Business owners with fewer than 50 employees often want to provide small business health insurance but aren’t sure where to start. We’ll answer the most common questions, such as how much it will cost, whether you have to provide coverage and what options are available.
Our answers include resources where you can find more information, such as types of benefit plans, plan providers and reviews.
Confused about offering health insurance for small business? Use eHealth to evaluate health care plans from leading carriers and see which plan is right for your company’s size and budget. Click here to get free quotes.
1. Do I Have to Provide Small Business Health Insurance?
This is the first question to ask yourself. If you have 50 or more full-time employees or full-time equivalent employees (FTEs), your business is required to provide health insurance per the Affordable Care Act, referred to as the ACA or Obamacare.
Employers with fewer than 50 full-time employees aren’t required to provide health insurance. However, many do so as an employee benefit to attract and retain the best talent. Most recent data shows the percent of employers that provide health insurance by size:
- 23% of employers with 0 to 10 employees
- 49% of employers with 0 to 24 employees
- 73% of employers with 25 to 99 employees
However, the percentage of small employers providing health insurance has gone down through the years, as shown in this chart from SHRM.
Percent of small businesses that offer health insurance.
Source: shrm.org
If your company is approaching that 50-employee mark, it’s time to start looking for the best health insurance programs that offer the minimum essential coverage as required by the ACA.
2. How Much Does It Cost to Provide Small Business Health Insurance?
According to the Kaiser Foundation, the average cost per enrolled employee for group health coverage is $6,251 per year with premiums increasing by about 5 percent per year. Most businesses share the cost of health care with a single employee paying on average between $4,800 to $5,600 per year. If you provide family coverage, it will cost more as shown below.
Percent of health care premiums paid by employers and employees.
Source: kff.org
On average, the employer picks up 83 percent of the premium costs with the employee paying the rest.
Looking for the best rate on small business health insurance? Simply Insured provides free quotes on its website comparing top insurance providers. You can also compare rates to what’s offered through the ACA’s Small Business Health Options Program or SHOP exchange.
3. What Are the Different Kinds of Health Insurance for Small Business Plans?
There are four basic types of health insurance plans. They include preferred provider organization (PPO), health maintenance organization (HMO), point-of-service (POS) plan and high-deductible health plan (HDHP).
There are an additional two types of health savings plans: flexible savings account (FSA) and health savings account (HSA). Here’s an overview:
- PPO: A network of health care providers that lets your employees choose from a list of doctors within the network or a geographic area
- HMO: An organization, that provides health care, but your employees have to use the doctors and health care providers within their organization
- POS plan: Somewhat of a hybrid between HMO and PPO that requires your employees to choose a primary care provider, and typically has lower out-of-pocket costs
- HDHP: Similar to a PPO or POS, this plan type often has lower premiums but very high deductibles that can be offset with an HSA
- FSA: An employer-owned saving account used to pay for an employee’s medical and health expenses like co-pays and health insurance premiums
- HSA: An employee-owned savings account that can be used in conjunction with an HDHP and can help offset the cost of deductibles and co-pays
For complete details on each of these types of plans, read our article on health insurance plans.
If you’re looking for human resources and payroll software that lets you offer these kinds of health care plans to your employees, consider using Gusto. It costs just $39 per month plus $6 per month, per employee and allows you to provide health insurance, along with HR and payroll all in one application.
4. How Much Can Your Employees Afford?
Employees tend to pay about $1,000 per year for their portion of employer-provided health insurance. That’s less than they’d pay if they had to purchase health insurance in the marketplace. According to eHealth Insurance, the average cost of individual health insurance — not including subsidies — under the ACA is $4,716 per year. That’s because employers are covering the difference.
If you’re unable to contribute 50 percent or more of the premium toward employee plans, you may find the plans are too expensive for employees to pay for on their own, even if the premiums are made with pretax payroll deductions.
In addition, the average deductible is $4,328 and rising much faster that earner’s wages as shown in the chart below.
Deductibles rising faster than health insurance premiums and employee wages.
Source: kff.org
In scenarios where you or your employees have large medical bills, such as for surgery or to manage a critical health issue like cancer or heart disease, they may be caught off-guard by deductibles and co-pays.
If your employees cannot afford to pay the out-of-pocket costs associated with their health care, they’re not likely to use it. That defeats the purpose of offering health insurance unless you also provide them with a way to save or get reimbursed for those extra costs.
If you have fewer than 50 employees, health insurance prices are too steep for either you and/or your employees can’t afford their deductibles, you may want to increase compensation or offer an FSA instead of offering a group plan. However, an FSA doesn’t cover your employer obligations under the ACA.
5. What’s More Important to Employees — Low Deductibles or Low Premiums?
In other words, would you and your employees prefer to have an HDHP with low monthly premiums or a plan with higher monthly premiums but lower deductible? There’s a tradeoff either way.
One way to significantly reduce health insurance costs is to offer an HDHP. This means that your employees pay an initial amount of health care costs directly, generally between $2,000 and $4,000. This is a popular option among small businesses and can be offset by HSAs.
For information on health savings and reimbursement accounts that can help employees save for deductibles and co-pays, read our article on HRAs vs. HSAs.
To compare prices of various health care plans side by side, read our health insurance guide.
6. Would Your Employees Find Health Benefits Valuable?
If your employees are already getting health insurance through their parents, spouses, Medicare or the marketplace, then they may not value the health insurance benefits that you offer.
Many small group plans require that the majority of your employees participate in the plan. If a large number of your employees opt out because they are covered elsewhere, group health insurance may not be an option.
