It has been more than five years since the Affordable Care Act was signed into law, and while the topic has died down a bit in the general public, it remains as hot-button as ever for small-business owners.
Traditional group health insurance and the Small Business Health Options (SHOP) Program often don’t quite fit the needs of small businesses with less than 25 employees, so companies are taking innovative action. They’re turning to individual health insurance for small business health benefits.
Still, many question the effectiveness of individual health insurance for small business health benefits. Is it a viable option — and can businesses afford to try it out?
Considering the challenges associated with traditional and SHOP plans and the customizable potential benefits of individual insurance, perhaps the question should be, “How can small businesses afford to not try it out?”
Employee Insurance Challenges for Small Businesses
Although it's not mandated, many small businesses strongly believe in providing health insurance benefits for their employees. It’s a matter of fairness and attracting excellent team members — team members who often want coverage based on their individual needs. Group health insurance plans are problematic for small businesses in a variety of ways:
- Most vendors derive their price quotes from a composite that is supposed to reflect the average employee's use of medical services. The resulting premiums are unfair to relatively health-conscious employees who rarely use their insurance.
- Often employees have to pay 100 percent of the cost of adding family members to the plan.
- Each year premium adjustments are based on group expenses from the previous year. The heavy use of insurance by just a few employees drives up premiums for everyone at the company.
- When an employer decides to switch plans, its employees are directly affected, but without any voice in the matter.
SHOP, a government program for small businesses to provide group health insurance through the Affordable Care Act, was supposed to be a welcomed reprieve. Instead it has been a consistent source of frustration for many small businesses.
For the most part, SHOP has been marred by technical glitches, process complexities, and high costs compared to individual health plans. In other words, it hasn’t been the small-business medical benefits solution that many hoped it would be.
Individual Health Insurance Proves to be Viable
Businesses that have grown weary from complex employee insurance options that don’t pan out are increasingly choosing a much more modern approach. They’re asking employees to enroll in individual health insurance plans, then they’re setting a monthly allowance — based on personalized factors — and reimbursing employees for health-related costs, up to their account balance.
These Defined Contribution Health Plans are a viable option for a number of reasons, not the least of which is affordability. According to an article from Entrepreneur, “The average group insurance premium is around $6,000 per year for a single person and $16,000 per year for a family. On the individual market, the average premium is $984 per year ($82 per month) after subsidies.”
A big contributor to the cost savings facilitated by these plans is the flexibility afforded to employees. They have an opportunity to pay for a customized plan that meets their specific needs — not the needs of a bevy of co-workers.
If that’s not a viable option for small business health benefits, we’d like to know what is.