How to Create All-Star Small Biz Health Insurance, With Built-In Cost Controls

Written by: Christina Merhar
Originally published on November 13, 2013. Last updated November 25, 2013.

Create a small biz health insurance program. At a lower and sustainable cost. That employees will love. Sound familiar? HR professionals are responsible for wearing many hats at small businesses, including employee health benefits administration, hiring and retention, training, payroll, and employee satisfaction. On top of that, HR is required to balance the company's expectations (and budget) with employees' expectations (and satisfaction). Keeping everyone happy can feel like walking a tight-rope, but a job well done means you're a company all-star.small biz health insurance success

So, how do you create affordable, sustainable health insurance that employees love?

Whether you currently offer health insurance, or are like the 65% of small businesses who do not offer health insurance, there is one emerging small biz health insurance solution that is picking up traction because of its ability to save businesses and employees money: "Pure" defined contribution.

Let's examine why cost controls are so important for small businesses, and why defined contribution is becoming a popular strategy.

The Importance of Cost Controls for Small Biz

The biggest concern of small businesses with health insurance is the cost -- both the cost of entry when starting to offer health insurance, and the costs increases many businesses face at annual renewal time.

Creating cost and liability controls is vital to any business's predictability and scalability. And yet, being able to set, control, and predict all health benefits costs is revolutionary for many businesses because traditional health insurance does not offer these controls. A health insurance solution with cost and liability controls allows small businesses to:

  • Accurately budget for the health benefits cost monthly, annually, and in the long-term.

  • Confidently tell employees the business will be able to afford health benefits in the long-term.

  • Know exactly, at any time, what the business's liability and risk is.

Where "Pure" Defined Contribution Fits In

With "pure" defined contribution health benefits, the business offers employees healthcare allowances ("defined contributions") to use on individual health insurance. There is no small group health insurance plan. Employees can purchase any qualified plan and receive reimbursement up to the amount of their allowance. Out of all small business health insurance solutions out there, "pure" defined contribution achieves the most controllable costs. That's because:

  • The business defines their budget by setting any contribution amount to employees’ health care. There are no minimum employer contribution amounts and no annual renewal increases or fees.

  • The business decides which employees to offer the health benefits to by using employee classes. This allows the business to focus resources on employees who are vital to the business. 

  • The business only reimburses employees for eligible premiums up to the amount of their health care allowance. Any unused fund stays with the company.

  • Defined contribution stretches the business's health benefits dollars farther. On the individual market, health plans are much less expensive than group coverage. And in 2014 eligible employees can access health insurance tax subsidies.

What About Employees?

In addition to being a cost-effective solution for small business health insurance, employees love defined contribution because of:

  • Choice: Employees choose how to spend their allowance. They select their own individual/family health insurance policy that best fits their needs. They choose from any carrier and their preferred network of doctors. It's like a birthday present - you can get the sweater or the gift card. These days, most value the gift card more.

  • Portability: Employees own their health insurance plan, and can keep it if they leave the business.

  • Guaranteed Renewability: Employees' individual health insurance policies are guaranteed renewable. This means they cannot be terminated by the insurance company unless they stop paying the premium. And, as of 2014 all individual and family health insurance policies are guaranteed-issue - meaning all employees can get coverage regardless of health.

  • Premium Discounts: In 2014 most employees will have access to significant tax subsidies through the health insurance marketplace. If an employee is eligible for a tax subsidy, what they pay out-of-pocket for health insurance will be capped at 2% - 9.5% of their household income. An employee is eligible if their household income is less than 400% above the federal poverty line (that’s $94,200 per year for a family of 4 in 2013).

Creating All-Star Small Biz Health Insurance

In the past, group health insurance was the best way for small businesses to provide quality health insurance to employees. Today, group health insurance is a source of frustration with declining benefits and increased costs. Small businesses need solutions to offer the same quality of coverage, but with controllable cost and sustainable administrative effort. "Pure" defined contribution health benefits provide this solution.

So now, when your boss asks you to create a small biz health insurance program at a lower and sustainable cost that employees love -- you'll say "I've got just the solution." (See 15 more signs you've freed yourself from group health insurance here).

Thoughts? Questions? Leave a comment below.


Originally published on November 13, 2013. Last updated November 25, 2013.


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