Your Go-to Guide to Setting Up Healthcare Benefits

Katie Fleming

Katie Fleming

Co-founder and COO of Owner Actions

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

Is your small business looking into healthcare insurance? This could be a smart move. It's one of the most sought-after benefits for people looking for work. Here's why:

  1. Businesses often offer better, broader plans than what people 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 holders—who want to access more providers, have better coverage, and share the costs of their insurance with an employer. In many cases, these plans save workers thousands of dollars a year on premiums alone. Plus, the coverage can help them avoid the financial hardships that often come from hefty medical bills (and from ignoring health concerns because of a lack of coverage).

You can benefit, too. Here's how:

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More appeal in recruitment

If you have a solid healthcare plan—especially one that covers your employees and qualified dependents—you may attract more applicants for openings. And in some cases, 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 like you because hiring costs can be steep. Plus, the costs of losing the knowledge, experience, and ties with vendors or customers employees have can be tough to overcome.

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Lower absenteeism

When you offer a robust healthcare plan, you make treatment and ongoing care possible. Both of these can boost your employees' health and reduce the time they spend away from work from injury or illness. Quality medical care can also lower the number of sick days workers take and help them to be more productive and focused while on the job..

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Higher employee satisfaction

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

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Tax savings

You might save significantly on your taxes, in part because employer-paid premiums are exempt from federal income and payroll taxes. Further, the benefit is often excluded from employees’ taxable income. But here's another way a plan can help you save. Some businesses—possibly yours—are eligible for the Small Business Health Care Tax Credit. This credit could be worth up to half of what you spend on employee premiums, provide you have fewer than 25 full-time-equivalent (FTE) employees, your employees' average salary is $56,000 or less, you pay at least 50% of your FTE's premium costs, and you offer Healthcare.gov's SHOP coverage to all your full-time employees. You can learn more about this credit here.

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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 them and their dependents. 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're not required to do so.

 

The benefits of providing healthcare insurance are clear. Still, some plans provide more benefits than others. Take time to review the small business healthcare insurance options that are available. Then, choose an option that suits your goals, your employees’ needs, and your budget.

 

What are the options for small business healthcare insurance?

Some of the most popular small business healthcare insurance options 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 thorough healthcare records.
  • Care is affordable, especially for people with multiple dependents.

The disadvantages:

  • Participants must use 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 made between the insurance provider and medical practices don’t incentivize doctors 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 doctors, including primary care and specialists, from a variety of facilities.
  • PPOs don't require participants to coordinate their care through a primary care physician.

The disadvantages:

  • Employees and dependents must meet a deductible before receiving coverage.
  • High premiums, copayments, and deductible costs can result in hefty bills for people 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 people budget for the worst-case medical scenarios.
  • Employers can establish a health savings account (HSA) that allows their employees to 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 cover insurance premiums.

The disadvantages:

  • It's possible for high out-of-pocket expenses to exceed what an employee could afford.
  • High out-of-pocket expenses may prevent 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 network may not be covered. This arrangement helps people receive affordable care with low monthly premiums, provided they pay a relatively high annual deductible.

The advantages of EPO plans over other plans:

  • Rates are often lower than those in 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 (sometimes called “fee-for-service plans”) offer participants full freedom to choose the doctors 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 can 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)

HRAs are not health insurance plans. They're a means for employers to offer their employees tax-free money to cover qualifying medical expenses, which could 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. In most cases, preventive and routine care is not covered. If you wish to provide dental and vision care for your employees, consider some of these options:

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Dental plans

Many insurance providers offer dental insurance as a supplemental plan, but some owners buy a separate policy from another provider (such as dentalplans.com) for better coverage or more cost savings.

Available plans tend to fall into one of these two categories:

  1. HMO look-alike plans. These plans allow participants to receive care from in-network dentists. Most offer 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, but they 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 again, employers can choose to purchase a separate vision insurance plan that better suits their cost and coverage goals. Most plans 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 business. 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, factor in their needs and which plans would benefit them most.

Let's dive deeper into the cost portion. Costs of plans matter. Use this chart to make sense of 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 people who infrequently see specialists.

PPO

$$$$

Often low

High

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

HDHP

$$

High

Low

People with 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

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

EPO

$$

High

Low

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

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You'll certainly want to choose a plan that's within your budget. And if you're like many owners, you'll want a plan that won't burden your employees. So what do the costs look like? According to the KFF Employer Health Benefits Survey in 2019, employers choosing 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 a single plan and $6,015 for family coverage.

This study published the average employer and employee contributions for four common insurance plans. You can see those averages here:

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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. Here's how. First, work only with firms that offer affordable plans. Second, look for ways to divide the costs of a plan between your company and your employees. Cover only what you can afford.

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

Once you have some options in mind, you can work with a small business healthcare insurance broker to find and buy the best plans for your business.

A healthcare insurance broker will help you source and select benefits for your business. Brokers vary in quality, fees, and specialization, so be sure to take the time to size them up. These questions can help you find the best choice:

  • 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 other kinds of benefits?
  • How do you help 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 this process?
  • How will you make sure my business complies with new federal and state laws?
  • What will the enrollment process look like for my team?
  • How much support do you offer after we choose our plan?
  • Do you offer any tools to help me manage my plans or other HR processes?
  • Are you licensed to provide this service?
  • Do you have liability coverage?

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If you’d like to work with a broker, check out these two options:

 

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Want to learn about other benefits you could offer? Check out these guides:

 

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