While small business owners (those who employ fewer than 50 workers) are not legally required to provide health insurance to their employees, in today’s marketplace, it is critical for companies in some industries to find options for the benefit if they want to be able to compete for critical talent. And in addition to helping small businesses attract and retain the right people, having health insurance may have the added benefit of helping the organization’s bottom line by increasing the health of employees and earning the business certain tax deductions. Unfortunately, finding and implementing small business health insurance options can be complicated, frustrating and a sensitive issue. Proper compliance is integral for any small business health insurance offering to have the intended consequence of being a benefit rather than a liability for the company. Luckily, small business health insurance options are plentiful.
An insurance exchange created under the Patient Protection and Affordable Care Act (ACA), the Small Business Health Options Program, known by the acronym SHOP, has left many small business owners frustrated when looking for health insurance options for their companies. But since its initial implementation in 2013, SHOP has improved drastically in terms of small business health insurance coverage options and usability. In the SHOP marketplace, business owners have the flexibility to pick a single plan or to let employees choose from different options (all plans include essential benefits like doctor visits) and whether or not to extend coverage to dependents. One of the primary benefits of the SHOP program is the possibility of receiving a tax credit worth up to 50 percent of a business’ premium costs. Plans and more information can be found at this link.
A popular route for small business health insurance options has been defined contribution plans, not to be confused with defined benefit plans (the traditional mode of operation wherein employers should the bulk of the financial burden and risk to offer specific health plans to employees). Under a defined contribution set up, employers determine upfront how much money they are willing to contribute for employees to buy their own insurance in the individual market. This means that employees would have the maximum number of options in terms of the type and level of coverage they desire. If they qualify, employees can combine their employer’s contribution with subsidies to save even more money. The benefits to business are that this type of scenario cuts down on the time spent managing the red tape and jumping through hoops to directly administer a health insurance plan while also offering predictability and the opportunity to cap the amount of money spent on small business health insurance benefits each year.
At their most basic level, private health insurance exchanges function a lot like the Small Business Health Insurance Options Program. However, because these exchanges are administered by private companies rather than the government, many small business owners find that they have more support in choosing the plans that are right for their company as well as a larger selection of small business health insurance plans and options to choose from. Private health insurance exchanges tend to be more flexible and able to be tailored to address the specific needs of any employer group. Among the most popular options for small businesses is a combination of the defined contribution plan described above in concert with a private health insurance exchange. In this scenario, the insurance company is basically facilitating the business’ contribution, though employers are still choosing which plans their employees can pick their allotted contributions to go toward. This model results in a much more straightforward process when calculating and executing appropriate payroll deductions for small business health insurance.
There are two types of private exchange models that small business owners should be aware of. Under a single carrier exchange, employers have the most control and ability to customize their plans. Single carrier exchanges are marked by a single payor. Alternatively, a multi-carrier exchange (typically those touted by insurance brokers and the like) offer a more varied level of control depending on the number of payors participating in the exchange. What employers lose in control over their small business health insurance offerings they make up for in a lessened administrative burden under a multi-carrier exchange.
So which small business health insurance option is right for you and your company? The truth is, it depends on a whole host of factors. If you could use some advice on a specific aspect of small business health insurance or if you would like to talk out a few different scenarios with qualified HR professionals, be sure to contact us today.
