As a small business owner, providing health insurance can have both concrete and abstract benefits. Offering competitive healthcare benefits can be a powerful lure for top people looking to join your company. The knowledge that they have access to healthcare benefits should they become necessary may make employees feel more satisfied with their jobs. Tax breaks are another way that employers can profit.
The challenge is identifying the best healthcare alternative to give to your staff.
Businesses are only obligated to provide health insurance under the terms of the Employer Mandate of the Affordable Care Act (ACA) if they employ 50 full-time employees or full-time equivalents (FTEs). For Internal Revenue Service (IRS) purposes, you are deemed a major employer if you meet the criterion.
- A full-time employee is someone who averages at least 30 hours of service per week during the calendar month, or at least 130 hours during the calendar month.
- Full-time equivalent employees refer to a group of workers who may not all be employed full-time, but whose working hours combined are equivalent to a full-time employee.
Since independent contractors are not seen as employees, they are exempt from the Affordable Care Act’s health insurance requirements. The regulations may apply to a small firm owned by a lone owner, but only if the business meets the requirements for 50 or more full-time employees, or FTEs. If self-employed entrepreneurs do not have any employees, they can enroll in federal marketplace health plans for themselves or their families.
How Small Business Health Insurance Works
For small firms, providing health insurance to 95% of full-time employees and their eligible family members is a must, whether they are mandated to do so by law or voluntarily. Again, a full-time employee is defined by thresholds of 30 hours per week or 130 hours per month. To provide coverage, businesses would need to have at least one full-time employee who qualifies.
Two requirements must be met by coverage in order for it to comply with the ACA:
- Minimum value. An employer-sponsored plan is determined to offer minimum value if it covers at least 60% of the total allowed cost of care for covered employees, and if its benefits include substantial coverage of physician and inpatient hospital services.
- Affordability. For 2024, workplace health insurance is deemed affordable if employees’ share of monthly premiums in the lowest-cost plan offered is less than 8.39% of household income.
Affordability is based on the premium that would cover all individuals in the employee’s household. Income is calculated based on the earnings of everyone in the household who is required to file a tax return. To qualify for a federal tax credit, employers must pay at least 50% of health insurance premiums for covered employees. Employers can, however, opt to pay a larger share of the premiums so that employees have less to pay out of pocket.
Businesses are required to offer health insurance to employees when they become eligible for it. Employers can impose a waiting period before employees are eligible. The maximum allowed waiting period is 90 days.
Employees can make changes to their plan if they qualify for a special enrollment period, which is triggered by a life change. For example, a covered employee who has a child would qualify for a special enrollment period to add a new baby to their plan. Employers must provide a special enrollment period of at least 30 days to employees who are eligible to change their plans.
Benefits of Offering Health Insurance as a Small Business
While your company can provide a variety of advantages, health insurance is the one that stands out above the others. This is due to the high expense of medical coverage, regardless of whether in-network or out-of-network doctors are used. When monthly premiums, co-pays, coinsurance, high deductibles, out-of-pocket maximums, prescription drug costs, screenings, outpatient, inpatient, ER visits, and other medical costs and health care services related to chronic conditions are taken into account, the total cost of care is included.
Medical expenditures are considerably more expensive for those without insurance. Therefore, being able to pay for medical expenses through health insurance or other employer-funded benefits keeps your team members content and healthy and shows your concern for their well-being to your workforce.
Many small business owners give health insurance coverage even when they aren’t required by the Affordable Care Act (ACA). A National Federation of Independent Business report from 2023 indicates that 56% of small firms offer health insurance, with 93% of them also providing group health insurance.
Why do these small businesses cover their employees through group plans even though they’re not legally required to? Because it’s good for their teams and good for them. If you’re on the fence yourself, here are the top five reasons to offer health insurance to employees:
1. It’s easier than you think to offer health insurance
First thing’s first: You don’t have to do this alone. A broker or health insurance advisor can guide you through the whole shebang.
As your go-to agent, they’ll:
- Help select a plan that’s right for you and your team, based on your industry and the coverage preferences of all the folks in your company .
- Set everything up and keep you compliant on an ongoing basis.
- Be the resident healthcare know-it-all for your employees, so you don’t have to answer difficult questions on all things health insurance.
2. Health benefits make your employees happy
The 2023 Employee Benefits Survey by the Society for Human Resource Management (SHRM) reveals that 89 percent of employers regard health-related benefits as being very important or extremely important, ranking it above benefits for retirement and leave (which both ranked the same with 81 percent of employers considering them to be very or extremely important), flexible work, family care, professional development, education, and transportation.
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Employers have been responding to and delivering on what employees have long said they need. According to a 2016 survey by Glassdoor, employees said health insurance is, by far, the most important benefit they receive from their employer. That’s why employers should offer health insurance to employees as their first company benefit, then add on additional benefits over time.
The top three benefits that make employees the most satisfied, according to Glassdoor’s study, are:
- Health insurance
- Vacation and PTO
- Pension plans, 401(k), and other retirement plans
If health benefits are a top priority for your employees, it should be a top priority for you. Offering it can help with recruiting and entice them to stay longer at your company.
3. It saves you money on taxes
This is a big one, so we wrote an entire post about it. In fact, employers and employees pay less for health coverage when they purchase it as a group.
