- Posted by: Matt Muriel
- Category: Recruitment & Selection, Small and Mid-Sized Business
Choosing a health insurance plan can be one of the most challenging things to do when running a small business, as there are many options and rules out there for you to figure out before you make the big decision.
If you aren’t fortunate enough to have a full human resources department at your disposal, then choosing the right health insurance plan for your business can seem overwhelming, but it doesn’t need to be. That’s why for this week we’ll be discussing how to find the best health insurance plan as a small business.
How Does Health Insurance Work as a Small Business?
When shopping for a health insurance plan for your small business there are few things that you need to keep in mind. There are four main things you should be aware of as a small business owner: coverage, number of employees, employee premiums, and shopping for coverage.
- Coverage: If you are eligible for a small business health insurance plan, your coverage is usually
- Number of Employees: As a small business, you must have at least one employee on your payroll to qualify for small business insurance coverage.
- Employee Premiums: You must pay at least 50% of the monthly health insurance premiums for your employees. The minimum percentage may vary depending on your state though, so be aware of your local employment laws.
- Shopping for Coverage: As a small business, you can shop around for health insurance coverage at any time. You don’t need to wait for an enrollment period or for your coverage to expire, but once you buy a plan, you are typically locked in for at least a year.
What are the Different Health Benefits Options Out There?
This form of health insurance plan is what most businesses are familiar with. You select a plan, determine how much of the fixed premium you want to pay (also known as the “employer contribution) and while each employer’s contribution may vary, most states require that you contribute at least 50% of the total fixed premium for each employee.
Each year, your premiums are calculated based on the previous year’s usage and the carriers’ projections for the up-and-coming year. This plan is great as it is well-known, offers a wide variety of vendors to choose from, and you don’t have to think too much when choosing a plan. You do expose yourself to fluctuating yearly costs from your provider, low transparency for costs for your employees, and little flexibility for choosing what is covered.
Self-Funded Health Insurance
Self-funded health insurance is a type of insurance where you, the employer, pays for your employees’ medical expenses with your funds rather than using an insurance carrier. With this form of insurance, your company is assuming all the health risks instead of an underwriter making this option more likely to be used by larger businesses with larger cashflows to handle incoming employee claims and mitigate potential risk.
While this plan offers a high amount of customizability for your business with control over-allocated funds and custom plans for your employees, it also opens it up to a large amount of risk and a complicated management system that your business will be responsible for.
Level-Funded Health Insurance
This form of insurance has gained more popularity with small businesses in the last few years, as it is a hybrid form of self-funded and fully-funded insurance. In this model of insurance, your business still contributes a monthly payment to a TPA or carrier, but rather than that payment being a “use-or-lose” fixed premium like with small group insurance, the payment is held by the carrier and is used to pay claims for employees throughout the year.
At the end of the year, any unused funds are refunded to the employer, and in the event that the number of claims is over the limit, then your stop-loss insurance will cover the difference.
These types of insurance plans are great for saving money, also boast a highly customizable plan, and provide the stability of monthly payments like a traditional insurance plan. Yet, these types of plans also still expose you to a high number of risks if there are a lot of claims in a year and make your business vulnerable to premium increases.
Health Reimbursement Arrangements
HRAs are an umbrella term for any legal arrangement between an employer and their employees to reimburse for medical expenses and/or insurance premiums on a tax-free basis. In this form of insurance, employees purchase their own health insurance on the open market, then get reimbursed for the cost of their premium from their employer. There are several types of HRAs out there, but there are only two that allow for employers to reimburse employees tax-free for qualified individual insurance premiums:
- QSHRA (Qualified Small Employer HRA)
- ICHRA (Individual Coverage HRA)
You start with HRA by choosing the one that fits for you (either a QSHRA or ICHRA). These two function very similarly, but they are each designed to meet specific needs. The ICHRA for example is not limited to an employee count, whereas the QSHRA is limited to businesses with 50 or fewer employees.
To navigate the differences between all the HRAs, your business can hire an HRA administrator to ensure that your HRA is being set up properly and that you are getting the right one for your business.
Are you struggling with managing your human resource needs? SolveHR offers several transactional and strategic HR services to help your business. Contact us today to find the right solution for you, so you can focus on what matters—growing your business!