursement arrangement, and it is a popular alternative approach to health insurance because it removes many of the barriers of offering traditional health insurance (ex: cost, minimum participation, minimum contribution, etc.).

With a premium reimbursement program, the small business provides health insurance allowances. Employees purchase their own individual health insurance policy and use their health insurance allowance to be reimbursed up to the amount of their available balance. As a bonus, eligible employees can access discounts on their premiums via the individual health insurance tax credits ("premium tax credits").

One attractive feature about premium reimbursement is if the small business would like to contribute any amount to employees' premium expenses, they can use a premium reimbursement arrangement. And, the health insurance allowances can be allocated by job criteria (e.g. $300/month to managers and $175/month to entry-level).

For many small businesses, a premium reimbursement arrangement will be the most cost-effective solution because the small business can contribute any amount, and individual health insurance costs, on average, less than small group plans.

Here's a look at how premium reimbursement works for a small business:
How premium reimbursement works

#3) Offer Nothing

The last alternative approach to health insurance is to offer nothing to employees. In other words, do not offer a formal health benefit.

Some small businesses are taking this approach because they cannot afford a small group health insurance plan and they do not know that premium reimbursement arrangements exists. Others do not want to contribute to employees' health insurance expenses. 

Other Alternative Approaches to Health Insurance 

Within these three options there are variants. However, most options fall within the above three core options.

For example, "sending employees to the individual health insurance exchanges" is an option small businesses are discussing. This could mean a couple different options. If the small business wants to contribute to employees' expenses, then they could set up option #2), a premium reimbursement arrangement. If they don't want to contribute, it would be option #3), offer nothing.

Similarly, a private health insurance exchange would be either a variant of option #1), small group plan/s, or option #2) premium reimbursement with individual health insurance. And, a co-op is a variant of option #1), a small group plan.

What are your top alternative approaches to health insurance for 2015? What are we missing from this list? Leave a comment below.

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