Health Insurance Options for Small Businesses

Prior to joining NFP, I started and ran a small health insurance brokerage firm for 18 years. As a small business owner, providing health insurance for your employees (even when that is what you do for a living) can be a complex task. However, there are several options available, each with its own benefits and drawbacks. Here's an overview of some of the main options: doing nothing, offering group health insurance, offering Individual Coverage Health Reimbursement Arrangements (ICHRA), offering Qualified Small Employer Health Reimbursement Arrangements (QSEHRA), using the Small Business Health Insurance Option from Healthcare.gov, and offering access to a health sharing ministry.

1. Doing Nothing

The first option is to simply not provide health insurance. This is an option for businesses with fewer than 50 full-time equivalent employees, as they are not subject to the Affordable Care Act (ACA) mandate to provide insurance. However, this approach could have drawbacks when it comes to attracting and retaining employees, as many people consider health insurance a vital part of their compensation. If you choose to do nothing, it is still a good idea to prepare for the moment when your perfect prospective hire asks you, "What benefits do you offer?"

2. Offering Group Health Insurance

The traditional option for providing health insurance is to offer a group health insurance plan. It is also what most prospective employees are REALLY asking about when they ask about benefits. This type of plan covers all eligible employees and their dependents. The employer and employees share the cost of the premiums, and the employer's contribution is typically tax-deductible. These plans can be more cost-effective for small employers - depending on your company's employee makeup. The business is responsible for managing the plan, picking options, setting cost share, and answering employee questions. A good broker would help with all of these and take the lead on employee communication, enrollment, and issue resolution.

3. Offering ICHRA

Individual Coverage Health Reimbursement Arrangements (ICHRA) have grown in popularity since their introduction in 2020. An ICHRA allows employers to reimburse employees for individual health insurance premiums and other medical expenses on a tax-free basis. The affordability of an ICHRA is calculated based on whether the monthly reimbursement offered by the employer is of greater value than the lowest cost silver, self-only plan minus 9.12% of an employee's household income. But, as long as your company has fewer than 50 employees, you don't need to worry about that - at least not from a potential penalty standpoint.

Offering an ICHRA that is considered affordable can have consequences on an employee's eligibility for premium tax credits, with employees possibly not being eligible for some or all of any premium tax credits that they may otherwise be eligible for. On the other hand, if an ICHRA is considered unaffordable, employees can opt out and receive any premium tax credits they are otherwise eligible for.

4. Offering QSEHRA

Qualified Small Employer Health Reimbursement Arrangements (QSEHRA) are another option for small businesses. Like ICHRAs, these arrangements allow employers to reimburse employees for their medical expenses on a tax-free basis. However, QSEHRAs have more restrictions than ICHRAs, including strict limits on the amount that can be contributed annually and a requirement that the employer not offer a group health plan to any employees.

In 2023, the maximum annual contribution for a QSEHRA is $5,450 for self-only employees and $11,050 for employees with a family. The contributions are pre-tax for the employer and tax-free for the employee, as long as the employee has minimum essential coverage.

5. Small Business Health Insurance Option from Healthcare.gov

In certain markets (not Louisiana at the moment) small businesses can also use the Health Insurance Marketplace through Healthcare.gov to find health insurance options, including medical, dental, vision, and more. This is known as the Small Business Health Options Program (SHOP).

There is no income limit to use the Health Insurance Marketplace. Insurers cannot refuse coverage based on gender or a pre-existing condition, and there are no lifetime or annual limits on coverage. Additionally, young adults can stay on their family's insurance plan until age 26.

To enroll, businesses can visit Healthcare.gov to find their state Health Insurance Marketplace, which has its own enrollment instructions. During the open enrollment period each year, they can choose a plan for the first time, continue in their current plan, make changes to their current insurance plan, or choose a new plan to replace their current plan. If they experience a life event like moving or having a baby, they may be able to change their coverage during a special enrollment period.

6. Offering Access to a Health Sharing Ministry

A final option for small business owners is to offer access to a health sharing ministry. Health sharing ministries are not insurance but are organizations where members share each other's medical costs. They can be an affordable alternative to traditional health insurance, but they have limitations.

For instance, health sharing ministries often have restrictions based on lifestyle choices and may not cover pre-existing conditions. They also do not have to comply with ACA regulations, which means they can cap benefits and are not required to cover certain services that health insurance typically covers.

Employees cannot accept premium tax credits and participate in a health sharing ministry at the same time. If they choose to participate in a health sharing ministry, they could face tax penalties. To make that decision, employees have to check and see if their health sharing ministry offer is, in fact, affordable. If it is, they cannot accept tax credits. If it's unaffordable, the employee can choose what's best for them.

In conclusion, there are several options available for small business owners when it comes to providing health insurance for their employees. Each option has its own benefits and drawbacks, and the best choice depends on the specific circumstances of the business and its employees. It's important for business owners to carefully consider all of their options and seek advice if necessary before making a decision.

Making the Decision

Deciding on the right health insurance option for your small business is not a decision to take lightly. It's important to consider the needs of your employees, the financial capabilities of your business, and the potential impact on employee recruitment and retention.

Before making a decision, it's advisable to:

• Survey your employees: Understand what they value in a health plan and what their needs are. This can help you identify the best options that will satisfy the majority of your workforce.
• Consider your budget: Look at what your business can afford to contribute towards health insurance. This can help you determine whether options like group health insurance, ICHRAs, or QSEHRAs are within your reach.
• Consult with experts: It can be beneficial to seek advice from a health insurance broker or a benefits consultant (like me). They can provide valuable insight into the different options and help you navigate the complexities of health insurance.
• Stay informed about legal requirements: Be aware of the legal requirements for providing health insurance, particularly if your business has 50 or more full-time equivalent employees. Non-compliance can result in penalties.

Conclusion

Ultimately, the best health insurance option for your small business will depend on a variety of factors, including the size of your business, the health needs of your employees, and your budget. By considering all the available options — doing nothing, offering group health insurance, offering ICHRAs, offering QSEHRAs, using the Small Business Health Insurance Option from Healthcare.gov, and offering access to a health sharing ministry — you can make an informed decision that benefits both your business and your employees.

Remember, while providing health insurance can be a significant expense for small businesses, it's also an important investment in your workforce. Health insurance can help attract and retain employees, boost morale and productivity, and ultimately contribute to the success of your business.