If you’re a small or growing business researching health insurance for your employees, you may be well aware of the challenges that over 2.7 million small businesses in the U.S. face - traditional health insurance doesn’t always work for small businesses.
But, here’s a silver lining - there are alternatives to employer health insurance which allow small businesses to achieve their recruiting and retention goals without the cost or administration requirements of an employer-sponsored health insurance plan.
In this article, we’ll outline five alternatives to employer health insurance.
5 Alternatives to Employer Health Insurance
When traditional employer health insurance does not make sense because of cost, participation requirements, or administrative resources, there are five main alternatives to employer health insurance:
- Individual Health Insurance Reimbursement (“Premium Reimbursement”)
- Increase Salaries to Help Employees with Health Insurance
- Nontraditional Group Health Insurance Coverage (ex: SHOP or Co-Op)
- Wellness Initiatives
- Boost Employee Benefits and Perks
Here’s a summary of each of these alternatives.
1. Individual Health Insurance Reimbursement (“Premium Reimbursement”)
The first alternative small businesses are adopting is individual health insurance reimbursement, sometimes referred to as a premium reimbursement arrangement. It works just as it sounds.
The employer sets up a formal, tax-advantaged reimbursement plan. Employees purchase individual coverage and are reimbursed by the health reimbursement plan for qualified premium expenses.
This alternative is effective because it feels a lot like a traditional health benefits program and has the same tax advantages as traditional health insurance.
However, unlike traditional health benefits, employees are in the driver's seat with selecting their own insurance - a benefit to employees who want more control over their healthcare dollars.
Using a formal, tax-advantaged reimbursement plan requires formal plan documents and must follow certain administration rules, but using a healthcare reimbursement software makes administration easy and compliant.
2. Increase Salaries to Help Employees with Health Insurance
A second alternative is to increase employees’ wages so they are able to purchase their own health insurance. In other words, give everyone a boost in salary or an annual bonus to help cover the cost of health insurance.
Providing this type of taxable stipend is easy to offer, but because it is a more informal arrangement you may run into problems. For example, will employees actually spend the money on health insurance? Will your business lose desired, top job candidates to employers with formal health benefits in place? These are important questions to consider with this approach.
That being said, there are several companies popping up in the market offering products to help companies set up this kind of taxable stipend for health insurance and minimize these concerns.
3. Nontraditional Group Health Insurance Coverage (ex: SHOP or Co-Op)
A third alternative is a spin on traditional employer health insurance - what I’m calling nontraditional group health insurance options such as a SHOP Marketplace plan or co-op health insurance.
These types of plans provide new ways for small businesses to offer health insurance coverage and they can give small businesses increased purchasing power. Additionally, SHOP plans give small employers access to the Small Business Healthcare Tax Credits.
4. Wellness Initiatives
The fourth alternative is to invest in wellness initiatives. Small businesses don't have to invest a lot of time and resources to create a wellness program; there are many low-cost wellness ideas out there.
Wellness initiatives many not feel like formal health benefits to employees, however they can be effective in building a healthy, productive workforce.
5. Boost Other Employee Benefits and Perks
Similar to wellness initiatives, the final alternative is to boost other employee benefits and perks.
To make this effective, find out what benefits and perks your key employees value and direct your resources there. Yes, this alternative means you’re not offering a formal health benefits package, but you are offering other benefits and perks to create a desirable and healthy workforce.
When it comes to employee compensation, small businesses want to provide a competitive health benefits package to recruit and retain the best employees. However, employer health insurance coverage is not always in the cards. For an alternative, small businesses are evaluating individual health insurance and premium reimbursement, health insurance stipends, nontraditional group health insurance plans, wellness initiatives, and other employee perks.
What other alternatives to employer health insurance are you seeing in the market? What questions about these alternatives do you have? Join the discussion with a comment or question.