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electing a small business health insurance plan is one of many important decisions you’ll need to make as a small business owner.
To help you choose a health insurance plan that balances your budget and your employees’ healthcare needs, we’ve created this small business guide to health insurance.
Read on to get an overview of insurance requirements, costs and considerations, and recommendations for the best health insurance providers for small businesses.
How does small business health insurance work?
Rules can vary from state to state, but there are four basic rules of thumb when it comes to small business health insurance:
- Coverage cannot be denied based on pre-existing medical conditions. Coverage is almost always guaranteed.
- Typically, a business needs at least one employee to qualify.
- You can sign up any time of year, not just during open enrollment, with premiums usually locked for a year.
- Typically, employers will have to pay at least half of employees’ monthly premiums.
Are you required to provide health insurance?
Under the Affordable Care Act (ACA), you are required to provide health insurance if you have fifty or more full-time employees. You may have to pay penalties if you don’t provide benefits to those employees who qualify. There may be additional criteria depending on where your business is based, so we highly recommend referencing your state laws and regulations.
Why should you offer small business health insurance?
Understandably, you may be worried about whether you can afford to provide health care coverage to your employees. While it will use up a portion of your business expenses, offering health insurance doesn’t need to be completely cost-prohibitive.
For instance, you can utilize health reimbursement arrangements or health savings accounts to help you and your employees afford health benefits. Whatever you choose, it’s a good idea to seek the help of a tax or financial professional who specializes in these sorts of matters to help you determine how it could affect your business financially.
Here are some of the top reasons to consider offering health insurance:
- Attract first-rate talent. A comprehensive benefits package demonstrates to job candidates that your business is competitive and prioritizes employee well-being.
- Improve employee retention. Raises aren’t the only way to keep employees. Glassdoor’s Employment Confidence Survey showed that 40% of employees value health insurance benefits more than a pay raise. Retaining employees means fewer costs associated with onboarding, training new workers, and interrupting business flow.
- Benefit from tax incentives. In most cases, you can deduct 100% of the cost of monthly premiums from federal taxes. You could also benefit from reductions in payroll tax and deductions from HSA contributions.
How much does health insurance for a small business cost?
Small business owners tend to be concerned about costs when offering group health insurance. There are plenty of health insurance options to ensure you stay within budget and increase health insurance coverage as you need to.
According to a 2022 Kaiser Family Foundation study, the average annual premium for employer-sponsored health insurance was $7,911 for single coverage, with the employer contributing $6,581 on average.
Cost to employer
Employers should expect to pay about 50% of insurance premiums for their employees. This is a requirement to qualify for the federal small-business healthcare tax credit. It is also often required by the insurance companies themselves.
Therefore, if the annual average in 2022 for health insurance for an individual was $7,911, you would have to pay about $3,955 a year for a single employee.
Cost to employees
With the introduction of the Affordable Care Act (ACA), the maximum out-of-pocket limit for 2023 is:
- $9,100 for individual coverage
- $18,200 for family coverage
The most budget-friendly option for group coverage is a high deductible, low premium plan. That way, your upfront out-of-pocket costs are lower. You might also look at options for low deductible, high premium plans if you or your employees carry different health needs – this will come at a higher cost.
In general, you’ll be able to choose from different tiers to see how much coverage other plans provide. Coverage options might look like this:
- Bronze Tier: 60% coverage, 40% deductible
- Silver Tier: 70% coverage, 30% deductible
- Gold Tier: 80% coverage, 20% deductible
- Platinum Tier: 90% coverage, 10% deductible
There are some insurance companies that offer the following types of tiers:
- No deductible plans: The plan provides all coverage.
- High deductible plans: With these plans, there are a significant amount of out-of-pocket expenses but with lower premiums.
- Low deductible plans: With these plans, there are some out-of-pocket expenses and higher premiums.
Don’t forget to factor in a plan’s total deductible and out-of-pocket limits. The entire plan cost will be the same as the deductible plus the monthly premium. This means that even if your premium seems low, it could end up more expensive compared to other plans once you factor in the total deductible.
It’s also essential to consider copays that your employees will need to pay. Some employees will want to set up a Health Reimbursement Account (HRA) or Health Savings Account (HSA). Make sure to look into where this fits into your group health insurance plans.
Factors that affect the cost of health insurance
In general, five factors will determine the cost of health insurance coverage:
- Choice of provider
- Type of plan selected
- Number of employees
- Demographics of your employees
- Qualifying tax credits
You’ll also find plans that differ by type of network. This will determine how accessible various doctors are to your employees. You’ll usually find the following options:
- Health Maintenance Organization (HMO). These plans are generally the most restrictive, as they require patients to choose from a list of approved doctors, do not include any out-of-network coverage, and will typically need referrals for specialists. However, HMOs tend to be the cheaper plan when compared to PPOs.
