Health insurance is a benefit that many employers offer to their employees. However, it is not always required. According to the Affordable Care Act, only employers with 50 or more full-time employees, health insurance companies and self-insuring employers are required to provide health coverage.
So, should your small business provide health care benefits to your employees, even if you’re not legally obligated to do so? Below, we’ll explore the answer to this question.
There are a number of advantages you can enjoy if you decide to offer health care coverage to your employees, including:
- Attracting and retaining the most qualified employees: A study by the Society for Human Resource Management (SHRM) discovered that employees valued health care benefits more than any other benefit. If your goal is to attract and retain the most qualified employees, offering health coverage may help you do just that.
- Increased productivity: Healthier employees tend to be more productive employees, according to the Centers for Disease Control and Prevention (CDC). Therefore, if your small business supports the health of your employees by providing optional health insurance, you may see more of your employees at work and healthy instead of at home and sick. Healthy and productive employees can translate to better performance, which can help your small business grow and succeed.
- Tax credits: If you offer health insurance to your employees through the Small Business Health Options Program (SHOP), you can reduce the amount of taxes your small business or nonprofit will owe. You may be eligible for a small business tax credit of up to 50% of the premiums you pay for your employees or up to 35% if you’re a nonprofit.
There are, however, noteworthy drawbacks of offering optional health insurance to employees.
- Cost: As a small business owner, you don’t get to benefit from the buying power of large employers and will likely pay more for employee health coverage as a result. Unfortunately, premiums for small group insurance plans have become 15% more expensive over the past two years in some states.
- Administrative hassles: While the insurance company you purchase the health insurance from will likely act as the plan administrator, you’ll be responsible for choosing the insurer and have to take on other responsibilities like filling out forms, paying premiums and acting as a middleman between your employees and the insurer.
- Health insurance may not be enough to retain some employees: Even if you offer health coverage to your employees, some of them may not feel like it’s enough to keep them there. They may want higher salaries, flexible work schedules or other benefits that can cost you big money.
How to decide which approach is right for you
Your small business is unique, so while health insurance coverage may be a good option for your friend’s small business, it may not necessarily make sense for you. To determine whether or not you should invest in optional health insurance, ask yourself the following questions:
- Do your employees already have health insurance? If your employees are covered through their spouses, parents or Medicare, they may not value health insurance as much.
- Is your business eligible for the tax credit? The Small Business Tax Credit does not apply to all small businesses who offer health insurance. It only applies to employers who have fewer than 25 full-time employees, pay an average wage of less than $51,600 and fund at least half of the premiums.
- Would your employees prefer a different benefit? Is health insurance the benefit your particular employees would appreciate most? You may want to do some asking around and find out if they prefer something else like higher pay, a (401)k match or flexible work schedule.
- How much will it cost you? Shop around and find out how much you can expect to pay if you were to offer health care benefits. Once you get some hard numbers, figure out whether the cost is something you can afford and believe is worth paying for.
Tips for getting a benefits program up and running
If you do decide that offering health care benefits is a good option for your small business, here are a few tips to help you out.
- Decide which plan works best for you: There are a lot of different health insurance options available for small business owners. A few common options are:
- HMOs: An HMO is relatively cheap but does limit your employees to in-network doctors.
- PPOs: Like HMOs, PPOs have their own in-network doctors, but they also offer partial payment for doctors who are out of network. However, they’re more expensive than HMOs.
- POSs: This plan is a kind of HMO–PPO hybrid. It offers both in-network and out-of-network coverage but is slightly cheaper than a PPO.
- HDHPs: These plans are cheap for you but very expensive for your employees. These plans have high deductibles, reaching up into the thousands.
- Start shopping around with Small Business Health Options Program (SHOP): Your state has its own SHOP marketplace you can use to search for, learn about and select the ideal health care benefits for your small business. You can enroll with the help of a SHOP-registered broker or directly through an insurance company. If you’d like some guidance on which plan to choose, working with a broker may be the best option. You can find a broker in your local area here. On the other hand, if you know exactly what you’d like to offer, you may be better off signing up with an insurer. You can use the SHOP marketplace if you:
- Have between 1 and 50 full-time employees.
- Offer coverage to all full-time employees.
- Enroll at least 70% of the employees.
- Have an office or work space in the state whose SHOP you’d like to use.
- Consider alternatives: If you’re not eligible for SHOP, you can join a purchasing alliance, which is also known as a private exchange. A purchasing alliance is a health insurance marketplace that allows you to partner with other small businesses and buy health insurance as a group. It can give your employees more options and save you money.
- Educate your employees: Once you’ve selected and purchased benefits, make sure your employees are well informed of their plan options and enrollment deadlines. You can do this by setting up in-office trainings and distributing materials from your insurer.