Business owners have a wide range of small business health insurance options to choose from. To select the right one, it’s important to consider what your company’s unique situation is and determine how to best meet its needs. Here are some tips on how to get health insurance for small business needs.
Selecting a Health Insurance Plan for a Small Business
Here are some factors to consider when evaluating a health insurance plan:
- Number of employees — If you have more than 50 employees, the ACA requires that you provide group health insurance for your employees. Even if you have fewer than 50 employees, it’s still a good idea to provide health insurance to attract and retain good employees.
- Age mix of employees — In general, healthy, younger employees who require less medical care prefer lower monthly premiums with higher deductibles and co-pays. Older employees, who tend to go to the doctor more frequently and need more prescription medications, are likely to choose to pay higher premiums with lower deductibles and co-pays.
- Premium costs — Premium prices will vary depending on the level of coverage and freedom to select doctors.
- Employee contribution — How much can your employees afford to pay?
- Company budget — How much can your business afford to contribute to health insurance?
How Much Insurance Your Business Can Afford
According to the most recent data from the Kaiser Family Foundation, the average annual premium cost for a single worker at small firms is $7,483. The average premium for family coverage is $20,438.
To select a plan, first determine how much each specific plan would cost your business, and then determine what percentage of your annual revenue that would make up.
Example One: Let’s say you have 15 employees and would like to contribute 50% of the premiums for single workers. Your total cost for insurance premiums would be:
Company premium cost = $7,483 per year X .5 X 15 employees = $56,123 per year
If your business has $1.5 million in revenues, this premium cost as a percentage of sales would be:
Insurance cost percentage = $56,123/$1,500,000 X 100 = 3.7%
Example Two: What if you wanted to cover 75% of a single worker’s premium? Your insurance premium cost would rise to:
Insurance cost percentage = ($7,483 X .75% X 15 employees)/$1,500,000 X 100 = 5.6%
Once you have your numbers, there are a series of questions to consider. For example, how much cost can your company afford to absorb into its annual budget? Would you need to raise prices to cover the cost, and would you lose sales if you did? How much would this cost affect your bottom line? Only the business owner can answer these questions.
Small Business Health Insurance Options
There are a number of health care selections that can save costs for both you and your employees. However, each has its own benefits and drawbacks. Here are some of the options you can choose from:
Health Maintenance Organization — With HMOs, policy holders must use doctors within a network, and primary care physicians act as gatekeepers for referrals to specialists. Out-of-pocket costs are low for doctors in the network, but the number of doctors in the network depends on location. Because of these restrictions, HMOs have the lowest premiums compared to other plans.
Preferred Provider Organization — PPOs give participants the choice of seeing almost any doctor they want, without requiring referrals to see specialists. Members still need to use doctors in the PPO network, but the number of doctors in PPOs is huge compared to HMOs. The downside for this freedom of choice is higher premiums, higher deductibles and co-pays.
High-Deductible Health Plan — An HDHP plan Is known as “catastrophic” coverage because it has a deductible of at least $1,400 per person. This plan has lower premiums and is primarily designed for people who don’t expect to get sick or make regular visits to their doctor.
Individual Coverage Health Reimbursement Arrangements — Changes in healthcare regulations have increased the popularity of employees taking out their own individual policies instead of using a group plan through their employer. An ICHRA is typically a higher-deductible plan combined with a health savings account. This type of plan removes the responsibility for providing health insurance from the employer and places it on the employee. Employers are then able to give employees non-taxed reimbursments for medical expenses, including premiums and co-pays.
Selecting a Provider
The process of how to get health insurance for small business ends with interviewing and selecting a provider. You can do this by:
- Contacting insurance companies directly.
- Working with an insurance broker.
- Working with a professional employer organization.
- Investigating plans offered by human resources software or payroll software providers.
- Looking at the plans offered by the government at Small Business Health Options Program.
Health insurance is an important benefit to attract and retain good employees. If you need help budgeting to provide health insurance benefits for your employees, enlisting a small business accountant can help.