Health Insurance 101 for Small Businesses
A huge issue that growing small business owners struggle with is cost of health insurance, according to the National Small Business Association. Navigating (and paying for) health insurance can be challenging, especially if you’ve never had to provide health insurance for anyone but yourself in the past.
Although the Affordable Care Act (ACA) Open Enrollment Period just passed, not all small businesses have to adhere to the deadlines other businesses are held to. However, it’s always good to evaluate your options, or to brush up on your knowledge of health insurance for small business for the future.
Let’s demystify the process of researching and enrolling in health insurance for small businesses.
What Business Owners Are Required to Provide
If you’re a small business owner with employees, you’ll want to make sure you understand the employer mandate. The employer mandate stipulates that if you employ 50 or more full-time employees (full-time is defined as working an average of 30 or more hours each week), you must offer an employer-provided health insurance plan. Health insurance must be affordable and provide minimum value coverage to 95 percent of employees and their dependents.
Businesses that don’t abide by the employer mandate by providing health insurance that meets the ACA requirements may be subject to a tax penalty. This tax penalty is called the employer shared responsibility payment (ESRP).
Although not required by the ACA, small businesses with 1-49 employees may still want to offer health insurance as a part of their employee benefits package.
Group Coverage vs. SHOP Plans
There are generally two routes to choose from when researching health insurance plans for your small business: 1) group coverage or 2) the Small Business Health Options Program (SHOP) exchange.
Group coverage is an employer-sponsored plan from an insurance company that is offered to eligible full-time staff members and their dependents. Companies might cover the full cost of the premiums or split the cost with employees.
There are multiple types of group health insurance plans, which include:
- High-deductible health plans (HDHPs), which are typically paired with health savings accounts (HSAs)
- Indemnity fee-for-service (FFS)
- Managed care (HMO, PPO, and POS)
SHOP Exchange Plans
Small businesses with 1-50 employees can choose to enroll employees using the SHOP exchange, a program established through the ACA. The SHOP exchange offers multiple plans from private health insurance companies, with both health and dental options. Employers can research health insurance plans and prices in their area on the SHOP exchange, or they can work directly with a SHOP-registered agent or broker to compare all of their options.
Businesses with less than 25 employees may qualify to receive the Small Business Health Care Tax Credit for providing health insurance through the SHOP exchange, given those employees earn an average annual salary of about $50,000 or less.
Insurance Options for the Self-Employed
What about solopreneurs, consultants, or freelancers in the gig economy? In some states, self-employed individuals with a registered business might be able to qualify as a small group of 1 and therefore can explore small group health insurance options. (In this case, small groups are defined as businesses with 1-50 employees.)
If your state doesn’t allow small group coverage for one person, or you’re a self-employed individual without a registered business, you can purchase an individual health plan or family plan through a state, federal, or private marketplace.
Choosing the Best Insurance for Your Small Business
To recap, for small businesses with 50 or more employees, you are required to provide health insurance to your staff. Businesses with less than 50 employees still have the option of offering employer-provided health insurance, although they aren’t required to. However, offering it can be a selling point for recruiting and retaining talent, and if you’re going through the SHOP exchange, you can be eligible for tax credits.
If you’re self-employed, you can explore small group plans or purchase individual/family plans through state, federal, or private marketplaces.
Resources such as consumer reviews can help you evaluate health insurance companies and plans. Most small business owners and entrepreneurs wear multiple hats and might not have the time, knowledge, or expertise to set up a health insurance plan for their organization. Working with a licensed insurance agent or broker is the best way to ensure that you have help finding the best available options for your unique business and navigating the enrollment process.
Michael serves as Executive Vice President of HealthMarkets—one of the nation’s largest independent insurance agencies in the Medicare, individual, and supplemental health, life, and small group insurance markets. He has a B.S. in Economics from The Wharton School, University of Pennsylvania, and holds the chartered property casualty underwriter (CPCU), associate in insurance accounting and finance (AIAF), and associate in reinsurance (ARe). An avid Kansas City Royals fan, he lives in Dallas with his wife and children.
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