The size of a business plays a significant role when it comes to health insurance costs, and unfortunately, small employers often find themselves at a disadvantage. This is particularly true for startups, non-profits, and any business with fewer than 20 employees.
The challenges faced are numerous:
These escalating costs coupled with growing complexity have rendered employee health insurance nearly unattainable for countless SMBs . In fact, only 39% of small businesses with less than ten employees offer healthcare benefits - marking an all-time low.
Given these challenges, how can smaller companies retain their existing talent pool while simultaneously attracting new recruits without offering competitive health benefits? The situation seems unfair and far from easy to resolve.
However daunting it may seem, there are three previously mentioned options currently available: traditional health insurance plans, giving financial compensation in lieu of insurance, or pre-taxed benefit programs (ICHRA). Before we dive into the advantages and disadvantages for each, let’s get a quick overview on this new ICHRA option.
The hard-to-say-acronym ICHRA, or “ICK-ruh,” is a newish solution meant to improve access to employee health insurance coverage. It happens to be a whole lot simpler, too. (Gone are the days of confusion and limited options.)
Thanks to a game-changing federal regulation passed in 2019, small business owners can give pre-tax cash to their employees for health insurance premiums that they buy and own. Not to mention these advantages:
Traditional "fully-insured" group health plans are what most small businesses are used to. The way it works is the company contacts a broker who will research options based on the type of business, the budget, and basic employee info (like age and location), and all employees pay the same rate. Larger companies may use a "self-funded" group health plan arrangement but this puts all the risk on the employer so is not an option for small businesses.
Most smaller businesses (76%) typically choose one plan for all team members. On the other hand, large companies with more than 200 employees offer 3 or more health plans, typically offer options with varying deductibles, copays, and premiums.
Lower risk for small businesses: Fully insured plans shift the financial risk of high medical claims from small businesses to the insurance company.
Regulations: State regulations ensure carriers provide consistent and predictable benefits.
Employee recruitment and retention: Offering health benefits makes companies more competitive in attracting and keeping talent.
Cost: These plans have the highest premiums.
Participation rates: At least 70% of employees must enroll.
Fewer options: Small businesses often can only choose from limited pre-designed plans and only one for employees.
Less premium predictability: High medical costs can lead to higher premiums the next year, complicating budgeting.
Time drain: Managing this process can take over 60 hrs each year.
Small businesses often give up after learning of the financial and time costs of group plans and just opt to give the extra cash to employees via their paychecks. It is a well-meaning option and there are some helpful upsides, but overall, this option doesn’t often translate into the intended value.
Simplicity: Employers just add extra money to a paycheck.
Budgeting: Employers have control and predictability, giving only what they can afford.
Perception: Employees may not realize they're getting cash instead of health insurance.
Taxes: Taxes take up to 38% of the extra cash, reducing its value.
No guaranteed benefit: Employees might not use the money for insurance, leaving many without coverage.
ICHRA (the pre-tax, fixed health benefit) is the newest health insurance option for small businesses. Instead of offering traditional group health insurance, employers can give money to employees to help cover their individual health premiums BEFORE any taxes are taken out.
Many small business owners are unaware of ICHRA because it’s relatively new. This pre-tax fixed benefit became possible in 2020 due to IRS legislation. But we’ve been through the distraction of a global pandemic during that time, so it is understandable that it didn’t grab everyone’s attention. Adoption has been gradual, but significant changes are underway.
Dreamy budgeting: The business decides on the amount they can affordably contribute to employees' health insurance.
Participation rates: No minimum participation required.
Adaptability: Employers can give different amounts to different types of workers ex) full-timers vs. part-timers.
Employee choice: Employees choose a plan that meets their personal needs.
Simple setup: ICHRA streamlines enrollment. Setup takes just 10 minutes.
Privacy for employees: Employees choose their coverage, avoiding the awkwardness of getting in the middle of doctor-patient relationships.
Confusion: Employees may be overwhelmed by marketplace options.
Expectation gap: Marketplace plans might not match the high-end plans some employees expect.
Employees offered ICHRA (the pre-tax fixed health benefit) select a “qualified health insurance plan,” meaning a plan that complies with the requirements of the Affordable Care Act (ACA). This law was passed in 2010, establishing a national health insurance exchange, alongside consumer protections like covering preexisting conditions, maternity care, prescription drugs, and more.
In 2015, just over 8 million people selected health insurance through the exchange, but by 2022, 14 million were using the marketplace. During that time, more options were added, but what options are available to employees in Mississippi? Let’s take a look.
The ACA exchange now offers several health insurance companies that offer coverage in Mississippi, both national carriers and regional brands. For example:
Note: The set of insurers varies by county.
On the exchange, you’ll find plans named after metals - gold, silver, and bronze. The higher-tiered plans have higher monthly premiums but come with lower out-of-pocket expenses (deductibles, copays, and coinsurance). Lower-tiered plans have more affordable premiums but higher out-of-pocket costs. Generally speaking, you can think about the tiers like this:
Here is general cost guidance for the lowest cost plan in each metal tier based on a 35-year old male in each city.
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