How to Choose the Right Small Business Health Insurance Plan
Choosing to provide health insurance to your employees can offer significant benefits. First, it improves employee retention—many skilled workers consider health insurance a crucial benefit when evaluating job opportunities.
Employers that offer health insurance may also notice an improvement in productivity, as workers will be more likely to seek the care needed to prevent and treat illnesses.
Finally, businesses offering health insurance may receive some tax incentives. Premiums are often tax-deductible as a business expense, resulting in some tax savings, especially for businesses in higher tax brackets. Some small businesses may also qualify for the Business Health Care Tax Credit, which significantly covers a portion of the (qualifying) employer’s contribution to health insurance premiums.
If you’re considering group health insurance, keep reading this article. We’ll discuss the different small business health insurance plans available and the factors to consider when selecting a plan for your employees.
Which Small Businesses Are Required to Offer Health Insurance?
Businesses are required to offer health insurance if they have 50 or more full-time employees or full-time equivalents (FTEs) who work at least 30 hours a week or 130 hours a month. Businesses that are required to offer health insurance are known as Applicable Large Employers or ALEs. The Affordable Care Act stipulates that your status is based on the previous calendar year. So, you aren’t an ALE if you employ fewer than 50 FTEs on average. The requirement is adjusted for seasonality, so double-check with your insurance agent.
Small group health insurance plans also often come with participation requirements from insurers. Typically, about 70% of eligible employees must join the plan. However, this percentage doesn’t include workers with other coverage available through spouses or other sources.
Keep in mind that if you decide not to offer group health insurance, employees can still purchase individual health plans through the state. By helping employees navigate these options, you can increase goodwill and give your workers another reason to stay with your company.
What Group Health Insurance Covers
Group health insurance typically covers medical expenses, such as:
- General Preventative Care
- Doctor Visits & Specialist Care
- Emergency Services & Hospitalization
- Prescription Medicines
- Some Laboratory Services
- Maternity Care
- Rehabilitative Services (Physical Therapy, Occupational Therapy, etc.)
These can be purchased as separate insurance plans or as a bundle.
You can buy health insurance through any private insurance company in your state. The government also offers a Small Business Health Options Program (SHOP) you can register for. Qualification criteria may vary depending on the state you operate in. Please visit Healthcare.gov and select your state to learn more.
Types of Plans & Optional Coverage
There are four main types of group health insurance plans: HMOs, PPOs, EPOs, and HDHPs, with HMOs and PPOs being the most common. You can also choose an HDHP plan to combine features from other plan types. Review the pros and cons of each below.
Health Maintenance Organizations (HMOs) require employees to pick a primary care physician (PCP) within a network of providers. Typically, policyholders need referrals before they can see specialists. HMOs offer lower premiums and deductibles, but your employees will have fewer choices in terms of providers. Consider an HMO if your workers want lower costs and don’t mind staying within the network.
Preferred Provider Organizations (PPO) have higher premiums and deductibles, but some employees value the flexibility of choosing their own providers. Unlike HMOs, PPOs are not limited to a certain geographic area, which can disadvantage employees who live in rural areas, travel frequently, or are remote/outside of the company’s primary location.
PPO plans don’t require that employees select a primary care physician—they can see any provider or specialist within the network without a referral, and out-of-network coverage is provided, though at a higher cost.
Exclusive Provider Organizations (EPO) only offer coverage for providers within the plan’s network, excluding emergencies. EPOs typically have lower premiums and deductibles than PPOs and may appeal to people who prefer lower costs and don’t mind staying within a network. Similar to PPOs, EPOs don’t require employees to choose a primary care physician, and referrals aren’t needed to see specialists. However, out-of-network coverage is only covered for certain emergencies.
High Deductible Health Plans (HDHP) have higher deductibles and lower premiums than other plans. Individuals often pair these accounts with health savings accounts (HSA) to save pretax money for certain eligible medical expenses. HDHPs are a great option for individuals who need limited medical care and would like to save money on their insurance coverage. The primary risk of HDHPs is that if the individual experiences an unexpected medical event, they will pay higher out-of-pocket costs because the deductible is higher.
HSAs & FSAs
You also have the option to provide Health Savings Accounts (HSAs) and Flexible Spending Accounts (FSAs) for your employees. HSAs and FSAs offer participants a way to save for qualified medical expenses.
The primary differences between an HSA and FSA include:
- HSAs are only available with a high deductible health plan (HDHP).
- FSAs are available to all employees.
- Employers maintain ownership of FSAs, but employees can take their HSAs with them if they leave the company.
- FSA funds “disappear” at the end of the year, while HSAs can be carried over to the following year.
Self-Funded Versus Fully Insured
There are two ways to fund small business health insurance plans.
In a fully insured plan, you buy insurance from the insurance company directly. Under this model, the insurance company is solely responsible for paying out eligible claims. A fully insured plan helps ensure consistent premiums and transfers financial risks from the employer to the insurance company. Although the coverage costs may change over time, insurance plans have to follow state regulations regarding insurance costs. The downside of fully insured plans is that they often cost much more than self-funded plans.
If you choose a self-funded plan, your business takes on the entire cost of paying out claims instead of paying a fixed premium to an insurance provider. Large employers typically hire third-party managers to handle these plans, purchase separate stop-loss insurance to cover claims exceeding a certain threshold, and set up Employee Wellness Programs (EAPs) to reduce overall health care costs
On the downside, these plans expose your company to considerable financial risks, and the plan must meet the requirements of federal regulations. You might choose this option if you have a relatively young and healthy workforce.
Factors to Consider When Selecting Coverage
- Premiums: Premiums are a significant recurring expense that directly impacts your company’s budget. Additionally, how much of the premiums you cover will affect the attractiveness of your company’s benefits package to current and potential employees.
- Timeline: You have the option to choose when your employees receive health insurance. Some companies offer a one-month period before new employees can enroll in a plan, while other companies might offer longer periods.
- Remote Employees: If your company has or plans to hire remote workers, PPOs are a must. Without a PPO, remote workers can’t get the health care they need. EPOs could also be an option if the EPO has a broad network.
- Copays, Coinsurance, & Deductibles: Don’t just focus on premiums. How do the copays, coinsurance, and deductibles compare between different plans you’re considering? These are the costs that directly impact your employees.
- Needed Coverage: Have you taken a survey to determine what coverage your employees need?
- Your Budget: How much money do you have budgeted for small business health insurance? Compare premiums, copays, coinsurance, and deductibles for each plan you research. Balancing these costs with the level of coverage and benefits offered is critical in reducing financial risks and providing your workers with the best value possible.
- Network: Which health care providers are considered in-network? The scope and quality of your health care network is a crucial consideration, as it determines the accessibility and range of doctors, specialists, and other health care providers available to your employees.
Consult With an Agent Today
Choosing the right insurance plan can be challenging—that’s why it’s important to consult with experts like Allied Insurance Managers.
Founded in 1987, we are one of Michigan’s largest independent insurance agencies, and are committed to providing comprehensive coverage to individuals and businesses nationwide. We offer many insurance plans, including innovative employee benefits programs that include health insurance, life insurance, disability insurance, and more. Please contact us today to learn more about our available benefits and to receive a free quote.