Health insurance is a valuable employee benefit. But how to buy health insurance for the small business is a real challenge. In this post I will discuss the challenge and provide a guide to buying health insurance as a small business. And hopefully I will answer the question: what is the best health insurance for small business owners
Before we can talk about health insurance for small businesses, we must define what a small business is. From a health insurance perspective, a small business has fewer than 50 employees. However, businesses with fewer than 25 employees face more of challenge in buying health insurance than a business with more than 25 employees. And a business with fewer than 10 employees has a bigger challenge than a company with 25 employees.
For purposes of this article, I will talk about health insurance for small businesses in terms of companies with 3 to 9 employees, 10 to 19 employees, and 20 to 49 employees.
The Impact of the Affordable Care Act (Obamacare) on Health Insurance for the Small Business
There is a myth that somehow the passage of the Affordable Care ACT (ACA) had a negative impact on health insurance for small businesses. But here are a couple of facts taken from Kaiser/HRET Survey of Employer-Sponsored Health Benefits Surveys for 2009 and again in 2019. As you may recall, 2009 was the year prior to the passage of the ACA.
In 2009 60% of all companies offered health insurance benefits. Fast forward to 2019 and 57% of all companies offered health insurance benefits.
Now let us look at companies with 3 to 99 employees. You can see that in 2009 59% of these companies offered health insurance but in 2019 that number was 56%. A 3% drop in the number of companies offering health insurance benefits is insignificant.
If we break down the 3 to 99 employee company size further, we get a better picture of the challenge to small businesses. 46% of companies with 3 to 9 employees offered health insurance. And in 2019 that number is barely changed at 47%.
For companies with 10 to 24 employees 72% offered group health insurance in 2009 whereas only 63% offered health insurance in 2019.
You can see a similar impact for companies with 25 to 49 employees. In 2009 87% of these companies offered group health insurance whereas only 77% offered health insurance in 2019.
The Affordable Care Act mandated that companies with 50 or more employees offer health insurance. Yet we see almost no change between 2009 and 2019 in the number of companies providing health insurance. In 2009 95% offered health insurance compared to 94% in 2019.
Is the decrease in group health insurance in companies with 10 to 49 employees related to the ACA? I cannot answer that question with any certainty.
The Cost Challenge for the Small Business
And that brings us to the first common challenge; the cost of group health insurance. There are two aspects of cost that must be dealt with.
The first of course is the actual premium. I must point out that premiums have been increasing steadily since the nineteen eighties. In fact, the Employer Health Benefits Survey 2019 (http://files.kff.org/attachment/Report-Employer-Health-Benefits-Annual-Survey-2019) on page 39 shows employee premiums from 1999 through 2019. In 1999 the average cost of health insurance for an employee was $2,196. By 2008 (2 years before the ACA) group health insurance premiums had jumped to $4,704. Nine years later in 2017 premiums were $6,690. And by 2019 premiums were $7,188.
As it turns out most small employers greatly underestimate the cost of group health insurance. Whenever I get the chance to talk with an employer who is considering offering health insurance, my first question is: “what is your budget for providing health insurance?” Surprisingly, very few employers have given much thought to their budget.
Typically, most employer’s response is: “I am thinking about paying about 50% of the cost.” But the problem is that that statement is meaningless. Potential clients are shocked when I say that the group health insurance premium will be between $450 and $650 a month. They are even more shocked when they learn that the group health plan will have a $3500 to $5000 deductible.
Most of these small business owners were thinking that the entire premium would be $300 to $400, not just their contribution.
Employee Participation is a Challenge When Buying Health Insurance for the Small Business
Imagine that you are an employee making $3,000 a month. You are working for a small business with 15 employees and are told that the business owner is going to offer a health insurance plan. If you want to participate, you will have to pay $250 a month. And if you want to cover your spouse and kids you will have to pay an additional $750 a month. Your total monthly health insurance cost is now $1000 a month.
Of the 15 employees, there are only four employees who want to participate. Unfortunately, the insurance company requires a minimum of 5 employees to enroll. As a result, there will be no group health insurance plan. Or worse, the insurance company will provide the group health insurance, but the employee premium is increasing from $500 a month to $560 a month. And your contribution increases from $250 to $280. Now of the four employees, only two will enroll. Since the company needs three employees to enroll there will not be a plan.
