Many small business owners struggle to keep their doors open and it can be a struggle to provide their employees with business health insurance. Fortunately, with recent healthcare reform, there are more affordable options and more businesses are able to help provide policies for their workers. In general, small business owners have two options for business health insurance:
- Group Health Insurance; and
- Individual Health Insurance.
What Is Group Health Insurance?
Group health insurance is a policy that an employer buys and offers to eligible employees of his or her business. The policy may also be offered to the employee's eligible dependents, such as a spouse and/or children, as well. The cost of the premiums for this type of business health insurance is split between the employer and the employee, with the employer paying a minimum percentage rate.
Individual Health Insurance
Another type of business health insurance that is bought by the employee instead of the business owner is individual health insurance. Employees can buy plans to cover themselves and/or their families. As of 2014, all individual health insurance plans must cover the employee regardless of any pre-existing conditions.
To help offset the cost of individual health insurance, the small business owner can reimburse employees by setting up a premium reimbursement arrangement. This arrangement is tax-free, and it is similar to how contributions would be made through a group health insurance plan.
The Costs of Health Insurance
Business health insurance can be expensive and many small businesses, those under 50 employees, may not offer it because of the expense involved. However, starting in 2015, all businesses with at least 50 full-time employees must offer affordable, minimum-value group health insurance. Minimum value means the plan is designed to pay at 60 percent of the medical expenses for a standard population. It also includes coverage for inpatient hospital and doctor services.
In 2014, the average cost of group health insurance for a single employee was $502 per month and for family coverage it was $1,403 per month. All of these costs are split between the employer and employee, with the employer responsible for paying a certain percentage of it.
The cost of individual health insurance in 2014 was $364 per month. There are premium tax credit discounts available for these types of plans and such discounts reduced costs by an average of $82 per month. For very small companies, this type of business health insurance may be a good way of covering employees, and if the employee changes jobs, they can take the insurance coverage with them.
Types of Business Health Insurance Plans
Whether it is for group health insurance or individual health insurance, you will usually have four different types of plans from which to choose:
- PPO Plans;
- HMO Plans;
- HSA-Qualified Plans; and
- Indemnity Plans.
PPO Insurance Plans
The most common type of business health insurance plan is a PPO, or Preferred Provider Organization, plan. This type of plan allows employees to select a doctor and hospital from the insurance company's preferred list of providers. By going to a preferred provider, the employee's medical claims will be paid at the highest level offered by the plan.
HMO Insurance Plans
Employees will choose from a provider network if their business health insurance is an HMO, or Health Maintenance Organization, plan. The HMO will usually offer a wide range of services from providers who are contracted exclusively with the HMO. The employee will select a primary care physician, or PCP, from which to receive most of their medical services and they will need to be referred by the PCP to specialists who are in the HMO's network.
HSA-Qualified Insurance Plans
These insurance plans are usually PPO plans that are used with HSA or Health Savings Accounts. An HSA allows participants to save pre-taxed money for their future medical expenses in a special bank account.
Indemnity Insurance Plans
With indemnity insurance plans, participants are in control of their healthcare and can see any doctor or hospital they choose for their medical services. With this plan, the insurance company generally pays a set proportion of the medical expenses, but employees may have to pay upfront for some services and apply for reimbursement from the insurance company.
Healthcare Reform Impacts
Under the healthcare reform via the Affordable Care Act, or ACA, many small businesses are required to provide business health insurance for their employees. However, the ACA also provides tax credits to help offset the costs of these insurance plans.
Mandate for Small Businesses
Although no business has to offer their employees business health insurance, the ACA has mandated that businesses with at least 50 full-time employees must offer affordable and qualified health insurance or pay a tax penalty. This is more commonly referred to as the Employer Shared Responsibility Fee or the Employer Mandate.
Just as employers can face a tax penalty for not offering health insurance, employees and other individuals have a mandate under the ACA as well. They must take out health insurance or face a tax penalty. Their coverage can be in the form of health insurance plans offered by their employer, individual health insurance, or they can be insured under a government plan like Medicare or Medicaid.
Small Business Tax Credits
The ACA helps small businesses offer business health care plans to their employees by offering a small business healthcare tax credit. The credit can be as high as 50 percent of your contribution toward your employees' premium costs or up to 35 percent for tax-exempt employees. However, the tax credit is only available for two consecutive taxable years.
There are many advantages to offering employees business health insurance, such as being able to retain more employees and the tax advantages you gain by offering it. Employers can deduct 100 percent of the cost of their employees' insurance as a business expense and that is in addition to the tax credits offered by the ACA.
If you own a small business and are in the market for business health insurance, contact a business health insurance company to discuss your plan options.