A common question from small business owners is, "how does our small business get health insurance?" In other words, "how does our small business get health insurance we can afford?"
That's because even with new small business health insurance options, small businesses face unique challenges when it comes to getting health insurance - with the number one challenge being cost.
Here's how small businesses can get affordable health insurance, including one cost-effective approach some small business owners haven't thought about before.
Set a Budget
First, what can the small business afford for health insurance? Set a monthly or annual budget toward employees' health insurance.
Tip: If the small business can afford any contribution, then there is a health insurance solution they can afford. These options are discussed next.
Evaluate Health Insurance Options
Next, understand and evaluate health insurance options. There are two core options for contributing to employees' health insurance:
Offer traditional small business health insurance coverage (a "group health insurance plan").
Offer a Premium Reimbursement Program (such as a health reimbursement arrangement or defined contribution) to reimburse employees for individual health insurance coverage.
To understand how these two options work, it is important to understand the two main types of health insurance: group health insurance and individual/family health insurance.
Group health insurance is a type of health policy that is purchased by an employer and is offered to eligible employees of the company, and to eligible dependents of employees. With group health insurance, the employer selects the plan (or plans) to offer to employees. The premium cost is often split between the employer and employee, and there is a minimum percentage rate the employer must contribute. With group health insurance, all employees have the same coverage, network of providers, and carrier.
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% - 60% less than group health insurance premiums. With individual health insurance, employees can customize their coverage, network of providers, and carrier.
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 premium tax subsidies available to individuals who purchase individual health insurance on the state Health Insurance Marketplaces.
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 premium reimbursement program or defined contribution.
Here's a summary of group health insurance vs individual health insurance:
Steps to Get Health Insurance for Your Small Business
Now that you understand the basic options, here are the steps:
- Set a budget.
Decide on your approach (group health insurance or individual health insurance with a premium reimbursement program).
Work with a health insurance broker and/or reimbursement software provider to select the right benefits for your business, and receive quotes.
Implement the health benefits, including educating, and onboarding employees.