by Riki Markowitz
If you want to know what problems small business owners (SBO) face the most, it’s not hard to find out. That’s because organizations that advocate for small and independent businesses regularly survey owners and workers about their biggest challenges and publish the results alongside advice and guidance on how to overcome those issues.
What non-profit associations like the National Federation of Independent Businesses (NFIB) have consistently found, year after year, is that managing employee health care tops the list of SBO concerns. Not just because workers’ health is an important ethical issue, but to be competitive and attract strong talent, small businesses have to offer either employer-sponsored health benefits or help employees attain affordable health insurance.
So to find out what small businesses need to know about health benefits, we spoke with an expert in the field. Lauren R. Jahnke, MPAff, is a health policy analyst and specializes in researching and writing about health care. In fact, she wrote a comprehensive book on health insurance, Decoding Health Insurance and the Alternatives: Options, Issues, and Tips for Saving Money.
1. Are small businesses required to offer health insurance to their employees?
No, small businesses are not required to offer health insurance like larger companies are. Small businesses are defined for insurance purposes as fewer than 50 full-time-equivalent employees, or FTEs. They may choose to offer group insurance to employees, or if they don’t, employees can turn to the individual insurance marketplace to purchase an individual health plan for themselves (and their families if needed), possibly with income-based discounts.
I talk more about employment-based insurance and applicable laws in chapter 4 of my book. And in chapter 5, I offer tips on buying individual health insurance.
2. How can SBOs purchase employer-sponsored health insurance?
SBOs have several options for comparing and purchasing health insurance. They can go online to the SHOP marketplace run by the federal government to review information on small business health insurance, and they can see and compare local options available in some states. SBOs can use an insurance agent/broker to buy health insurance plans from the SHOP marketplace or from outside the marketplace, or SBOs can buy directly from an insurance company. Most SBOs use an agent or broker to assist and advise them.
Alternatively, small businesses can use a professional employer organization (PEO) for their benefits. A PEO manages human resources tasks, such as health insurance and other benefits, recruiting, and payroll. A PEO may also have access to and be able to offer additional group health plans if a business chooses to outsource all of these functions.
3. Are tax credits available to help SBOs offer health insurance?
Yes, small businesses that buy health insurance through the SHOP marketplace (or get an exemption from this requirement) and have fewer than 25 FTEs can get tax credits for two years, which makes it cheaper to offer insurance. There are additional rules, such as the organization must pay at least half the cost of employee-only coverage (not family coverage) and must have average wages of less than a certain amount. Owners, partners and family members don’t count in the employee calculations.
The tax credits are offered on a sliding scale where small businesses with low wages and fewer than 10 employees get the maximum amount of money. The maximum amount of the tax credit is 50% of the insurance premiums paid by for-profit businesses and 35% of premiums paid by tax-exempt organizations. So the organizations get this amount refunded for two consecutive years. (Since all businesses can write off health insurance expenses, any portion of premiums not refunded can be deducted on income taxes.)
Several states also have their own additional tax credits or other types of premium assistance programs for employers and/or employees.
4. Are there certain enrollment periods or deadlines to keep in mind for health insurance?
SBOs can buy insurance any time of the year, though they can only make changes to the plan once per year. An exception is for small businesses that have fewer than 70% of employees buying into the company’s insurance plan, in which case they can only buy health insurance during the annual open enrollment period, from November 15th to December 15th. And then coverage starts on the following January 1st.
Employees can be added to or subtracted from employer insurance at any time. If an employee’s spouse and children don’t enroll when he or she is first eligible, family members can only enroll during certain times of the year.
For owners and employees who buy their own individual insurance, open enrollment is, in most cases, from November 1st to December 15th, though some states have longer open enrollment periods. People can also buy insurance during other times of the year through what’s called a special enrollment period. But first they must qualify due to job loss, divorce, having a child, or other specified circumstances.
For lower-income employees who qualify for Medicaid (a government health insurance program) in their state, enrollment is open year-round.
5. What if an SBO can’t afford to offer an employer-sponsored health care plan?
Businesses don’t have to pay the whole insurance premiums themselves, they can pass some of the costs to employees. Also, more businesses are choosing to offer high-deductible health plans that have lower monthly premiums, often in conjunction with a health savings account (HSA) that allows employees to pay medical bills tax-free.
If these options and the tax credits aren’t enough to help a small business, and the owner has compared all of his/her options with an insurance agent/broker and can’t afford any of them, then the employees will not have employer-sponsored health insurance. However, they can go to the individual marketplace, at Healthcare.gov, to purchase their own insurance, if desired.
If SBOs want to help employees with insurance or medical costs but can’t afford to offer insurance, they can use an option called a health reimbursement account (HRA) to contribute a certain amount each month towards qualifying medical expenses or health insurance purchased by an employee. One type of HRA is the qualified small employer health reimbursement arrangement (QSEHRA), which can only be offered to individuals not covered by group health plans. (And yes, as you may have noticed, there are lots of weird acronyms in health care!)
Money that businesses contribute to employees’ HRAs is tax-deductible, making it cheaper for the business. And there are also other types of HRAs, including those for employees with employer-sponsored insurance.
6. Are there any reasons or incentives for an SBO to offer health insurance to employees?
There are many reasons for small businesses to offer health insurance. Because health care is so expensive nowadays, owners or employees could sustain injuries or be diagnosed with serious illnesses (such as COVID-19) and become bankrupt from medical bills if they don’t have health insurance. Being able to access health care and preventive care easier and recover from illnesses faster ensures healthier and more productive employees.
Offering the financial security and peace-of-mind of health insurance also improves employee recruitment and retention, since SBOs will be competing against businesses that offer insurance benefits to employees. Also, employee benefits are tax deductible, so businesses can write them off.
7. What do you want to say to SBOs who want to offer health insurance to employees but are concerned the process will be too confusing or too time-consuming?
SBOs are very busy and insurance options can be confusing, so the easiest route is to contact an insurance agent or broker in your area that deals with group health insurance. They are highly trained, so they can explain your options and prices and will help handle the process.
8. What types of health plans are available to small businesses and what do they cover?
The Affordable Care Act of 2010 changed the small business and individual health insurance markets to have the same types of benefits and protections. Both types of insurance cover all of the “10 essential health benefits,” such as doctors, hospitals, laboratories, maternity care, and prescription drugs. Insurance companies can’t deny or drop people for having pre-existing health conditions, and they can’t impose yearly or lifetime limits on what they pay.
Most of the available health plans are managed care plans, such as health maintenance organizations (HMOs). They require enrollees to use health providers and facilities that are in the health plans’ network. While all health plans offer the same types of health benefits, the financial details vary of who pays for needed health care—the patient or the insurance company.
9. Any final thoughts?
There is no denying that health insurance (and the whole health care system) can quickly become complex. There are many more details and nuances explained in my book, such as how to calculate FTEs, if owners are counted in employee counts, how franchises are viewed, the “metal levels” of small business and individual health plans, how COBRA works, and many other topics and practical tips for businesses and individuals.