Starting a business is an amazing adventure. You’re building something from the ground up! As you consider growing your team, you start thinking about ways to recruit and retain talent. Offering benefits, namely, health insurance, tends to be at the top of the list. But where do you start?
You didn’t know that as a small business owner you also needed to be a health insurance expert? Doesn’t quite feel fair, does it. That’s what we’re here for — to provide a little more clarity about employee health insurance.
Before we review some essential questions you need to ask, let’s get some basics down.
A Quick Review of Health Insurance Terminology
The language of health insurance can be confusing. Let’s make sure you understand some of the key terminology you’ll encounter. Check out more here.
- Premium: The amount your employee will pay for health insurance every month.
- Deductible: The amount employees pay out-of-pocket before insurance kicks in.
- Copayments or copays: A fixed amount employees pay for a covered health service. (This is not part of the deductible.)
- Out-of-Pocket Maximums: The most an employee will have to pay during a policy period before insurance covers 100% of costs.
- Participation rate: The percentage of eligible individuals who must enroll to make the health insurance plan available to the business. Generally it’s 60 to 70% for small businesses.
Assessing Your Small Business's Needs and Budget
Question #1: What is my budget for health insurance benefits?
Figuring out your budget is step one. Health insurance can be expensive but it’s also a valuable investment. Balance the cost with the value it provides to your employees. Consider this: a happy, healthy employee is more productive and less likely to leave.
How expensive? The price changes based on the age of the employee, county they live in and number of dependents. Just to give you a ballpark, the average cost of an individual health plan in 2023 was $8,435.
Question #2: How many employees do I need to cover? Will I include dependents?
When you're offering health benefits, you've got to treat everyone in the same group (like Full-Timers or Part-Timers) the same way. But, for your budget's sake, how many folks do you think will actually take the benefit? Some might pass because they’re not interested or they’re covered under their spouse’s plan. Also, consider if you want to cover dependents in your plan.
Exploring Health Insurance Options: What Group Plan Works Best?
Question #3: What types of health benefits are available?
There are the four most common types of health benefits:
- Fully Insured Group Plan: This is your classic group plan that most people know about. With this kind, the insurance company takes on the risk if the claims go over the premiums. Pros include less risk and regulated coverage, but they come with higher costs, less flexibility, and stringent participation rates. You also generally need to have more than 5 employees.
What types of small businesses is this plan a good fit for: If cost isn’t an issue and you run no risk of hitting minimum participation rates, this plan may be best for you.
- Level-Funded Group Plan: These are like fully insured health plans with some shared risk between the business and the insurer. Typically, these offer better cost savings, but they can also have unpredictable cost increases if an employee gets sick. Underwriting is nearly always a part of the pricing process, meaning the carrier will look at how healthy your employees are.
What types of small businesses is this plan a good fit for: If your employees are healthy and you’re willing to risk that they stay that way and you can meet the participation requirement, this might be the best bet.
- ICHRA (Individual Coverage Health Reimbursement Arrangement): Offers flexibility and budget control, and lets your team pick what they want. ICHRA plans are relatively new and look different from company to company. StretchDollar's version is designed to be user-friendly for small businesses. The owner decides on a pre-tax amount to give to employees each month for their health insurance premiums. Then, they pick and purchase their own health insurance plan from the marketplace.
What types of small businesses is this plan a good fit for: If you need more control of your budget year over year, risk not hitting participation rate requirements, and are looking for the least amount of paperwork, best to go with this route.
- Health Care Sharing Ministry Plans: These plans come with affordable premiums, but remember, they're not insurance. They're not under federal regulation and they're not obliged to cover medical bills. Always read the fine print closely. Some of them have pretty strict rules for claims. Be aware of your risk and your employees' risk before diving in.
What types of small businesses is this plan a good fit for: Since this isn’t health insurance, and the purpose of this guide is to help navigate owners to health insurance coverage for employees, we don’t recommend this option for fitting that need.
Question #4: How do I shop for employee health insurance coverage?
Shopping for health insurance can feel like a maze. With so many carriers out there, it can help to have a broker to help navigate through the sea of health insurance plans. Wondering where to find a good broker? Your local chamber or asking fellow small business owners can lead you in the right direction.
If you're considering an ICHRA, you don't need to pick a health plan for your employees – they pick one for themselves! So you can head straight to the ICHRA provider and get things rolling. For instance, StretchDollar’s simplified enrollment takes just 10 minutes.
Selecting a Health Insurance Provider
Question #5: Which insurance carrier offers the best health plans for small businesses?
Health care is local and the options available vary depending on where you’re from. If going with the traditional insurance route, you’ll want to consider cost, coverage, and network size. (Will this fit my budget? Will this fit the needs of my employees?)
For an ICHRA, your employees get to choose the health plan that fits their needs. Some may prefer a high deductible for a lower premium. Others may want a $0 deductible. You provide them an allowance and then get out of the way.
Frequently Asked Questions
Are small businesses required to offer health insurance?
The short answer is no. Small businesses with fewer than 50 full-time employees are not required by law to offer health insurance. But, offering benefits can provide businesses a competitive advantage in attracting and retaining top talent.
How long does it take to set up group health benefits?
Setting up group health insurance can be a breeze or a bit of a marathon, depending on your choice. Going the traditional route involves sifting through plans, snagging quotes, and a bunch of back-and-forth with the broker. Opting for an ICHRA, though? The biggest thing on the employer’s plate is just figuring out the monthly pre-tax allowance to offer employees.
How much does group health insurance cost?
The cost varies widely based on the type of plan, the provider, and the number of employees covered. For a traditional small group plan average, small businesses can expect to pay about $500-$1,000 per employee per month. With an ICHRA, you set the pre-tax allowance which means you have more control over the budget.
Wrap up: Small Business Health Insurance for First Timers
Offering health benefits for the first time can seem daunting, but it’s a significant step that can attract top talent and keep your team happy and healthy. Ready to take the plunge? Start by assessing your needs and budget. Then…
- Consider an ICHRA for more flexibility and cost control.
- Find a local broker if a traditional group plan is a better fit.
Every company is different – so do what’s best for yours! And keep in mind that a healthy workforce is a happy and productive one.
Want to learn more about ICHRA pre-tax fixed health benefits for your small business? Contact StretchDollar here or get started and be done with your benefits in 10 minutes.
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