- Preferred Provider Organization (PPO). PPOs are generally the most flexible, as the patient can choose their own doctor and may not need approval to see specialists. They will also likely cover some out-of-network providers. However, they are usually the more expensive plan option.
- Exclusive Provider Organization (EPO). These plans have similarities to both HMOs and PPOs. With an EPO plan, there is no out-of-network coverage, but patients typically don’t need referrals for specialists.
How to Choose the Right Health Insurance for Your Small Business
In addition to understanding the components of health insurance plans outlined above, reviewing a plan’s eligibility features will help you determine what your employees will appreciate the most.
In most cases, health insurance plans will offer the following benefits:
- Outpatient care
- Inpatient care (including in-hospital stays)
- Pediatric services
- Preventative services
- Prescription drugs
- Lab tests
- Emergency room visits
- Treatments for chronic conditions
- Pre- and post-natal care
- Mental health and substance abuse services
Take a careful look at what different plans offer as far as deductibles and coverage costs. There may be limits or caps in place to prevent employees from accessing too much of a particular type of service. Keep in mind that some employees may have dependents they wish to add to their health insurance coverage.
When choosing a health insurance plan, consider your employees’ needs and what they may benefit from the most. You may end up paying more upfront, but retaining your best employees will lead to a significant positive impact on your business's success in the long run.
Now that you know a little more about small business health insurance, let’s look at how to shop for affordable insurance options.
How to find affordable small business health insurance
- Seek out the providers directly. Contacting the insurance companies directly is the most straightforward option, though you may need to work with a broker depending on the provider. You can typically request a quote based on your location and headcount and then compare your options.
- Use SHOP. The Small business Health Options Program (SHOP) is available for employers with 1-50 full-time employees via the ACA. This program helps small businesses provide private health insurance options to their employees without needing to shop around (no pun intended). With SHOP, companies work with a registered broker to help select a plan, determine any tax credits, and assist employees with understanding their benefits.
- Consider PEOs. Professional Employer Organizations (PEOs) are great options for small businesses since they typically include large-business health insurance coverage as part of their offerings. In addition, they usually handle HR and administrative tasks like payroll.
Best health insurance companies for small business owners
These are a few of the top health insurance companies for small businesses, as well as an overview of each:
Pros: United stands out for providing the largest network of providers. It also offers benefits options for part-time and seasonal employees, virtual therapy, and specialty healthcare, and is a leader in technology in the form of helpful in-app services.
Cons: United has been sued for wrongfully denied claims. It also does not offer a platinum plan.
Blue Cross Blue Shield
Pros: BCBS stands out for its customer service ratings. It operates in all 50 states (and some international locations) and has comprehensive healthcare offerings, including workplace wellness plans.
Cons: This service comes at a cost. BCBS has higher-than-average healthcare premiums and high deductibles.
Pros: Elevance is one of the most affordable insurers in this group. It offers numerous plan types and an extensive network of healthcare providers.
Cons: Elevance is only available in 14 states. It has a high rate of coverage denials which may explain its low customer satisfaction ratings.
Pros: Aetna places a strong emphasis on preventative treatments and encourages participants to make healthy lifestyle choices. It is also known for user-friendly experiences, whether online, in-app, or over the phone, and for its affordable prices.
Cons: Aetna only operates in 16 states and has a history of wrongfully denying claims. This may also explain its higher-than-average complaint rate.
Pros: Kaiser Permanente is the cheapest insurer in the group providing low prices for equivalent plan options. It has a wide range of available plans and runs a system of private hospitals only available to its plan participants.
Cons: It is only available in eight states and Washington D.C., and because it is a closed group, care options may be limited.
Pros: Humana offers participants the most flexibility to customize their plans, with add-ons like dental, vision, and hearing insurance.
Cons: Their plans are pricey compared to other insurers.
Pros: Cigna stands out because of its live customer service, accessible 24 hours a day, 365 days a year. It also gets excellent customer reviews and has a huge network of 1.5 million providers worldwide.
Cons: It is only available in 12 states, and its monthly premiums are expensive.
Alternatives to health insurance
You can utilize health reimbursement arrangements or offer health savings accounts (typically only available on high deductible health plans) to make benefits more affordable.
Additionally, there may be tax credits or other state services that are available to you depending on the size of your small business.
Affordable health insurance for your small business isn’t impossible to find! Carefully consider your budget and benefit options, as well as your employees’ needs, to choose the best plan.
You may end up paying more upfront, but think of this as the cost to retain key employees.
For more information, visit healthcare.gov to learn more about small business health insurance options, costs, and eligibility.
Novo Platform Inc. strives to provide accurate information but cannot guarantee that this content is correct, complete, or up-to-date. This page is for informational purposes only and is not financial or legal advice nor an endorsement of any third-party products or services. All products and services are presented without warranty. Novo Platform Inc. does not provide any financial or legal advice, and you should consult your own financial, legal, or tax advisors.
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