Small Business Health Insurance: Questions to Ask

Whether you are a small business owner or a self-employed solo entrepreneur, independent contractor, or freelancer, obtaining health insurance can be a challenge. What if the business you operate does not offer healthcare benefits, or you work for yourself and do not have coverage? You need to know which options are available to you.

From being informed about the different options to choosing both an affordable and effective plan, this breakdown offers the insight needed to help you make an educated decision for yourself, your household, or those on your payroll.

Small Business Health Insurance: What Should I Do?

If your business retains 50 or more full-time employees—defined as working at least 30 hours per week—then you need to offer minimum value coverage to 95% of those employees and their children, age 25 or younger.

You could receive a penalty if you do not offer small business health insurance. This also applies if your company’s health benefits aren’t considered minimum value coverage based on the Affordable Care Act’s standards. The penalty is a tax payment called the employer shared responsibility payment (ESRP) employer mandate.

“Minimum value” refers to plans that cover 60% of the entire amount for healthcare expenses that are covered, such as standard medical examinations. In addition, the insurance plan must be considered affordable based on the employees’ wages. You can evaluate the affordability of the coverage by ensuring that the percentage deducted from their salaries for small business health insurance premiums does not exceed about 10% of their total income.

Even if you have less than 50 full-time employees and do not need to provide health insurance, consider offering this perk. A benefits package makes your company more attractive and competitive in today’s job market. It can help your business recruit and retain an outstanding workforce in a competitive environment for talent.

Small Business Health Insurance: Self-Employed

If you are a self-employed solo entrepreneur, independent contractor, or freelancer, it is not a requirement to have small business health insurance coverage in 2019.

The Affordable Care Act (ACA) formerly included an enforceable individual mandate, which required all Americans to either have health insurance or pay a tax penalty for not having coverage. The tax penalty associated with the mandate has since been reduced to $0, which is effective beginning in 2019.

However, the tax penalty for not having small business health insurance in 2018 will be enforced. What if you end your coverage before January 2019? You’ll still be subject to a fine on your 2018 income tax return.

You may not receive a penalty for having health insurance beginning in 2019. However, this does not mean you should not consider getting coverage. Think about how you’d pay your healthcare bills if you had an accident or a critical illness. Health insurance can help you reduce the costs of not having coverage.

Small Business Health Insurance:
What Are My Options?

Once you know what’s required of you, it’s time to shop and assess your costs. Think about which coverage is ideal for yourself, your household, or those on your payroll.

The National Federation of Independent Business indicates the number one for small business owners is providing small business health insurance for their staff. There are lots of options for group health insurance and how they’re structured.

Types of small business group health insurance include:

• Managed care (HMO, PPO, and POS)
• Indemnity fee-for-service (FFS)
• High-deductible health plans (HDHPs), which are pair with health savings accounts (HSAs)

Small Business Health Insurance: Group Health Plans

Group health plans can be structured as fully-insured, self-funded (self-insured), or level-funded.

• Fully-Insured: A traditional structure for small business health insurance where the company pays the premium to the insurance company. On average, most enrollees contribute 18% toward, while the remainder is paid by the business. This form of insurance tends to be cost-effective for both employees and business owners. It diversifies the amount of risk across a whole group of participants.
• Self-Funded (Self-Insured): A structure in which employers operate their own health plan instead of buying an insurance company’s fully-insured plan. With this structure, employers assume larger risks if there are more claims than they expect to pay. It also lets them save money. They do not pay for an insurance company’s profit margin on the premium for a fully-insured plan. A few types of self-funded plans are:
  • Partially self-insured health plans, with integrated health reimbursement arrangements (HRAs)
  • Qualified small employer health reimbursement arrangements (QSEHRAs).
• Level-Funded: This structure has the flexibility of self-funded plans, but it lets employers manage their costs better. Unlike fully-insured health plans, this structure uses medical underwriting and age/gender ratings, which means that employers can pay less for benefits if their employees are young and healthy.

If your small business has fewer than 50 full-time employees, your staff may find that Affordable Care Act (ACA) individual plans could have reduced annual premiums. They could qualify for subsidies individually. What if your team consists of fewer than 25 full-time employees  with an average annual income below $50,000? You may be eligible for the small business health care tax credit.

Small Business Health Insurance: Self-Employed

A group small business health insurance plan may not be an option for anyone that is an independent contractor, or freelancer. The exception is if you live in a state that allows group health policies for self-employed groups of one. Your best option may be a state, federal, or private marketplace ACA health plan.

Individual ACA health plans are just one way to get coverage. These are some alternatives.

• Short-Term Small Business Health Insurance Plans: These temporary health plans don’t cover everything, and they don’t provide all of the 10 essential benefits coverage that ACA plans do. This may be a good fit for you if you are already healthy. You may only need temporary coverage that lasts 12 months or less. A short-term health plan is renewable for up to 36 months.
• Fixed Indemnity Plans: These supplemental insurance plans can help you manage out-of-pocket medical expenses. However, they do not include the 10 essential benefits coverage that ACA plans do. With these plans, there’s no annual deductible and you can get cash benefits to help you pay for ER visits, X-rays, hospital visits, and other services.
• Health Sharing Plans: All plan members’ share the cost of medical bills. These plans, which are not insurance, are exempt from the ACA’s 10 essential benefits coverage requirement. Insurance companies do not offer these plans. These are health care sharing ministries and Christian healthcare plans.

What Are My Next Steps?

The best way to determine which small business health insurance is the most affordable, beneficial, and relevant to your specific needs is to contact a licensed health insurance agent. A good agent can help you compare all of your options. This includes whether you need help finding group health insurance or an individual marketplace plan. A licensed agent will help you and/or your staff enroll.

If you’re choosing an ACA plan, the Open Enrollment deadline was December 15. This was for coverage effective January 1, 2019. Group health plans and other individual coverage solutions, such as short-term health plans, don’t adhere to the same ACA Open Enrollment deadlines. Your agent can sign you up for types of plans.

Michael Z. Stahl serves as Executive Vice President of HealthMarkets—one of the nation’s largest independent insurance agencies in the Medicare, individual, and supplemental health, life, and small group insurance markets. He has a B.S. in Economics from The Wharton School, University of Pennsylvania. Stahl holds the chartered property casualty underwriter (CPCU), associate in insurance accounting and finance (AIAF), and associate in reinsurance (ARe). An avid Kansas City Royals fan, he lives in Dallas with his wife and children.