Small businesses with less than 50 employees are not required to offer health insurance, but providing some type of health coverage to employees can help you get and keep quality employees. The 5 best health insurance options for small business owners are small group health insurance, Qualified Small Employer Health Reimbursement Account (QSEHRA), Individual Coverage Health Reimbursement Accounts (ICHRA), Small Business Health Options Program (SHOP), and health insurance alternatives. In this article, we go over your best coverage options to offer to your employees that could give you the competitive advantage you need.
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Best Health Insurance Options for Small Business Owners
As with buying health insurance for yourself, there are many factors to consider when purchasing health care insurance for your workers. Some criteria to compare are monthly premiums, deductibles, provider networks, prescription drug coverage, and extra benefits like a gym membership.
The 5 best health insurance options for small business owners are:
- Small group health insurance: These are private, ACA-compliant plans chosen by the small business owner, who decides how much of the premium the business will pay.
- Qualified Small Employer Health Reimbursement Account (QSEHRA): Allows the employee to choose their health insurance coverage and get a portion of the premium reimbursed.
- Individual Coverage Health Reimbursement Accounts (ICHRA): Provides maximum flexibility to the employer and allows the employee to get reimbursed for a predetermined amount of their premium.
- Small Business Health Options Program (SHOP): For small businesses with 1 to 100 full-time employees in New York State.
- Health Insurance Alternatives: Small business owners pay a small monthly fee per employee. The most affordable, convenient, and simple health coverage option for small business owners.
Small-Group Health Insurance: The Most Common & Most Expensive
The most common way for small business owners to provide health insurance to their employees has historically been through a group health insurance plan. This is one health insurance option chosen by the company which employees choose to enroll in or not. To be effective, these plans require a high participation rate of around 75%.
The premium costs are split between the employee and employer. Another thing to consider is if you are going to extend the coverage to family members. The downside is that small group health insurance options are expensive and “one-size-fits-all”. In 2018, the average annual cost of small group health insurance premiums ranged from $6,474 to $7,105 for small businesses depending on the plan type.
Average Monthly & Annual Premiums For Employees
|Monthly Single Coverage||Monthly Family Coverage||Annual Single Coverage||Annual Family Coverage|
|All Small Firms||$540||$1,472||$6,474||$17,669|
|All Large Firms||$586||$1,682||$7,035||$20,187|
|All Firm Sizes||$572||$1,620||$6,869||$19,445|
|All Small Firms||$592||$1,634||$7,105||$19,612|
|All Large Firms||$597||$1,714||$7,164||$20,567|
|All Firm Sizes||$596||$1,694||$7,149||$20,324|
|All Small Firms||$566||$1,508||$6,787||$18,099|
|All Large Firms||$617||$1,728||$7,405||20,741|
|All Firm Sizes||$587||$1,601||$7,048||$19,216|
|All Small Firms||$549||$1,525||$6,787||$18,295|
|All Large Firms||$534||$1,560||$6,410||$18,725|
|All Firm Sizes||$538||$1,550||$6,459||$18,602|
|All Small Firms||568||$1,562||$6,814||$18,739|
|All Large Firms||$577||$1,664||$6,930||$19,972|
|All Firm Sizes||$575||$,1,635||$6,896||$19,616|
Common Types of Plans
There are three health insurance plans most often considered by small business owners depending on their priorities. These include Health Maintenance Organizations (HMOs), Preferred Provider Organizations (PPOs), and Point of Service plans (POSs). Before deciding, you should be familiar with the advantages and disadvantages of each.
Health Maintenance Organization (HMO)
Pro: Typically lower premiums and out-of-pocket costs because they only cover in-network care. HMO insurers can negotiate lower prices with their provider networks.
Con: Primary care physician (PCP) based, meaning enrollees need to obtain a
referral from their PCP before seeking medical care unless in an emergency.
Preferred Provider Organization (PPO)
Pro: PPOs allow you more healthcare freedom because you do not need a referral before seeking care and can also choose to visit an out-of-network provider for an additional fee.
Con: High deductibles, copays, and coinsurance. With PPOs, you may also have to
submit a claim for reimbursement to your insurance company.
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Point of Service plans (POS)
Pro: Flexibility in provider allows enrollees to choose providers they are comfortable with and trust. This can be useful for those who frequently use physical therapy or counseling services. There are low copays and no deductible with POS plans.
Con: After receiving care, you submit a claim for reimbursement to your insurance company who then decides whether it qualifies for coverage or not. This may mean you are left to pay the bill if they decide not to cover, or only partially cover the service.
Pros & Cons of Group Health Insurance Plan Types
Qualified Small Employer Health Reimbursement Account (QSEHRA): Best for Employee Reimbursement
For small businesses with less than 50 employees, QSEHRA is a great option to maximize your employees’ preferences. Instead of offering one group health insurance option, employees choose their own coverage and submit medical expenses for reimbursement up to a set limit. These medical expenses can include insurance premiums purchased through the health insurance exchange and any additional dental, vision or other insurance products chosen.
