Small business healthcare insurance forms lay on a desk ready to be completed.

Your Go-to Guide to Setting Up Healthcare Benefits

For a small business healthcare insurance can be a key differentiator.

Healthcare insurance is one of the most sought-after benefits for people seeking employment for two key reasons:

  1. Employers often offer better, broader plans than what they can attain through the healthcare.gov platform.
  2. Employer plans are almost always more affordable than private health coverage and, in many cases, than plans made available through the Affordable Care Act.

 

The benefits may be clear for job seekers—and job incumbents—who want to access more providers, have better coverage, and share the costs of their insurance with an employer. In many cases, employer plans save participants thousands of dollars a year on premiums alone, and coverage can help them avoid the financial hardships that can come from hefty medical bills (and from ignoring ongoing medical concerns because of a lack of healthcare coverage).

But there are benefits to employers, too:

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More appeal in recruitment

Employers with attractive healthcare plans, especially those that provide coverage to employees and qualified dependents, often attract more applicants for openings. And in some circumstances, healthcare coverage can be the deciding factor for job seekers when accepting or rejecting a job offer.

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Better employee retention

Employees are often reluctant to leave a company that offers a good benefits package. This is important for employers because hiring costs can be steep, and the costs of losing the knowledge, experience, and ties with important vendors or customers employees have can be difficult to overcome.

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Lower absenteeism

Employers who offer robust healthcare plans to their employees provide access to treatment and ongoing care that can boost their health and reduce the time they spend suffering from injury or illness. And, quality medical care can lower the number of sick days employees take and help them to be more productive and focused during the time they spend at work..

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Higher employee satisfaction

Often, employees feel more satisfied with roles that offer them benefits than in roles that do not. Their satisfaction can have positive spillover effects on their performance, engagement, drive, and interactions with others at work.

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Tax savings

Healthcare benefits are a “cash substitute” that most employees value. But while cash incentives are taxable for employers and employees, employer-paid premiums are exempt from federal income and payroll taxes for employers. Additionally, the benefit is often excluded from employees’ taxable income.

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Important note: If you employ 50 or more full-time or full-time-equivalent (FTE) employees, you must provide health insurance for at least 95 percent of those employees and their dependents, and that health insurance must meet standards set up by the Affordable Care Act. Failure to do so can result in significant penalties.

Employers with fewer than 50 FTE employees may choose to offer health insurance, but they are not mandated to do so.

 

The benefits of providing healthcare insurance are clear. However, plans aren’t created equal. Take time to review the following small business healthcare insurance options that are available to your business. Then, select an option that suits your objectives, your employees’ needs, and your company’s budget.

 

What are the options for small business healthcare insurance?

Some of the most popular options for small business healthcare insurance include:

 

Health maintenance organization (HMO)

Many employers choose HMOs for their employees because the plans are relatively inexpensive to administer and provide a fair amount of coverage for plan participants. If you choose an HMO plan, your employees and their dependents can visit any doctor or hospital in the insurance company’s network and receive care in exchange for a modest copayment (usually less than $30).

The advantages of HMOs over other plans:

  • These plans rarely require participants to meet a deductible.
  • These plans don’t require employees to file forms or maintain through healthcare records.
  • Care is affordable for employees, especially those who have multiple dependents.

The disadvantages:

  • Participants are limited to doctors and facilities within their network to receive network rates (non-network care often comes at a much steeper cost).
  • Referrals to specialists are required.
  • The arrangements established between the insurance provider and medical practices don’t incentivize physicians to provide top-level care.

 

Preferred provider organization (PPO)

PPOs offer employees more choices in doctors and care facilities. As with HMOs, participants are encouraged to seek care within a defined network of care providers to help the insurance provider reduce costs. Out-of-network care is often covered, but the costs may exceed those that a participant would pay with in-network care.

The advantages of PPO plans over other plans:

  • There is often a broad selection of physicians, including primary care and specialists, from a variety of facilities.
  • PPOs do not require participants to coordinate their care through a primary care physician.

