Small business employee health insurance: know your options
Have questions about small business employee health insurance? You probably know that having a competitive benefits package is a key to recruiting and maintaining the top talent in a tight job market. Your company is only as good as the team you build, and it’s just common sense to ensure that those valuable team-members remain loyal. Compensation is a driving factor for effective retention strategies, but benefits and culture are also important to today’s workforce. Let’s explore your options when it comes to what you can offer.
The good news? You probably have more options than you realize!
Small business employee health insurance options
Historically, small-group insurance has been the primary option for many small employers who are looking to offer health benefits for their employees, but that’s just not the case anymore.
While these plans are the most widely known and understood, they are not the only option. You actually have THREE options! What works best for you depends on how your company is set up, how individual and group plan costs vary in your geographic area, and the health of the individual market near you.
Let’s look briefly at each option.
Small group insurance
In the past, small-group insurance—or fully-funded insurance—has been the primary option for many small employers who are looking to offer health benefits for their employees. It is geared toward businesses with less than 50 full time employees everywhere except four states where it applies to businesses with up to 10 employees.
Group Insurance health plans provide coverage to a group of members, usually made up of company employees or members of an organization. Group health members usually receive insurance at a reduced cost because the insurer’s risk is spread across a group of policyholders.
Self-funded plans
With the cost of healthcare continuing to rise, some employers are looking to self-funding as a means to save on costs. Technically speaking, self-insured employers pay for claims out of pocket when they arise as opposed to paying a predetermined premium to a carrier for a small group plan. This type of plan, also known as a self-insured plan, is usually seen with a large enterprise as a means to control their healthcare spend and manage their own risk pool.
Health reimbursement arrangements
A health reimbursement arrangement is an affordable, tax-advantaged alternative to traditional insurance where employers reimburse their employees for individual insurance premiums and medical expenses (if applicable) on a pre-tax basis.
Unlike Health Savings Accounts (HSAs) and Flexible Spending Accounts (FSAs) that are accounts, HRA stands for Health Reimbursement Arrangement, meaning that the model operates on reimbursements. Employees will pay the insurance company or doctor’s office directly and then submit a claim to get reimbursed for their expenses tax-free.
The use of new reimbursement models of HRAs put the employer’s reimbursements on nearly the same tax playing field as traditional small group plans, but without all the hassles and requirements.
Before, a big advantage for group plans was that they were deductible expenses for employers and were taken out of employee paychecks on a pre-tax basis. With an HRA, employers can make reimbursements without having to pay payroll taxes and employees don’t have to recognize income tax. In addition, reimbursements made by the company count as a tax deduction.
The best small business employee health insurance: HRA types
There are 2 types of HRAs that allow small businesses to reimburse their employees for health insurance tax-free.
QSEHRA: To cut quickly through the insurance jargon (it stands for “Qualified Small Employer Health Reimbursement Arrangement” by the way), a QSEHRA allows small employers (businesses with less than 50 FTEs) to set aside a fixed amount of money each month (up to $5300 a year for individuals and $10,700 for families in 2021) that employees can use to purchase individual health insurance or use on medical expenses, tax-free.
: The individual coverage HRA has all the same benefits as QSEHRA, but with no maximum contribution limits and no company size limit. In addition to the flexibility of varying rates based on age and family size like QSEHRA, the hallmark feature of ICHRA is that benefits can be scaled across different
. That means an employer can offer one reimbursement amount to seasonal workers, another amount to part-time, and varying amounts based on geographic area, allowing further streamlining of total benefit spend. An ICHRA can also be integrated with a group plan, which is another distinction.
We are ready to chat on our website if you have any specific questions about your business and how HRAs stack up against group plans in your area. Setting up a small business HRA or setting up an ICHRA is simple and quick, and our team is here to help if you need it.
