How startups can offer health coverage

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’re launching a startup and want to compete for talent against larger companies with more resources, you need to offer a quality employee benefits package. One particular benefit you can start with is employee health coverage. While offering it may seem daunting, health insurance is one of the most-valued employee benefits.

In this article, we'll explain how startups can offer health benefits. We’ll also explore alternative options to traditional group health insurance.

In this blog post, you'll learn the following:

• The health insurance options that are available for startups.
• How you can reimburse employees for their individual health insurance premiums instead of buying group coverage for them.
• Why an HRA is an excellent option for startups.

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. On top of maintaining a healthy workforce, great health benefits attract talented employees. Benefits also keep them from looking for better opportunities elsewhere.

Our 2024 Employee Benefits Survey found that 81% of employees say that an employer's benefits package is an important factor in whether they accept a job. Healthcare costs are also a top concern for job seekers. Our findings show that 92% of employees value health insurance benefits.

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 unexpected 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. The high cost of health insurance can be intimidating. But establishing a budget will help you understand which insurance plans or alternative options are available to you.

You’ll also want to understand your employees’ specific needs when it comes to health coverage.

Consider factors such as:

• The size of your workforce
• Your workforce demographics
• Any specific healthcare requirements employees 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 plans

There are various options available for startups that want to offer health coverage. You can explore traditional group insurance plans, which are a popular option. These plans can be costly, but they’re familiar to employees.

If you choose to offer a group policy, you’ll likely run into health maintenance organization (HMO) and preferred provider organization (PPO) network options. You can also determine if you want to offer a health plan that has a low deductible, or if you'd rather offer a high deductible health plan (HDHP). 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 offers tax benefits and budget control. Employers use HRAs to reimburse employees tax-free for more than 200 types of eligible out-of-pocket medical expenses, including individual health insurance premiums.

Some other examples of HRA-eligible expenses include:

• Monthly premiums for vision or dental coverage
• Prescription drugs
• Over-the-counter medication
• Preventive care services
• Mental health services

Each type of HRA has different rules and perks, so it's important to choose the one best aligns with the needs of your startup and its employees.

The two most popular HRAs are:

• The qualified small employer HRA (QSEHRA): The QSEHRA is for small employers with fewer than 50 full-time equivalent employees (FTEs). The IRS caps employer contributions at a certain annual limit. But you can vary allowance amounts based on employee age or family size. This allows you to offer your employees more for family coverage and less for self-only coverage. Your employees need qualified medical plans that provide minimum essential coverage (MEC) to participate in this benefit. All full-time employees are eligible for the benefit. You can also offer a QSEHRA to your part-time employees on the same terms as your full-timers.

• The 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 (ACA) employer mandate. Unlike QSEHRAs, ICHRAs don't have annual contribution limits. Plus, you can differ allowances and benefit eligibility with 11 employee classes, such as full-time or salaried employees. Your employees need their own individual healthcare plans to participate in this benefit.

Another option for startups is 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. With that said, stipends aren't a formal benefit. They don't satisfy the employer mandate for ALEs. If you have 50 or more FTEs, you’ll want to offer a group plan or ICHRA instead.

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 follow all obligations, including providing necessary information and documentation to employees.

You can 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.

You’ll want to do the following:

• Provide clear information about the coverage, costs, and any necessary enrollment processes
• Address any questions or concerns
• Ensure employees understand the insurance plan’s benefits
• Highlight the advantages of having health coverage

Communicating about the benefit helps employees understand how it contributes to their well-being. When employees understand their benefits and engage with them, they’re more likely to value them. This can lead to higher 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?

An HRA is an excellent option for startups. 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, your organization has to deal with compliance with the IRS, HIPAA, ERISA, or other regulatory bodies. Failing to do so can lead to fines.

When you work with an HRA administrator like PeopleKeep, we take on the heavy lifting for you. That way, you can focus on running your up-and-coming business. We handle the administrative burden of generating all your legal plan documents, verifying employee expenses, and sending required notices automatically.

Plus, your employees can shop for individual plans right from their PeopleKeep account. They don't have to go directly to a health insurance company or navigate the Health Insurance Marketplace on their own. Our integrated shopping experience makes it even easier for them to find health insurance policies that fit their needs.

Conclusion

Offering a comprehensive healthcare benefit at your startup demonstrates your commitment to employee well-being. A health benefit can help you 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. An HRA specialist with PeopleKeep can get you started today.

This blog article was originally published on October 3, 2014. It was last updated on November 19, 2024.

1. Commerce Institute