The disadvantages:

  • Employees and dependents are required to meet a deductible before receiving coverage.
  • High premiums, copayments, and deductible costs can result in hefty bills for employees and dependents seeking care.

 

High deductible health plans (HDHPs)

Based on IRS rules in 2020, an HDHP requires participants to pay a deductible of at least $1,400 for individuals or $2,800 for families before coverage kicks in. Most employers who choose this option do so because it's one of the most affordable plans available.

The advantages of HDHPs over other plans:

  • HDHPs often have lower premiums than other policies.
  • HDHPs set an out-of-pocket maximum that helps participants budget for the worst-case medical scenarios.
  • Employers can establish a health savings account (HSA) that helps their employees set aside pre-tax money for qualified medical expenses. Often, these expenses can include deductibles, copayments, coinsurance, and other allowable expenses, but they usually cannot be used to cover insurance premiums.

The disadvantages:

  • There is a possibility for high out-of-pocket expenses each year that may exceed what an employee could afford.
  • High out-of-pocket expenses may discourage participants from getting the care they need to perform at their best at work.

 

Point of service (POS) plans

Infrequently used, POS plans combine the best aspects of HMOs and PPOs. Like an HMO, these plans establish a network of care and provide coverage for services without requiring a deductible to be met. The participant’s responsibility is often limited to a modest copayment. Like a PPO, POSs also provide coverage from out-of-network care, though the costs are often steeper than with in-network care.

The advantages of POS plans over other plans:

  • Costs of in-network care are relatively low.
  • Participants can receive coverage for out-of-network care.

The disadvantages:

  • Premiums are expensive.
  • The networks of care are usually small.
  • POS policies are often complex.
  • Paperwork is required for out-of-network care.

 

Exclusive provider organization (EPO)

EPOs establish a local network of doctors and hospitals participants can choose to work with. In many cases, care from physicians or facilities outside this established network may not be covered. This arrangement helps participants receive affordable care with low monthly premiums, provided they meet a relatively high annual deductible.

The advantages of EPO plans over other plans:

  • Rates are often lower than those associated with other plans.
  • While participants are generally responsible for the costs of out-of-network care, emergency visits to any doctor or facility are covered.

The disadvantages:

  • Out-of-network care, which may include visits with specialists, can be costly for participants.
  • The selection of doctors and care facilities is often narrow.

 

Indemnity plans

Less frequently used today, indemnity plans (commonly known as fee-for-service plans) offer participants full freedom to choose the physicians and facilities they wish to work with. These plans require participants to meet an annual deductible and then cover a nominal coinsurance rate (usually 20 to 30 percent, with the insurance provider paying the remaining 70 to 80 percent of medical bills).

The advantages of indemnity plans over other plans:

  • The insurance provider does not create networks, so participants are able to work with any doctor or hospital they choose.
  • Medical visits do not require a copayment (though they do require coinsurance).

The disadvantages:

  • They are the most expensive plans for both employers and employees because the insurance providers take fewer steps to manage costs.
  • Through most plans, participants must submit claim forms and wait for reimbursement checks for the insurance provider’s portion of their bills.

 

Alternative: Health reimbursement arrangements (HRAs)

While HRAs are not a health insurance plan, they are a means for employers to offer their employees tax-free money to cover qualifying medical expenses, which may include premiums for individual coverage.

Through these arrangements, employers can reimburse their employees for any amount they choose, though employers choosing the Qualified Small Employer Health Reimbursement Arrangement, or QSEHRA (an arrangement for employers with fewer than 50 employees), may not reimburse beyond maximums set by the federal government. In 2020, these limits were $5,250 for individuals and $10,600 for households.

 

 

Many small business healthcare insurance policies will cover dental and vision care if the participant incurs expenses from an accident, injury, or illness. However, preventive and routine care is generally not covered. If you wish to provide dental and vision care for your employees, consider some of the following options:

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Dental plans

Many insurance providers offer dental insurance as a supplemental plan, but some employers choose to purchase a separate policy from another provider (dentalplans.com is a popular option) for better coverage or more cost savings.

