According to the Commerce Institute1, 4.4 million businesses start up each year in the United States. Starting a business is an exciting yet challenging endeavor for hard-working entrepreneurs and can come with many unforeseen hurdles, like hiring and keeping a team.
If you want to attract and retain top talent at your startup, you need to offer a quality employee benefits package. One particular benefit that you need to consider carefully is health coverage for your employees. While offering it may seem daunting, health insurance is one of the most-valued employee benefits.
In this article, we'll explore how startups can offer health benefits and go over alternative options to traditional group health insurance.
Why should startups offer health coverage?
As a startup employer, you're focused on getting your company off the ground. You need the right team to make that happen. Great benefits attract talented employees and keep them from looking for better opportunities elsewhere.
Our 2022 Employee Benefits Survey Report found that 82% of employees say that an employer’s benefits package is an important factor in whether or not they accept a job. Healthcare costs are also a top concern for job seekers. Our findings show that 87% of employees value health benefits like health insurance.
Startup employees are no different. They're taking a chance on your company, and that shouldn't come at a cost to their health and well-being. When startups offer this popular employee benefit, it shows their dedication and appreciation for their growing team.
Having health insurance gives employees peace of mind. When they don't have to worry about costly medical treatments or services, they can focus on doing their best at work. Plus, investing in the health of your employees can lead to fewer absences from work.
How can startups offer health coverage?
Here are five steps to help you understand how you can offer health benefits at your startup.
1. Determine your budget and the needs of your employees
Before exploring health benefit options, it's important to evaluate your budget. Establishing a budget will help you understand which insurance plans or alternative options are available to you.
You also want to understand the specific needs of your employees when it comes to health coverage. Consider factors such as the size of your workforce, their demographics, and any specific healthcare requirements they may have. You can conduct surveys or interviews to determine their preferences and requirements. This will help you tailor your benefit offerings to better meet their needs.
2. Research the different types of health insurance
There are various options available for startups that want to offer health coverage. You can explore traditional group insurance plans, which can be costly but provide comprehensive coverage.
Health maintenance organization (HMO) and preferred provider organization (PPO) plans are common choices. You can also determine if your health plan has a low deductible, or if you’d rather offer a high deductible health plan (HDHP), which your employees can pair with health savings accounts (HSAs). You should assess the pros and cons of each type of plan, considering factors such as cost, coverage, and flexibility.
If you want a more flexible and cost-effective health benefit than a group policy, you can consider health reimbursement arrangements (HRAs). An HRA is an employer-funded health benefit that's IRS-approved. Employers use HRAs to reimburse employees, tax-free, for their healthcare expenses, which can include monthly premiums for individual policies, more than 200 eligible out-of-pocket medical expenses, or a combination of the two.
Here are three of the most popular HRAs:
- Qualified small employer HRA (QSEHRA): A QSEHRA is a standalone health benefit option for small employers with fewer than 50 full-time equivalent employees (FTEs).
- Individual coverage HRA (ICHRA): An ICHRA is a health benefit solution that offers flexibility for organizations of all sizes. It's particularly useful for applicable large employers (ALEs) that need to meet the Affordable Care Act's employer mandate.
- Group coverage HRA (GCHRA): A GCHRA, also known as an integrated HRA, is a great addition to group health insurance. You can offer your employees a monthly allowance to help with their out-of-pocket medical costs that their group health plan doesn't cover.
Additionally, you can offer a taxable health stipend. A stipend is a fixed amount of money you offer your employees to help pay for an individual health insurance plan or other health-related out-of-pocket costs. Stipends also make it easy to offer additional wellness and mental health care benefits.
While they lack the tax benefits of HRAs, stipends can be easier to manage and have fewer administrative costs. With that said, stipends aren’t a formal benefit, which means they don't satisfy the employer mandate for ALEs.
3. Understand the legal requirements
Familiarize yourself with the legal requirements and regulations related to health insurance coverage for businesses. Depending on your location and the size of your startup company, you may be subject to specific laws such as the ACA. Ensure you comply with all obligations, including providing necessary information and documentation to employees.
You should seek professional advice from insurance brokers or consultants who specialize in startup health coverage. They can guide you through the complex landscape of insurance options, provide cost-effective solutions, and help you navigate compliance requirements.
4. Communicate with your employees
Once you've decided on a health benefit, you must communicate the details effectively to your employees. Provide clear information about the coverage, costs, and any necessary enrollment processes. Address any questions or concerns your employees may have, and ensure that they understand the insurance plan’s benefits. Highlight the advantages of having health coverage and how it contributes to their overall well-being and job satisfaction.
5. Regularly review and update your benefit
Health insurance needs may change over time, so it's important to review and update your coverage options regularly. Stay informed about new insurance providers, plan options, and any legislative changes that may affect your startup's health insurance offering. By regularly evaluating your coverage, you can ensure that you provide the best possible benefits for your employees.
How can PeopleKeep help startups provide health benefits?
As an employer or HR professional at a startup, you're wearing many hats. If you want to self-administer your health benefit, that's another job added to your plate. Not to mention, this makes your organization fully liable for any fines or breaches in compliance with the IRS, HIPAA, ERISA, or other regulatory bodies.
When you work with an HRA administrator like PeopleKeep, we take on the heavy lifting for you so you can focus on running your up-and-coming business. We handle all your legal plan documents, verify employee expenses, and send required notices automatically. Plus, our award-winning customer support is there to help you every step of the way.
With WorkPerks by PeopleKeep, you can offer your employees a variety of additional perks, such as health and wellness stipends that support mental health expenses and things like gym memberships.
Offering a health benefit at your startup demonstrates your commitment to employee well-being and can help attract and retain top talent. By following these steps and staying informed about insurance options, you can provide a comprehensive and affordable health benefit that meets the needs of your employees and your business.
In lieu of group health insurance, startups should consider offering individualized health benefits like HRAs. HRAs provide cost control and flexibility to employers and choice for employees. By embracing HRAs, startups can showcase their innovative and employee-centric approach, ultimately fostering a happier and more productive workforce.
This blog article was originally published on October 3, 2014. It was last updated on September 21, 2023.