Starting and building a successful business is hard work, and one of the big unknowns is how and if you’ll be able to provide health insurance for yourself and employees.
Even with new small business health insurance options, small businesses face unique challenges when it comes to finding health insurance. As of 2014, health care reform provides small businesses with new opportunities to offer affordable health insurance coverage.
Here are some key factors to consider as you consider buying health insurance for your small business.
Understand Your Health Insurance Options
In the last few years, new small business health insurance options have become available. As your small business evaluates health insurance options, there are two core options for contributing to employees' health benefits:
Offer traditional small business health insurance coverage (a "group health insurance plan")
Offer healthcare allowances to reimburse employees for individual health insurance coverage (a "pure defined contribution health plan")
Types of Health Insurance
To understand how these two options work, it is important to understand the two main types of health insurance: individual health insurance and group health insurance.
1) Individual Health Insurance
Individual health insurance plans are policies an individual purchases to cover themselves and/or their family - just like car insurance. Anyone can apply for individual health insurance, and they typically cost 20% less than group health insurance premiums. Small business owners who cannot offer group coverage due minimum contribution (cost), or minimum participation requirements, typically purchase individual and family plans for themselves and their families.
As of 2014, insurance companies can no longer decline individuals for individual health insurance based on a pre-existing medical condition. Also, as of 2014, there are new tax subsidies available to individuals who purchase individual health insurance on the state Exchanges. 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 businesses 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.
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 employer selects the plan (or plans) to offer to employees.
Steps to Buy Health Insurance for Your Small Business
Now that you understand the basic options, here are the steps to take to buy health insurance for your small business:
Decide on your approach (small group plan, defined contribution allowances, etc).
Work with a health insurance broker and/or defined contribution provider to select the right benefits for your business, and receive quotes.
Implement the health benefits plan, including educating and onboarding employees.
What questions (or advice) do you have about buying health insurance for a small business? Leave a comment below.