Building a successful company is hard work. This includes offering competitive compensation and benefits to recruit and retain the best employees. All small companies face unique challenges when it comes to finding small business health insurance.
In 2014, health care reform provides small companies with new opportunities to offer affordable health insurance coverage. This article provides CEOs and HR Executives at small companies a 2-minute guide to health insurance options.
Three Core Small Company Health Insurance Options
As small companies evaluate health insurance options, there are three core options:
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Offering a traditional small group health insurance plan
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Offering employees a healthcare allowance to reimburse employees for individual health insurance coverage (i.e. a pure defined contribution health plan)
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Offering Nothing
Understanding Health Insurance Options
First, to understand these three core options you need to understand the basics of health insurance. There are two primary categories of health insurance for small companies to choose from - individual health insurance and group health insurance.
1) Individual Health Insurance
Individual health insurance plans are health insurance plans purchased by individuals to cover themselves and/or their families - just like car insurance. Anyone can apply for individual health insurance.
As of 2014, insurance companies can no longer decline individuals for individual health insurance based on a pre-existing medical condition as they could previously. Also as of 2014, there are new tax credits available to eligible employees when they purchase individual health insurance.
In some cases, self-employed persons who purchase their own health insurance may be able to deduct the cost of their monthly premiums.
When small companies decide on the individual health insurance route, they often offer employees a healthcare allowance to use on individual premiums. This type of offering is called a pure defined contribution approach or a Healthcare Reimbursement Plan (HRP).
2) Group Health Insurance
Group health insurance plans are a form of employer-sponsored health coverage. Costs are typically shared between the employer and the employee, and coverage may also be extended to dependents. In certain states, self-employed persons without other employees may qualify for group health insurance plans. With group health insurance, the company selects the plan (or plans) to offer to employees.
Small Companies and Health Care Reform
Listed below are four key health care reform components to consider when choosing health insurance for your small company.
1. Individual Health Insurance Tax Subsidies
As of 2014, individuals will have access to tax subsidies to buy private health insurance through the public health insurance exchanges. The subsidies cap the cost of individual health insurance at 2% - 9.5% of their household income - if their household income is less than 400% above the federal poverty line.
Click here for more information on the health insurance tax subsidies.
2. Individual Health Insurance Tax Penalties
As of 2014, the "Individual Mandate" (also called "Individual Shared Responsibility Payments") requires most Americans purchase health insurance, or else pay a penalty on their tax return each year.
Click here for more information on individual mandate tax penalties.
3. Small Business Health Insurance Tax Credits
Small companies with up to 25 full-time equivalent employees may qualify for a tax credit for offering employee health benefits. As of 2014 the tax credit is up to 50% of a small company's health insurance costs. Also starting in 2014, the tax credit is only available for plans purchased through the small business SHOP exchanges.
Click here for more information the small business tax credits.
4. Small Business Health Insurance Tax Penalties
Starting January 1, 2015, employers with 50 or more full-time equivalents who do not offer affordable, minimum essential coverage can face monthly penalties if at least one employee uses a premium tax subsidy to obtain health insurance through the state health exchange. If your company does not have more than 50 FTE employees, you are not subject to these penalties.
Click here for more information on the "employer mandate" business tax penalty.
The Future of Health Insurance for Small Companies - Defined Contribution Health Plans
Defined Contribution Health Plans allow employers to offer health benefits without offering a traditional small group health insurance plan. Instead of paying costs for a specific group health plan, employers allocate monthly allowances for their employees to spend on private health insurance. Small companies find this an attractive solution because of these benefits:
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Employee Choice and Savings – Employees choose a health insurance plan that best fits their needs. Individual health plans costs 20-30% less than traditional group plans, and tax subsidies are available to eligible employees.
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Controllable Costs – Small companies fix their costs by setting the allowance amounts they can afford. There are no minimum or maximum contribution requirements and the company can vary allowance amounts based on job criteria.
Summary of Health Insurance Options for Small Companies
To summarize, there are three main options for small companies to consider:
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Offering a traditional small group health insurance coverage
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Offering employees a healthcare allowance to reimburse employees for individual health insurance coverage (i.e. a pure defined contribution health plan)
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Offering Nothing
What questions (or advice) do you have about health insurance options for small companies? Leave a comment below.