However, don’t be discouraged if you have only a few employees interested. Payroll software providers may offer employee benefits as part of their package, even if you have just a handful of employees. We’ve provided an overview of the best payroll software to help you choose.
7. Do You Have to Manage the Administration and Paperwork Yourself?
If you hate managing employee paperwork, you may choose to work with a professional employment organization, also known as a PEO or co-employer. Small businesses that want to provide the best rates on health benefits often go this route. With a PEO, you’re able to offer the best group health insurance benefit rates to your employees — similar to large company group rates — as your employees are pooled with others. As a bonus, you won’t need to manage all that employee paperwork.
Read our article on PEOs to learn more. We also provide reviews of the best PEOs.
For example, ADP has a PEO option called ADP TotalSource that’s ideal for small businesses already familiar with or currently using one of ADP’s other packages. With ADP TotalSource, you get big company buying power for your small business health insurance plans.
8. Do You Want to Cover Employee Family Members Too?
While costs vary based on the type of plans, they also increase significantly when employees’ families are covered. As an employer, you have to decide if you want to offer coverage to employees’ families as well as to the employees themselves.
Some employers choose to pay a larger percentage of health care premiums for the individual. However, when family coverage runs between $16,000 to $18,000 a year as shown below, many smaller employers simply can’t afford to contribute. In addition, some employees have spouses that work for larger employers that already provide family coverage.
Family coverage costs about three times as much as single coverage
Source: kff.org
Therefore, one of the questions to ask yourself before offering coverage, is who you’ll be providing coverage for, your workers or their entire families?
9. Is Your Business Eligible for a Tax Credit?
You can find out whether your business is eligible for a tax credit by using the online calculator on the healthcare.gov website. Your organization would need to have fewer than 25 employees and meet additional requirements to be eligible, such as paying half of the employee’s premium and having employees who earn less than $51,600 on average.
In addition, the tax credits expire after two years.
10. How Many Employees May Qualify for a Subsidy?
If your employees make less than 400 percent of the federal poverty level, which varies by state and family size, they may qualify for government subsidies on health insurance plans offered through the individual ACA marketplaces. That may make marketplace plans cheaper for them than what you could provide, especially if they have a family or have low or part-time earnings.
For example, single employees with no children would be considered for ACA purposes to be at the poverty level if they earned $12,140 or less per year. As long as they earned no more than 400 percent of that amount, or $48,560, they would qualify for subsidies.
However, individuals that have access to a group health insurance plan through their employer are ineligible for those subsidies. Before offering a group health plan, make sure that you are not cutting off the subsidy option for employees that want it.
Your employees can use a calculator to determine whether or not they are eligible for subsidies.
11. Do You Want to Offer a Specific Plan to Your Employees?
In order to offer a specific plan or plan options to your employees, you’ll need to obtain group health insurance. However, allowing employees to choose for themselves gives them greater flexibility and generally costs less on average than having them buy their own health insurance.
Here’s an overview of different types of health care plans so you can compare the pros and cons of PPOs and HMOs, for example.
If you don’t have a specific plan in mind, we recommend smaller employers consider offering increased compensation, FSAs or HRAs to help employees offset the cost of marketplace health insurance they purchase on their own.
12. Do You Want to Offer Other Insurance, Such as Dental and Vision?
Some employees in a small business, when given a choice, would prefer a different health benefit than medical insurance. They might like vision insurance, dental insurance, or life and disability insurance. Perhaps you want to offer these options in addition to medical insurance. If that’s the case, your best choice would be to work with an HR/payroll software provider like Gusto that offers multiple kinds of health and other benefits.
We recommend Gusto as the best all-in-one software for small businesses. In addition to managing basic employee tasks like onboarding and tax documents, Gusto can provide life insurance, health insurance, dental, vision and 401(k) plans.
13. How Often Do You and Your Employees Have Doctor’s Visits?
In other words, do you or any of your employees currently need ongoing care for chronic conditions, such as diabetes or heart disease?
If you have employees that need to visit the doctor on a regular basis for a chronic condition, you want to make sure that they are going to be able to afford the insurance and out-of-pocket costs that they will be responsible for under different scenarios. They may also want to be able to stay with their current doctor.
14. Do Employees Have a Preference for a Specific Doctor or Provider?
If so, then you will want to make sure that the doctor or health care provider is covered under the health benefit plan you decide to offer.
If not, would you and your employees switch doctors if it meant saving money by transitioning to a different plan that their current health care provider doesn’t accept? That’s something you may want to ask your employees before you select any specific plan to offer.
15. Would Employees Prefer a Different Benefit Altogether?
Higher pay, increased 401(k) contributions, life insurance, wellness program, commuter benefits, more paid time off and flex time are all examples of things that some employees may appreciate more than having you help pay for their health benefits. Here are some employee benefits statistics on how benefits make a difference.
Therefore, before investing in health care benefits for your staff, consider asking them what other perks or fringe benefits they may prefer in lieu of health benefits. Take a look at the top workplace trends to see what other employers are doing.
The Bottom Line
Answers to the questions above arm you with the information you need to choose whether to offer health care benefits if you’re not yet at the 50-employee mark. Otherwise, you’re now on the path toward choosing the right benefits plan for your company’s unique situation.
Looking for the best health benefits package for your employees? Gusto can offer hundreds of health plans and provide your business with the best choices for your budget and your employees’ needs. Gusto provides services as low as $39 per month plus $6 per month per employee. It offers a free 30-day trial.