As explained by Alex Kronk, MHA in Health Policy and Management at Johns Hopkins University and writer for healthplancritic.com, “This allows for serious flexibility in health expenses not typically afforded by group health insurance. For the business owner, a QSEHRA allows them to take control of their benefit expenses and set a budget for each employee. The best part of this is that if the employee doesn’t meet their QSEHRA reimbursement limit, the employer gets to keep the savings incurred (or roll it into the next year).”
Individual Coverage Health Reimbursement Accounts (ICHRA): Best for Employer Flexibility
One of the newer health insurance options for small business owners are ICHRAs. Similar to QSEHRAs, ICHRAs are based on a reimbursement framework, but are available to businesses of any size in place of a group health insurance plan and do not have a reimbursement limit. This health insurance option offers you great flexibility because you can still offer a group health insurance plan to employees not receiving the ICHRA.
“My favorite part about ICHRAs is that you can offer different reimbursement amounts to your employees based on certain criteria. For example, you can offer a full-time, salaried employee reimbursement amount of $7,000 while also offering a $3,500 account for a part-time, hourly employee. There are several stratifications here that allow differences for classes of employees like seasonal workers, temporary employees, and geographical differences,” notes Kronk.
Some ICHRAs include only a monthly payment to employees, but others incorporate extra benefits like telemedicine and prescription drug discounts. ICHRA rules allow employers to reimburse employees’ medical expenses with pre-tax dollars.
Small Business Health Options Program (SHOP): Best for Getting a Healthcare Tax Credit
The Marketplace was established through the Affordable Care Act to make shopping for health insurance plans easier for individuals, families, and small business owners alike. Directly on the Marketplace, you can compare the cost and coverage of plans.
For small businesses in New York State with less than 100 full-time employees, SHOP, the government marketplace, can make it simple for you to offer high-quality insurance to your employees. There are several health insurance options at a variety of price points depending on the level of coverage you choose.
Additionally, if you meet the following eligibility requirements, you are eligible for a small business tax credit of up to 50% of premiums paid:
- Have less than 25 full-time equivalent employees
- Pay an average salary of less than $56,000/year (tax year 2020)
- Pay at least 50% of the cost to the employee
Health Insurance Alternatives: Best for Providing Low-Cost Coverage
In addition to the health insurance options for small business owners listed, there are alternatives to traditional health insurance plans such as Mira to cover essential services at a much lower cost.
Benefits of Mira:
- As little as $300 per year compared to $6,000 per year for a traditional basic health insurance plan.
- Flexible options: you can offer the membership to employees or add Mira to catastrophic health insurance coverage.
- Immediate coverage, typically beginning the day you enroll.
- Great for short-term employees since you can transfer an employee license to a different employee when one leaves.
- Can be offered to contractors and part-time employees without violating labor laws.
- Coverage that can be retained even after termination of employment
- Prompt customer service team to help you navigate to the closest care site nearest you
- Virtual care options such as virtual primary care and telebehavioral health
Virtual care for only $25 per visit
Virtual primary care, urgent care, and behavioral health visits are only $25 with a Mira membership.
Health Insurance for Small Businesses Frequently Asked Questions (FAQs)
There are many factors to consider when deciding whether or not to offer health benefits to your employees and the best way to do it. Below we answer some common questions.
Are small businesses required to offer health insurance?
In short, small businesses with less than 50 full-time employees are not subject to penalties for not providing health insurance. Applicable large employers (ALEs) are those with more than 50 full-time employees and are required by federal law to offer affordable health insurance, although state and federal guidelines differ. In 2021, “affordable health insurance” is less than 9.83% of household income. Some states, like Hawaii, require all businesses regardless of size to offer health insurance.
As a business owner, you must familiarize yourself with the state and federal laws concerning health insurance for small business owners. Below is a graphic depicting the main reasons small business owners decide to provide health insurance to their employees.
How much does health insurance for small businesses cost?
The cost of health insurance for small business owners varies depending on location, number of employees, and covered services. Premiums for traditional health insurance plans can cost over $6,000 per year or only $45 per month with Mira.
What are the benefits of providing health insurance to my employees?
Even though you do not technically need to provide a health insurance option to your employees, there are many incentives to do so. Without insurance, your employees could be drowning in medical expense debt due to the price of care without insurance. Further benefits include:
- Tax incentives: As discussed, there are various ways to receive tax credits and reductions by providing health insurance options to your employees.
- Attract and retain talented employees: Only 57% of employers offer employer-sponsored insurance which is one of the main reasons people do not accept an offer or leave a current position.
- Happier and healthier employees: By providing access to healthcare, you can show your appreciation for your employees and foster a better workplace environment.
As a small business owner who cares about your employees, healthcare insurance is of utmost importance. Whether it be for your part-time workers or contractors, the health of your employees translates into the success of your business. Some health insurance options offer more flexibility while others are more cost-efficient, so picking the right option is key.
All in all, the health insurance options for small business owners can be complex due to labor laws, but it doesn’t have to be. Mira for Employers makes this process simple and convenient so that you can provide compliant, non-insurance health benefits to your team today. Take this quiz to see if Mira is right for your business!
Alexis Bryan MPH, is a recent graduate of Columbia’s Mailman School of Public Health. She is passionate about increasing access to care to improve health outcomes. Outside of work, she loves to travel, read, and pay too much attention to her plants.