Available plans tend to fall into one of the following two categories:

  1. HMO look-alike plans. These plans allow participants to receive care from a list of in-network dentists. Most allow participants to receive free exams and teeth cleanings, but some require a copayment.
  2. Indemnity plans. This set of plans allows participants to visit any dentist they choose. Participants must meet a deductible before the insurance provider begins covering all or a portion of the costs of service.

 

 

Vision plans

HMO and PPO providers sometimes offer optional vision insurance for plan participants, but employers may choose to purchase a separate vision insurance option that better suits their cost and coverage preferences. Plans generally cover all or a portion of a yearly eye exam from an in-network optometrist. Most also provide full or partial coverage for the cost of a pair of eyeglasses or contact lenses.

 

Which small business healthcare insurance options should I choose?

No single plan is right for every employer. To find a great plan for your company, start by assessing how much money you can set aside to cover your employees’ (and their dependents’) healthcare costs. Then, consider the needs of your employees and which plans would benefit them most.

Costs of plans matter. You can use the following charts to understand the costs—and who stands to benefit most—from the five most popular plans:

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Cost

Deductible

Premiums

Who benefits most

HMO

$$$

Low

Low

Healthy employees who infrequently see specialists.

PPO

$$$$

Often low

High

Employees who don’t mind paying costly premiums in exchange for ease of access to a broad range of doctors and healthcare facilities.

HDHP

$$

High

Low

Employees managing a chronic or unexpected health concern who can either cover the high deductible costs or contribute to an HSA to offset some of the upfront costs.

POS

$$$

Low

Low

Employees who regularly travel outside their immediate region and employees who may need to see specialists outside their network.

EPO

$$

High

Low

Employees who regularly travel outside their immediate region and are able to cover the costs of out-of-network care when needed.

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When it comes to costs, you'll want to choose a plan that's within your budget, and if you're like many employers, you'll want a plan that won't be a financial burden for your employees. According to the KFF Employer Health Benefits Survey in 2019, employers selecting group health insurance paid an average of $5,946 per individual employee and $14,561 per employee with a family. On average, their employees’ paid an additional $1,242 for an individual plan and $6,015 for family coverage.

This study revealed the following employer and employee contributions for four common insurance plans:

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Employer Contribution

Employee Contribution

HMO

Single coverage: $6,180

Family coverage: $14,688

Single coverage: $1,058

Family coverage: $6,009

PPO

Single coverage: $6,222

Family coverage: $15,045

Single coverage: $1,454

Family coverage: $6,638

POS

Single coverage: $6,112

Family coverage: $12,894

Single coverage: $1,072

Family coverage: $6,945

HDHP

Single coverage: $5,341

Family coverage: $14,114

Single coverage: $1,071

Family coverage: 4,886

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You can control the costs of any plan you choose by working only with carriers who can help you attain affordable plans and by deciding how you’d like to divide the costs of a plan between your company and your employees.

How do I get started with my small business healthcare insurance program?

With your preferred options in mind, you may wish to work with a small business healthcare insurance broker to find and purchase the best plans for your business.

A small business healthcare insurance broker is a firm that specializes in helping businesses source and select benefits for their employees. Brokers vary in quality, fees, and specialization, so it’s important that you take time to find one who will be a good fit for you and your business. Here are some questions you can ask of brokers you consider:

  • What size of business do you most often work with?
  • Do you specialize in small business healthcare insurance, or can you help me set up multiple kinds of benefits for my employees?
  • What is your approach to helping businesses like mine select the right set of benefits?
  • How can you help me control the costs of my benefits plan?
  • What is your fee schedule?
  • Can you provide references of businesses like mine that you’ve helped through the benefit selection process?
  • How will you keep my business in compliance with emerging federal and state legislation?
  • What will the enrollment process look like for my employees?
  • How much support do you offer after benefits have been selected?
  • Do you offer any tools to help me manage my benefits plans or other human resource processes?
  • Are you licensed to provide this service?
  • Do you have liability coverage?

 

If you’re interested in working with a small business healthcare insurance broker, consider the following two options:

 

 

Interested in learning about other benefits you could offer? Check out these resources:

 

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