Small businesses often face the challenge of providing comprehensive health insurance benefits to their employees while managing costs effectively. And, with so many options available in the market, choosing the right health insurance plan can be daunting.
That’s why in this blog, we are breaking down the various affordable health insurance options for small businesses so you can feel confident that the program you choose works well for both you and your employees.
Small Group Health Insurance
Small Group Health Insurance is designed for businesses with fewer than 50 employees (in some states, up to 100 employees). These plans typically offer a range of coverage options and can be more affordable due to group purchasing power. They provide coverage for employees and, occasionally, their spouses and dependents.
For small group health insurance policies, small businesses pay a fixed rate for the policy, some of which they can pass on to the employees depending on the policy and the structure you decide on.
Individual Coverage Health Reimbursement Arrangement (ICHRA)
ICHRA allows employers to reimburse employees for individual health insurance premiums and other medical expenses. It provides flexibility for employees to choose their own health plans while still receiving support from their employers. You can choose to use this as your only health benefit or as an added benefit for those who don’t qualify for your other health insurance program.
Essentially, with this program, employers provide a tax-free, monthly allowance to employees that they can then use in conjunction with their own health coverage to cover medical costs. This monthly allowance can vary depending on your program and structure, so you can make it work with your business’s budget.
It also doesn’t have a minimum or maximum participation requirement, making it a great option for businesses of all sizes. And, if you do have over 50 employees, this can be an affordable way to comply with the Affordable Care Act (ACA) employer mandate.
Qualified Small Employer Health Reimbursement Arrangement (QSEHRA)
QSEHRA is similar to ICHRA but is specifically designed for small employers with fewer than 50 full-time equivalent employees. It allows employers to reimburse employees tax-free for qualified medical expenses, including premiums for individual health insurance policies.
Again, this program is similar to ICHRA, with the main differences being the limit on the size of the business, the fact employees don’t need to be enrolled in their own health insurance, and that there is a maximum amount limit on the monthly allowance. However, QSEHRA also has no minimum on this allowance, meaning it is still a flexible and affordable option for small businesses.
Self-funded Health Insurance
If you’re finding that other traditional healthcare options aren’t giving you the flexibility you need, you may want to consider a self-funded health insurance program. Self-funded health insurance involves the employer directly financing employees' healthcare costs rather than paying fixed premiums to an insurance carrier.
This can prove to be cheaper than working with traditional health insurance programs as you are only paying for employees’ claims directly, which can be less than expected. However, you open yourself up to the possibility of these claims being more than you can afford to pay. With this in mind, this program is more used by larger companies with 300-400 employees.
However, if you’re a smaller business that wants to utilize this program, you can mitigate this risk by also using a stop-loss insurance policy that protects you from paying potentially bankrupting healthcare costs.
Health Stipends
Health stipends involve providing employees with a fixed amount of money each month that they can use to purchase their own health insurance or cover medical expenses.
Employers can offer these stipends upfront or through a reimbursement model like the HRA. Under a reimbursement system, employers allocate an allowance for eligible medical expenses, which employees receive after incurring costs. Employers still have control over these allowances and can make them fit into their overall business budget.
These stipends cover health insurance premiums and out-of-pocket costs, including expenses from supplemental plans like vision and dental insurance, and other healthcare not fully covered by major medical insurance, such as mental health services. Unlike HRAs, stipends face fewer regulatory requirements, though they don't meet ACA employer mandate standards for larger organizations.
Stipends do not require proof of health insurance or receipts for medical expenses listed in IRS Publication 502. They also do not affect employees' eligibility for premium tax credits. Stipends can complement group health insurance or an HRA, but they are taxable income subject to payroll taxes, with employees liable for income taxes during tax filing.
By understanding these affordable health insurance options for small businesses, you can provide valuable healthcare benefits to your employees while managing costs responsibly. Choosing the right plan involves careful consideration of employee needs, budget constraints, and compliance with regulatory requirements, ensuring a win-win situation for both employers and employees alike.
Please let us know if you have any questions. We understand that local companies have unique needs that most national firms don’t consider or struggle to identify. This leaves your people with a less effective, one-size-fits-all benefits plan. However, our ability to cater to the needs of our clients comes from decades of client partnerships. This perspective allows us to fully address unique needs and generate creative benefits plans.
You shouldn’t have to worry about just being a number, offering a generic plan, or getting the unique support you need. Call us today.
This Benefits Insights is not intended to be exhaustive nor should any discussion or opinions be construed as professional advice.