The cost of group health insurance is becoming unsustainable for small businesses, startups, and small non-profit organizations. Since offering healthcare is a crucial part of employee recruiting and retention, dropping healthcare benefits altogether is not a feasible option for most small employers.
Under the Affordable Care Act (ACA), small employers (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.
1. Individual Health Insurance
A major trend this year among small employers is dropping group health insurance coverage to help their employees pay for individual health insurance policies. By directing 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.
Taxable Stipend: 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.
There is no guarantee that the employees will actually spend the money on health insurance with a stipend.
Many employers will lose their desired, top-tiered candidates to employers with formal health benefits in place. While a stipend may be somewhat appealing to candidates, most would prefer a formal, tax-advantaged health benefits program.
Tax-free Healthcare Allowance: 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. Employees use their healthcare allowance to purchase an individual health plan of their choice and those eligible can access the premium tax credits.
2. SHOP Marketplace
As part of the ACA’s Health Insurance Marketplaces, there is an option for small businesses, startups, and non-profits called the Small Business Health Options Program (SHOP Marketplace). This is a new way for small businesses with fewer than 50 employees (or fewer than 100 in some states) to purchase a traditional group health insurance plan.
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.
3. Private Health Exchange
One of the biggest trends in employee health benefits this year is private health insurance exchanges. The concept is taking off with both large and small businesses. Additionally, employers are turning to brokers to understand how they can benefit from a private health insurance exchange.
A private health insurance exchange is a health insurance exchange run by a private company. More specifically, a health insurance exchange is a broker’s health insurance offering to individuals and/or employees. Private health insurance exchanges typically include the following components:
A choice of two or more health insurance options
Advice and recommendation on what health insurance options best fit your needs
Automated billing for the chosen health insurance plan premium(s)
On-going support for the chosen health insurance plan(s)
Joining a co-op for health insurance is a more traditional approach for small businesses, startups, and non-profit organizations. The idea is the co-op increases buying power and spreads the risk to a larger group. Each co-op is structured differently, and whether the co-op offers better insurance rates than the small group could get on the open market or SHOP depends on regional insurance underwriting laws and the co-op itself.
5. Private Small Group Plan
Despite the obstacle of the high premium costs, purchasing a private small group plan is also still an option for small groups. Small groups may find more options and carriers to choose from on the private market as compared to the SHOP, where some states only have one or two plans to choose from.