Do small businesses really need to offer health insurance?
Small businesses are the backbone of this country, employing more than 47% of us. uu. private workforce, or 60 million people. Chances are you’re a small business leader weighing the pros and cons of offering employee health insurance.
At some point, every small business was in its place. they had to determine what to do for health insurance. According to the SBA, almost 50% of small businesses with 3 to 9 workers offer health insurance benefits to their employees. About 71% of small businesses with 10 to 24 employees offer health insurance benefits, and 85% with 25 to 49 employees do.
related: the small business guide to offering employee benefits
The Affordable Care Act states that small businesses with fewer than 50 employees are not required to offer health insurance benefits to their employees or pay a non-coverage penalty to the IRS. That doesn’t mean they shouldn’t provide health insurance benefits.
Regardless of the size of the employer, health insurance benefits are a big deal for employees. A 2020 survey of 2,000 people found that 84% placed health insurance at the top of their list of most desired benefits, and the Society for Human Resource Management (SHRM) reported that 92% of employees say Benefits are important to your overall job satisfaction.
These numbers demonstrate that benefits are an important contributor to talent acquisition and retention. happy, healthy and caring employees are more loyal, productive and complementary to your business. Yes, health insurance plans can be expensive, but with so many small businesses (your competition) offering health insurance benefits, can you afford not to? Think of health insurance benefits less as a cost and more as an investment, which will result in higher quality employees.
how to lower your health insurance costs
There’s no getting around the fact that health care, in general, is expensive. But there are ways to lower your health insurance costs while providing great benefits to your employees. While traditional fully funded plans are the most common (think big ones like Blue Cross, Blue Shield, Aetna, Humana, United, etc.), their cost and unpredictability lead many small businesses to look elsewhere. and where there is demand, there is bound to be a solution.
Self-funded plans are an alternative to traditional plans and attract small businesses from across the country. understanding the difference between a fully funded health plan and a self-funded health plan is essential.
related: how sana saves your small business money
fully funded health plans
A fully funded health plan is sponsored by the insurance company rather than the employer. the carrier assumes all risks and maintains the policy. your company pays a fixed monthly premium for the insurer to pay your employees’ claims and manage/administer the plan for you. no matter how many claims your employees make or how expensive those claims are, the carrier, not your company, is obligated to pay (or deny) them.
While a fully funded plan is predictable from month to month, it is highly unpredictable from year to year. You can know precisely what you will pay during one year, but there is no way of knowing what you will pay the following year. If your company’s overall health care claims exceed what your provider anticipated with your premium rate calculation, you can expect your rates to increase next year.
Furthermore, health care costs have risen every year; they are likely to increase 6.5% in 2022, as the ongoing COVID-19 pandemic continues to increase the utilization and cost of medical services.
self-funded health plans
A self-funded health plan is sponsored by the employer rather than the insurance company. That means your company bears all the risk and pays your employees’ claims as they come in. Your company will also be responsible for managing and administering the plan.
This may seem overwhelming, but there are significant cost advantages to a self-funded health plan. First of all, by eliminating the carrier, surcharges are avoided and some tax advantages are obtained. you’re also paying only for the health care that employees use. it pays less when employee claims are low and more when they are high. a traditional company works like your car insurance: you pay a fixed premium, whether or not there are claims.
For even more protection against high claims costs, there is a type of self-funded health plan called a tiered-funded health plan. A level-funded plan includes loss limitation insurance to protect you from “catastrophic” claims that could overwhelm your budget. loss limit insurance covers excess over a set limit (a cap) that you would have to pay. If claims are higher than your limit, loss limitation insurance kicks in, and if claims are low, your business is reimbursed to cover the difference. you’ll never see a refund from a fully funded traditional plan.
Related: Understanding Self-Funded vs. Fully-Funded Health Insurance
Another benefit of some tiered-funded health plans is that your employees won’t have to choose “in-network” providers, no matter what type of plan they choose. for example, employees who want the least expensive plan with high deductibles don’t have to sacrifice the ability to choose their own doctors and specialists. Giving your employees this flexibility is a great way to sweeten the benefits package that companies with traditional health insurance can’t offer.
the sooner the better
If you’re a new business or a small business without health insurance benefits, now is the time to find a plan if you have the budget. The longer you wait, the more likely you are to lose some good talent and hear office gossip from people who wish they offered you health benefits. To keep morale high and build your brand reputation, health insurance benefits should be a priority.
offering health benefits may depend on the size of your company. If you only have a handful of employees, you may not be ready to start yet, preferring to grow a bit first. just remember that benefits have become an expectation, even for employees of the smallest companies. Some companies see their plan as another “hire,” allocating part of a budget they would spend on a new hire for a health insurance plan that covers all employees. startups often build the cost of a benefits package into their financial plan that they finance with investors.
the best time to offer health insurance to your employees
once you decide you can invest in a plan, you can consider what type of plan is best for your budget and your employees. talk to a broker or individual carriers and providers to see your options. traditional plans are much less flexible than self-funded/tiered-funded plans, especially for smaller businesses. you’ll probably be able to customize your plan a lot more with these non-traditional options.
Either way, you will be able to offer health insurance to your employees as soon as the provider gives you the green light. open enrollment is the period of time your employees will have to enroll and is set by the insurer. Not all employees need to enroll, as some may already be covered by a spouse’s or parent’s plan, or choose to shop for their own health insurance.
Healthcare coverage is exciting, so market it creatively to your employees across multiple channels. Be sure to leave time for questions and answers, and any questions you can’t answer, your provider will be able to. Your employees have different health care needs and budgets, so offering multiple plan options is the best way to ensure those who want to participate can find a plan that works for them.
When open enrollment ends, employees who did not participate cannot enroll until the next open enrollment period, usually a year later. There are exceptions, such as if an employee has a “qualifying life event” that includes losing coverage under their current health plan, getting married or divorced, having a baby or adopting a child, or changing their residence. new hires can register at the time of hire, regardless of open enrollment dates.
Offering employee health benefits is one of the best investments small business owners can make. Research your options and find a plan that aligns with your goals and budget. It may take thinking outside the “traditional” box, but the payoff is a health plan that is actually a benefitfor your employees.
learn more about how sana lowers health care costs for small business owners.