To begin with, companies with less than 50 full-time employees are still not required to provide insurance benefits of any kind. But according to the ACA, as soon as the employee threshold is surpassed, a company is required to provide health insurance benefits or else risk costly consequences. That leaves small businesses with some big decisions to make, even if their headcount is currently under 50 (after all, no matter the size, healthy employees make for healthy companies). Below, we break down your three main paths to giving your full-time employees benefits.
By far the most popular option for small businesses, group insurance is generally designed for companies with less than 50 employees, but is chosen by about 80% of all companies with under 100 employees. With a group plan, insurance is discounted across the entire office, because the risk itself is scattered amongst many policyholders.
The employer purchases these plans, and then offer them to employees, with generally a set percentage of employees required to buy in before the plans can be activated. Group insurance offers limited options, but is a great way to get everyone in the office covered for (relatively) cheap. Traditionally, the employer also pays for a large portion of each plan. This isn’t required, but it certainly goes a long way towards making the benefit feel like an actual benefit.
Shopping for group insurance can mean buying directly, through private exchange, or through your state’s insurance marketplace. These plans are tax-free, and offer popular coverage for most employees. If you go through the state marketplace, you may even qualify for a Small Business Health Care Tax Credit. The downside to choosing group insurance is the premium increases can be erratic from year to year, along with the aforementioned participation requirements. Also, one employee’s health issues alone risking raising prices for everyone.
Self-funded plans give employers the option of paying out-of-pocket for individual employees’ claims, as opposed to paying a set premium. A trust is generally set aside to pay claims, which are thereby either processed within the office, or by a third party – who can also offer services like PPO contracts, and premium collection.
Whether setting up a self-funded plan through a third party or through a direct carrier, it’s a big adjustment from the small group method, so give yourself plenty of time to finalize the move. Since liability will eventually fall onto the employer, it’s helpful to rope in a broker or CPA to help you set up the whole system. A stop-loss policy is crucial, along with a thorough service agreement. Self-funded plans are typically more easy to alter employee by employee, and can often incur less cost overall. If you’re looking for customization above all, a self-funded plan is a great option to consider. Even better – any money left in the annual trust can be used towards any other aspect of your company without penalty. The only major risks you face are if a series of sudden, major claims by employees overwhelm that trust and eat into the company’s bottom line (again, this is where a stop-loss policy becomes crucial).
Self-funding is generally not available for very small-scale companies, however. A lower number of employees makes it harder to make broad estimates about risks, for one, and funding only a small group of employees means you can easily incur unexpected expenses if one employee has a major health issue.
Administrative Services Only
If you have at least 26 employees, you can opt for an Administrative Services Only (ASO) plan. This is a partially self-funded option in which a company funds its own benefit plan while purchasing administrative services from the insurer.
With an ASO, you purchase specific types of administrative services based on your need. These can include things like preparing summary plan descriptions, managing COBRA claims, and communicating with employees about their benefits. ASO plans can be beneficial to smaller scale companies with smaller human resources teams. Outsourcing administrative tasks can save your company time and money and keep employees happy as you will have an expert ready to answer questions.
In some ASO plans, your company may have greater control over how group benefits work. You are able to control cash flow and only pay for claims when they are incurred.
An HRA, or health reimbursement arrangement, is a great option for employers who want some of the benefits from the other two forms discussed, and are in a unique position to avoid its potential weaknesses. In this scenario, employees directly pay the insurance company, then submit a reimbursement claim for tax-free payback.
HRAs are advantageous for employers, because it avoids payroll taxes on reimbursements. More than that, any reimbursements are considered tax deductions. If you’re opting to go with an HRA, that means choosing how much money you want to put in a monthly trust. After briefing your employees, they then simply pick a plan and submit receipts.
In California, HRAs are generally not an option for small group insurance.
No matter which way you choose to set up your small business’ health insurance, you’ll be satisfying all benefit requirements with any of the options discussed above. Many have advantages over others, so reach out to an insurance expert to decide the right fit for your office.