Offering Group Health Insurance Can Have a Negative Impact!
It is hard for most employers to imagine that offering and contributing to health insurance for employees can have a negative impact. But it most definitely can.
Once again, I would like you to imagine that you are that employee making $30,000 annually. If you are single you will qualify for a subsidy on healthcare.gov. In North Carolina, this employee can get a health insurance policy with no deductible for $144 a month. Now imagine that your employer offers a health insurance policy with a $3500 deductible and you must pay $250 a month to participate.
If that is not bad enough consider what happens next. If your employer gets enough employee participation to keep the plan, you are no longer eligible for a subsidy! Instead of wanting to stay with this company, you now want to find a new job. You want a job with equal pay but no benefits so that you can keep your health insurance premium subsidy.
It is even worse if you are married or have children. With an income of $40,000 you will qualify for a subsidy that will pay 100% of the cost of health insurance for you and your family. But you lose the subsidy if your employer implements a health insurance plan. You lose the subsidy regardless of the employer’s contribution.
What is the Best Health Insurance for Small Business Owners?
Traditional Health Insurance for the Small Business
What is the best health insurance for small business owners?
This is the most common choice for most small business owners. In this category you will find your traditional HMO and PPO health plan. If you are unsure of the differences check out my post on the topic at https://myhealthcare360.org/what-is-the-difference-between-ppo-and-hmo/.
In choosing a plan design keep in mind the benefits that your employees will appreciate. As an example, employees care about doctor visits and routine care such as wellness, xrays, and lab work. Find a plan that includes low copays for those services. Too many plans today have a low copay for the doctor visit but any lab work of xrays will be subject to the deductible.
The size of the network will be less important than the affordability of getting medical care. And talking about affordability, try to limit the total out of pocket costs that employees are liable for. Nothing will hurt morale more than an employee having a large medical expense and telling his/her coworkers that the insurance did not pay very much.
Regardless of size, this option is applicable.
Level Funded Health Insurance for the Small Business
Level-funded health insurance will not be available to every size business. In some states, businesses with as few as 5 employees will be eligible. But in other states a business may need 26 employees (NC) or 51 employees or 10 employees.
There are also several level-funded that can work with employers with as few as 5 employees regardless of state requirements. These plans get around the state requirements because they pool all employers instead of having each employer stand on their own merits.
Level-funded health insurance plans come in a variety of different flavors. You can get a plan that looks like a traditional HMO or PPO plan. There are plans that pay benefits based on a percentage of Medicare.
Some level-funded plans will segregate the money in the claims fund and return the unused amounts to you as the employer. But other designs only return a portion of the unused claims dollars.
I will delve deeper into level-funded health insurance in another post.
Medical Cost Sharing as an Alternative to Health Insurance for the Small Business
Medical cost sharing is not an insurance product. And because it is not insurance it lacks the guarantees that come with an insurance product. But while it may not have the guarantees of a health insurance product, it is a proven method of delivering high quality healthcare at an affordable price.
Most people know Medical Cost Sharing as the Christian Health Sharing Plans that became popular after the passage of the Affordable Care Act. The ACA included a provision that allowed Americans to satisfy the individual mandate requirement by enrolling in one of the Christian Health Share Plans. Even after the mandate to buy health insurance was repealed, these plans remained popular.
The popularity of these plans has continued to grow primarily because their cost is 30% to 50% lower than health insurance. In addition, the best plans have consistently provided high qualify benefits with lower out of pocket costs.
As a business owner you must be very careful when choosing one of these plans as a group benefit. First, you must avoid the Christian Health Share plans. The last thing that you need is an employee who cannot qualify for coverage for religious reasons.
Second, you will want to find a Medical Cost Sharing plan that is designed to be an employee benefit. Even as an employee benefit the tax implications are very different than that of a group health insurance plan.
All of that said, Medical Cost Sharing is a very affordable healthcare choice. It can provide a better healthcare experience with much lower out of pocket costs. Plus, a Medical Cost Sharing plan will not have a negative impact on an employee’s eligibility for a subsidy on healthcare.gov.
Work With a Professional Health Insurance Agent
I end every post with this suggestion. This is especially true when it comes to health insurance for small businesses. There are a lot of options. And each option is extraordinarily complex. A professional, independent health insurance agent will understand the complexities and be able to guide you to the best choice for your objectives and budget.