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Small Business Employee Benefits and HR Blog

Quick Guide to Small Business Health Insurance in 2015

quick_guideAs the cost of group health insurance rises, small businesses, startups, and small non-profit organizations are having an increasingly hard time offering health insurance to their valued employees.

Since offering healthcare is a crucial part of employee recruiting and retention, dropping healthcare benefits altogether is simply not an option for most small employers.

Under the Affordable Care Act (ACA), small businesses with fewer than 50 full-time employees are not subject to the employer shared responsibility (employer mandate). Since they are not required to provide a group health insurance plan, this gives small businesses, startups, and non-profits more healthcare benefit options than they previously thought possible. Here is a look at health insurance options for small employers in 2015.

Three Main Options for Small Businesses

Although there are many different types of health insurance plans out there, small businesses essentially have three basic options:

1. Offering a traditional group health insurance plan

2. Offering employees a healthcare allowance to reimburse employees' individual health insurance premiums (a "premium reimbursement plan")

3. Not offering healthcare benefits

Group Health Insurance

Group health insurance plans are more familiar to most people. With group health insurance, the risk is spread over the company -- the number of employees covered. That means that with a group health insurance plan, if one employee has a baby, a surgery, or is diagnosed with a chronic illness, the employer and the other employees are likely to see a large premium rate increase at annual renewal time.

Some small business owners are considering purchasing their insurance through the Small Business Health Options Program (SHOP Marketplace). Part of the appeal is that the ACA provides tax credits to qualified small employers to help help pay for SHOP coverage; however, eligibility requirements for the small employer health insurance tax credits can be quite stringent and specific.

The credit is only available to employers with less than 25 full-time equivalent (FTE) employees who pay their employees an average wage of less than $50,000 per employee annually.

The ACA designed the SHOP Marketplaces to provide small businesses with more choices for their healthcare plan. The rollout of the SHOP Marketplace, however, has faced its share of obstacles, changes, and delays. As such, the SHOP Marketplace still isn’t working for small businesses.

Reimbursing Employees' Individual Health Insurance

A major trend this year among small employers is to drop group health insurance coverage to help their employees pay for individual health insurance policies. By switching their employees to the individual health insurance marketplace, the small employers are ensuring that their employees get to choose the coverage that is best for their families. In addition, by not offering a group health insurance policy, the employers are making sure their employees have access to premium tax credits to assist them with the cost of their premiums.

Some small employers who would like to help contribute to their employees’ premium costs are offering a taxable stipend, with the intention that employees will use the extra funds to purchase healthcare.  While this may seem like a beneficial arrangement for both parties, there are several problems with this solution.

Rather than offering a stipend, a better health insurance option for small businesses is individual health insurance and a premium reimbursement plan. With this approach, employers give employees a tax-free healthcare allowance to spend on individual health insurance.

Not Offering Healthcare Benefits

Research shows that small employers are less likely to offer health insurance to their employees. In doing so, however, they are putting themselves at an extreme disadvantage for recruiting and retention purposes. Healthcare benefits are a valuable part of employees' compensation packages

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