Navigating the world of health insurance as an entrepreneur can seem daunting, but it doesn’t have to be. If you’re trying to make sense of health insurance for small businesses or startups, you’ve come to the right place. Get the facts every business owner needs to know about this important employee benefit.
Are Small Businesses Required to Offer Health Insurance?
Significant financial penalties can apply to companies with 50 or more employees that fail to offer health coverage consistent with the employer mandate provision of the Patient Protection and Affordable Care Act (PPACA). Known as employer shared responsibility payments, these penalties can far exceed the cost of simply making group health coverage available to employees.
Get educated before buying health insurance for your business.
While there are no financial penalties to employers with fewer than 50 employees for failing to offer health insurance, there are practical considerations. Even in the absence of penalties, offering health insurance isn’t optional for companies looking to gain competitive advantage in finding and retaining top talent. Employees expect their employers to provide access to healthcare coverage. It is difficult —if not impossible — for an organization to attract and retain qualified team members without offering access to health coverage and other employee benefits. This is true no matter what size an organization is.
How Can a Small Business Get Group Health Insurance?
If you’ve reached out to health insurance providers only to be told that your company isn’t large enough to qualify for a group plan or to discover that rates are extremely high, you may be wondering how to even find reasonably priced health insurance for small business.
SHOP: While some health insurance providers make plans available to small businesses via The Small Business Health Options Program (SHOP) marketplace, options may still be very limited due to company size and the state in which the company is located.
Broker: Working with an insurance broker is also an option for entrepreneurs to consider when looking for group health coverage. Brokers are licensed insurance agents who can help connect entrepreneurs with insurance companies that offer health insurance plans for small businesses or startups.
PEO: Working with a professional employer organization (PEO) like Justworks can be the best option for small businesses and startups to get access to high-quality healthcare coverage and other benefits at reasonable prices. A PEO offers several advantages for small businesses and startups, including the access to coverage options typically reserved for larger employers.
What Health Insurance Options Are Available for Startups?
For a startup with a relatively small number of employees, options can be very limited if you look for coverage on your own. That’s because plan availability and pricing varies based on employer size. Working with a PEO provides even small businesses and startups that have only a few employees access to a wide variety of group health insurance plans that are ordinarily only available to large employers.
What Are Some Examples of Different Types of Health Plans?
There are several different types of health plans, each with its own features and benefits. There are several factors to consider before picking your company’s health insurance.
Type of Coverage
Healthcare coverage plans vary on things like the degree of choice participants have when it comes to selecting medical providers and whether visits to providers outside the plan’s network are covered. Costs vary widely by plan type and level of coverage. The most common types of health insurance plans include:
Health Maintenance Organization (HMO)
Exclusive Provider Organization (EPO)
Point of Service (POS)
Preferred Provider Organization (PPO)
A comparison chart of features for HMOs, PPOs, a POS, and EPOs.
Because employees may have different health insurance needs, the ideal solution is for employers to offer several types of plans, with varying price points and deductibles. This allows team members to choose the type of coverage that best meets their needs. Working with a PEO allows even small companies to offer a benefits package that includes several options.
Is Group Health Insurance Cheaper Than Individual Policies?
The fact that a company offers health insurance doesn’t necessarily mean that all employees will opt to participate in the plan. For some employees, the health insurance provided through their employer will be the best value available to them. Others may find it cheaper to purchase individual insurance or to be covered as a dependent on a spouse’s group health plan.
When employers opt to pay a portion of health insurance premiums for employees, group coverage is typically more affordable for employees than an individual plan. However, if an employee has several dependents, the most cost effective option may depend on the employer's contribution to plans that cover dependents, like spouses and children.
Employees who qualify for a PPACA subsidy may be able to purchase an individual plan cheaper than participating in the employer’s plan. Household earnings and family size determine whether a person qualifies for a subsidy. Employees with a household income of up to 400% of the Federal Poverty Level ($104,800 in most states as of 2020) may qualify for a subsidy.
How Do Employees Sign Up for Health Insurance?
Once your company decides to offer health insurance and gets the appropriate agreements in place, the next step will be to allow employees to sign up for coverage through a process called open enrollment, which is typically completed online. If you are working with a PEO, they will help with this administrative process with enrolling your employees annually, along with any new hires and employees who become eligible via a qualifying event throughout the year.
Will My Company’s Health Insurance Plan Automatically Renew?
Group health insurance does not automatically renew each year. Prior to policy renewal time, your insurance provider will assess your coverage and make a determination about what your company’s rates will be for the following year.
Expect Policy Changes
The health insurance renewals process involves considering coverage options for the coming year and determining what option(s) to make available to employees. Plans, policies, options, and rates can change significantly from one year to the next. Rates can increase significantly, or available coverage can decline. It’s up to you to decide if you are going to renew the previous year’s coverage at the newly proposed rates and terms or seek other options.
Prepare in Advance
Because other options may need to be considered, it’s important to start thinking about insurance renewal well in advance. If you are working with a PEO like Justworks, they’ll provide you with health insurance plans to consider so you won’t have to spend days — or weeks or months — searching for insurance companies that will work with a company your size to request quotes.
Renewal and Enrollment
Make an Informed Decision
As a small business owner, the decision of whether to offer health insurance is an important one. Making high quality benefits available to your employees can help attract and retain the talent that will allow your organization to thrive. Joining a PEO can help your company save time and money by allowing you to focus on core competencies rather than shopping for health insurance and other time-consuming administrative HR functions.
Now that you know the basics of health insurance and how your small business or startup can qualify, learn more about how to choose a PEO and discover more ways employee benefits and perks can help small businesses and startups succeed.
This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, legal or tax advice. If you have any legal or tax questions regarding this content or related issues, then you should consult with your professional legal or tax advisor.