- Savings for employees
When employees buy health insurance policies on their own, they have to use post-tax dollars to buy it. That is, they make money, the government taxes that money, and then they take the remaining amount to buy what they need. And whether they get coverage through a private insurance company or through the health insurance marketplace using HealthCare.gov or state exchanges, health care costs are even more for family coverage, which includes dependents, than they are for individual health insurance coverage.
But when employees buy health insurance through a group plan, they pay for the insurance with pre-tax dollars. That can save them up to 30 to 45 percent on their health insurance premiums.
The savings for employees can be even more when employers make contributions toward the cost of employee premiums. Here are some benchmarks from the 2022 Employer Health Benefits Survey by the Kaiser Family Foundation (KFF) that small companies can use when determining if they want to cover all or a portion of employee premiums:
- When small employers (with three to 199 workers) provide health benefits, workers contribute more to family coverage than those at large firms ($7,556 vs. $5,580)
- Covered workers tend to have higher annual deductibles (49% vs. 25%) of $2,000 or more for single coverage at small firms vs. large ones.
- The entire premium for single coverage is paid by small firms for 33 percent of covered workers, compared to 6 percent at large firms. With family coverage, 31 percent at small firms have to pay more than half the premium for family coverage.
- Savings for employers
Here are all the tax savings you get by offering group health insurance plans:
- Employer contributions are tax-deductible
- Employer payroll taxes are reduced by 7.65 percent of employee contributions
- Employer workers compensation premiums are reduced
Paying for health benefits instead of higher salaries can save you money because you don’t pay payroll taxes and workers compensation premiums on money used towards health benefits. Plus, your employees may prefer benefits over salary as well. According to that same Glassdoor study, nearly 80 percent of workers said they would prefer new or additional benefits to a pay increase.
4. It can give you access to more doctors and hospitals
Group insurance networks are often larger than individual networks. That means on an individual plan, you don’t have access to the same doctors and hospitals you would on a group plan.
The network differences vary by state, but in California, networks for individual plans are typically two-thirds the size for group plans. So purchasing a group plan can increase your access to more, and often better, doctors and hospitals, which can be critical for better health outcomes when dealing with illness like chronic disease.
5. Providing health insurance helps boost employee productivity
MetLife’s Annual US Employee Benefit Trends Study for 2023 found that 61 percent of employees are satisfied with their benefits, which is the lowest point in the past decade, and 42 percent don’t feel cared for by their employers. According to that same research, 79 percent of employees feel that health insurance is a must-have benefit.
As an employer, you want your employees to focus on being their best productive and successful selves at work. In the past, that same MetLife annual study found that 60 percent of employers said that offering health insurance led to higher productivity levels. And according to the CDC, employees who prioritize preventive care—like regular checkups—get more accomplished at work.
Worrying about medical care can drain an employee’s energy and time, because as you know, health insurance can be a pain to set up. If your employees are enrolled in individual plans, all of that burden of setting up and managing their plan shifts from you to them. When it comes to coverage, make life easier for your employees, so their only concern is making sure they make their health elections during your company’s open enrollment period.
Finding Affordable Small Business Health Insurance
One of your main concerns when selecting a health insurance plan for your staff members is probably cost. In addition to being reasonable for your company if you will be footing a portion of the premium costs, the plan must be affordable for them to comply with ACA requirements.
Here are some pointers for locating reasonably priced health insurance for small businesses.
Use the Small Business Health Options Program (SHOP)
The Small Business Health Options Program (SHOP) is designed for small employers who want to provide health and/or dental insurance to their employees. You’ll need to be eligible for SHOP to purchase insurance through the program. You’re eligible if:
- Your business has one to 50 full-time equivalent employees.
- You plan to offer coverage to all full-time employees.
- You anticipate enrolling at least 70% of the employees to whom you offer insurance.
- Your business has an office or employee work site in the state whose SHOP you plan to use.13
There are certain benefits associated with using SHOP to find health plans. Business owners can:
- Easily compare pricing and coverage for multiple plans in one place
- Opt to offer more than one plan to employees
- Choose how much to pay toward premiums
- Establish an appropriate waiting period for offering coverage to eligible employees
All of the information you need is centralized, but if you need help making sense of any of it, you can work with a SHOP-registered insurance agent or broker.
Use a PEO Service
A PEO, or professional employer organization, helps small businesses get the insurance they need. Effectively, when you join a PEO, you enter into a co-employment agreement. All of your employees then get access to the health plan options extended to other businesses that have joined the PEO.
You don’t give up any control over the running of your business, but joining a PEO makes that company the employer of record for your employees. Joining a PEO could offer your employees a wider range of plans to choose from, and it can take the guesswork out of trying to choose a plan on your own.
Partner with Purchasing Alliances
Purchasing alliances or cooperatives comprise multiple businesses that come together to purchase insurance collectively. Joining an alliance not only may offer more possibilities in terms of the types of coverage and plans you’ll have access to, but also could save money if you’re able to get access to affordable health insurance that isn’t available elsewhere.
One of the most important things to consider about joining a purchasing alliance is the types of businesses it serves. The more similar that member businesses are in terms of structure and number of employees, the more likely that the plans offered will reflect the needs of the member group as a whole.
Finally
For some small business owners, health insurance is a must, but it might not be for others. Whether you are compelled to or prefer not to, providing health insurance to your staff members may be beneficial to both your company and their success.
It’s crucial to compare prices while looking for coverage to identify the finest small business health plan possibilities so that you can decide what’s greatest for your company.