Health insurance for small businesses

Small businesses are among those that are greatly impacted by the Affordable Health Care Act of the Obama administration. For many small businesses, finding the right health insurance for their employees can be quite a challenge.

Having the right knowledge is a step towards better understanding of this type of policy and a better grasp of how a small business can optimize its resources to get a policy that fits its needs and situation best. This guide will help you make that step and demystify health insurance from the employer’s perspective.

Is health insurance a requirement for small businesses?

As of this writing, it is not.

By 2014, however, businesses that have over fifty full-time employees would be required to provide coverage. This is one of the key provisions under the Affordable Health Care Act in relation to small businesses. Individuals who do not have coverage by 2014 will be required to buy a plan on their own.

Importance of having health insurance

Even though it is still not a requirement, if you are a small business owner health insurance is important to you because:

  • It can insulate your business from personal medical expenses. The unexpected or unplanned ones are likely to have the more serious impact on your business.
  • It can help you attract as well as retain the best employees. Potential employees do not only look at salaries, they also look at non-monetary benefits when they apply for a job. If you have health insurance as a benefit, you have better chance at attracting the best workers and also retain the ones you already have.
  • It allows you to take advantage of discounts. Health insurance entitles the business to discounts on medical care services as insurers usually negotiate the best rates. Without a policy, the higher, regular fees are applied.

Types of health insurance available for small businesses

  • Preferred Provider Organization or PPO plans - currently the most popular type of policy for the family and individual insurance market, PPO plans can also suit the needs of certain small businesses. With this type of plan, the covered person has to get their health services from a list of doctors and hospitals; otherwise, they will not get the best rates.

  • Health Maintenance Organization - this type of policy provides a wide range of choices of health services via a network of providers that have exclusive contract with an HMO. Those who carry this type of coverage are usually required to have a primary provider with whom they will get majority of their health care services. These PCPs or primary care physicians would refer a covered individual to a specialist if this were necessary. Services that are availed of which are not part of the HMO are usually not covered, but, exceptions may exist.

  • Health Savings Account - eligible policies - these are PPO policies that come with higher deductibles. Especially designed to be used alongside an HSA, this works as a bank account that allows the covered individual to set aside pre-tax money for future medical costs. The money in this account is rolled over yearly and can earn interest. This option allows participants to save while earning a write-off on taxes.

  • Indemnity policies - this type allows an employee to manage their own health care needs. The individual can visit the doctor or hospital of his choice. A portion of the total costs is borne by the insurance provider. For certain services, the individual may have to pay upfront and then secure a reimbursement later on. This type of coverage is usually the more costly.

Which type of policy is for your small business?

Determining which type of coverage to choose, you need to follow these steps: a) make an assessment of your needs, b) weigh your options, and, c) apply for a plan.

Assessing your needs

Here you try to establish the following:

  • Employees who will be covered. This is important as some of your employees may already have coverage of their own. Also, certain business policies may not cover the business owner - that is, if you want to be part of the plan.

  • How much your business can afford - this is important to assess, as your business will pay for a portion of the premiums. In certain states, the business's share of the premium is set at half of the monthly premium amount.

  • How much will your employees be willing to share - Plans come in a variety of choices. Your employees should be informed of these choices and be part of the decision making process. Remember, while a policy may come with low premiums, the deductibles may be high and vice versa. A plan with a higher deductible may save the business and its workers from paying a higher premium - this can make sense if health care services are not availed of in a more frequent manner.

  • Establish the priorities - What would you and your employees prefer? Is there a greater preference for coverage that focuses on regular visits to the doctor or is the more common priority assigned to catastrophic coverage? Do your workers prefer coverage for maternity care or for prescription medicine? By establishing the preferred benefits, you get to focus on a plan that addresses the needs of everyone.

Weighing your options

Use this set of criteria to help you select a plan:

  • Health benefits offered - look for the essentials and avoid those, which you and your employees do not need.
  • Cost - remember, it is not only the business that will carry the burden of coverage; the employees will have their share, too.
  • Insurance carrier - check the stability, track record and especially the history of claim payments of a company.
  • Add-ons and riders - look for policies that will allow you to add key features without having to purchase a separate coverage. These riders may include dental or vision- related services.

