Small Business Health Insurance Options

As a small business looking to recruit and retain talent, offering access to quality and personalized health insurance stands to be an invaluable asset. More businesses are beginning to offer different forms of health insurance as an employment incentive, increasing compatibility in the job market as potential employees search for new roles.

Offering access to insurance has many advantages for a small business:

1. Attracting a talented workforce
2. Assisting in employee retention and loyalty
3. Increasing employee access to medical coverage

However, as both health insurance premiums and costs continue increasing, small businesses are finding it harder to provide traditional group benefits and stay competitive in the employment field.

To combat this trend, there are more small business health benefit options today than ever before, so employers can choose the option that fits their specific needs, including:

1. Small group insurance
2. Self-funded plans
3. Health Reimbursement Arrangements (HRAs)

Small Business Health Options Program (SHOP) offers a traditional take on insurance

SHOP provides an option for small businesses or nonprofits, with less than 50 full-time employees, looking to offer benefits to their employees.

Members receive insurance at a lower cost as a group because insurers’ risk is spread out across all members. Businesses can choose from a wide selection of health and dental insurance plans to best fit the needs of their employees. Businesses then decide how much they are willing to contribute towards the premium while distributing the remaining cost across employees, ensuring that everyone in the business is paying an equal but reduced amount for coverage. Employees are responsible for copays and deductibles related to the care they receive.

Self-funded plans feature increased flexibility

Self-funded health insurance does not utilize traditional insurance carriers; instead, claims are paid out of pocket by the employer. Self-funded plans tend to be more flexible than traditional options as they offer opportunities to customize plans to meet unique business needs.

Self-funded plans are an option typically available to relatively larger businesses (1,000 employees are more) to increase the amount of available cash reserves that can be pulled from and control healthcare spend by managing their risk pool.

Self-funding allows employers to keep premiums, which are not spent, to utilize on other business expenses; however, it poses a greater degree of exposure should claims be high.

Compensate employee’s health costs with a health reimbursement arrangement (HRA)

An HRA allows employees to select their own health care and they are then reimbursed by employers for qualified medical expenses and/or insurance premiums. After paying for either an insurance plan or medical bill out-of-pocket, employees can submit a claim for reimbursement with their company. HRAs offer an affordable alternative to more traditional insurance methods with the additional advantage of being tax-deductible. Employers can claim a tax deduction for the reimbursements they provide, and the amount employees receive is typically tax-free.

This innovative form of small business health insurance allows for the freedom of employees choosing their own plan.

Variation of HRAs

Qualified small employer health reimbursement arrangement (QSEHRA)

A QSEHRA allows small businesses, with less than 50 full-time employees, to set aside a fixed amount of money each month to reimburse employee’s purchase of health insurance or medical expenses. As of 2021, employers can offer up to $5,300 ($441.67 monthly) to individuals and $10,700 ($891.67 monthly) to families who maintain minimum essential coverage.

To qualify for a QSEHRA, businesses must:

1. Have fewer than 50 full-time employees
2. Not offer another form of small business health insurance (including group)
3. Only vary reimbursement amounts based on age and the number of individuals covered

Individual Coverage HRA (ICHRA)

ICHRA eliminates the maximum contribution and company size limit of a QSEHRA. Reimbursement amounts can be varied across the employee base. Seasonal, hourly, full-time, and other employment classes can have different limits placed on their reimbursements amounts while also considering factors such as geographic area. Additionally, employers can offer ICHRA alongside another group health insurance plan (not to the same class of employees).

ICHRA has several advantages over more traditional small business insurance options. The ability to control reimbursements amounts across different employee classes and provide employees with more coverage options marks a stark difference between ICHRA and group insurance.

ICHRA offers a more hands-off approach for employers managing health plans, renewals, and other issues that may arise when choosing a one-size-fits-all plan for employees. By simply setting the monthly allowance and determining which employees qualify, employees can focus on managing their businesses while being assured that their employees will receive the medical care they need.