Applying for a coverage

After deciding on a plan, prepare for the application process. An insurance agent may be able to help you in this stage. You will be asked some information about your workers and the business.

One advantage enjoyed by small businesses is that they cannot be denied coverage. If they are legally recognized as a business in the state they are operating in, no insurance provider can decline them in their application. They may have to pay higher premium if some of the workers have pre-existing health conditions.

As for the enrollment of employees, this involves signing up of your workers and their dependents under the new policy. All necessary requirements are prepared and submitted to the insurance company.

Key things to remember after buying a policy

  • Removing or adding covered workers or dependents - every time a worker leaves or has a new member to his family, the list of covered individuals have to be updated too.
  • Keep in touch with policy updates - one area to keep an eye is the monthly premium, which may be changed when the policy reaches the first year anniversary since its effectivity. Other changes may include the yearly payout amounts and the benefits.
  • Review your coverage regularly - do this at least once a year. Check if coverage remains sufficient and see if the rates you pay are competitive compared to what other insurers are offering.
  • Look out for non-essential benefits - these are items you realized you actually do not use, for example, prescription medicine, maternity benefits, etc. By doing away with the non-essentials, you could lower your premium.
  • Keep your policy in tune with the size of your business - your business may have experienced growth the past year and this may necessitate changes in your policy once you are up for renewal of coverage. More employees may require adding new coverage choices.

Where to buy a plan

  • From a health insurance provider
  • Via an insurance broker
  • From the payroll management company which services your business
  • From an association that provides coverage to its members (it would require you to be a member first).
  • Starting 2014, small businesses can buy competitively priced plans via health insurance exchanges that are expected to be set up at the state level.

How to save on your coverage

The U.S. Small Business Administration suggests the following:

  • Get a policy that is beneficial to both the business and the employees. For instance, if your workers are generally young and healthy, consider getting a higher deductible. This would bring down the cost of the premium thus bringing savings to the business and the employees.

  • Be aware of the provisions of the Affordable Health Care Act. This law offers a number of provisions that impact small businesses and their workers. Some of the benefits provided include: tax credits for businesses who have less than twenty five workers, no denial of coverage by insurers, and the establishment of the Affordable Insurance Exchange.

  • Consider getting a tax-free HSA. As discussed above, an HSA allows workers to establish a pool of cash that carries tax benefits, which can be used to cover expenses that are not part of the group coverage. You can calculate the benefit for your business from setting up an HSA by using our HSA Employer Benefit calculator.

  • Consider also Flex Spending Accounts. In an FSA, pre-tax dollars are set aside via salary deduction and these are used for medical expenses not included in the regular health plan. A business gets to save money with an FSA as it provides the option of lessening the number of expense items under the regular insurance and thus lower the premium payments.

  • Establish a wellness plan for your business. A healthy workforce will lower your premiums.

How the Affordable Care Act impacts small businesses

Many of the key provisions of this Act will take effect on 1 January 2014. It provides that everyone, to include owners of small businesses, should have health insurance coverage by that time or face a penalty.

The penalties are:

  • For individuals, the maximum is $695 or 2.5 percent of their income, whichever amount is greater.
  • For businesses with at least 50 employees who work full-time, the penalty will be in effect if coverage is not provided for workers with 30 hour a week working schedules for a given month. That penalty is $2,000 per full time worker over the 30 full time workers cut off.

No penalties apply if coverage is not offered to part-time workers.

Currently, businesses with less than 25 employees working full-time are granted a tax-break if they provide coverage that is at least fifty percent of the cost of insurance.

Those businesses who have less than ten full time workers and average annual pay of $25, 000 or less, are eligible for full tax credit which is currently at 35 percent of the business' contribution to a worker's insurance premium. The bigger the business grows and the higher the average salary rises, the tax break decreases. Once the business reaches the 25 full time workers limit or the $50,000 average annual pay, the tax credit becomes unavailable.

Starting in 2014, there will be health insurance exchanges that will be set up at the state level. These exchanges will allow small businesses with up to a hundred workers to purchase competitively priced health insurance by offering them a variety of plans.

Businesses that purchase coverage through these exchanges may see an increase in their maximum tax break from the existing 35 percent to 50 percent of the contribution.

However, the tax breaks will only be offered for a limited period of five years and only for two years from the onset of the operations of the exchanges.

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