Small business health insurance, also known as group health insurance, provides small business owners access to coverage for their employees. Whether you have just a few — or more than a few — employees, small business health insurance goes beyond healthcare coverage for you and your company.
Small group plans also provide valuable incentives to attract and retain employees.
Navigating small business health insurance can be one of the hardest parts of running your small business, as there are many options and rules to figure out. Also, if your small business doesn’t have a full human resources department, you’re left to work it out on your own.
What classifies as a small business?
The U.S. Small Business Administration (SBA) defines a small business as an independent business that has fewer than 500 employees. However, this definition can vary by industry.
For insurance purposes, only small- to medium-sized businesses that meet certain requirements are eligible for a BOP, according to the III. Insurers may consider several factors when assessing whether a business is eligible for a BOP, which include:
Number of employees
One of the primary factors used to classify a business as small is how many people it employs. Typically, businesses with fewer than a certain number of employees are considered small. The threshold is determined by the insurance provider and can range from a handful of employees to several hundred, depending on the industry and the specific insurance policy.
Ownership structure
The ownership structure of a business can also impact its classification as small, according to the SBA. In some cases, insurance providers may consider factors such as whether the business is independently owned and operated or part of a larger corporate entity.
Industry classification
Certain industries have their own unique standards for defining small businesses. For example, the SBA sets industry-specific size standards based on the number of employees or annual revenue. These standards help determine eligibility for government programs and contracts.
Annual revenue
In addition to the number of employees, the SBA considers the annual revenue of a business when determining its size. Similarly, insurance providers may set a maximum revenue threshold for small businesses.
It’s worth noting that the definition of a small business may differ among insurance providers, so it is essential to carefully review your policies and consult with your insurance providers to ensure you meet the specific requirements for coverage.
How does small business health insurance work?
There are four main elements that you, as a small business owner, should be aware of concerning small business health insurance. These are:
Coverage
First and foremost, if you are eligible for a small business health insurance plan, your coverage is generally guaranteed to be issued by the insurance company. This means that you, your employees and your dependents cannot be denied coverage based on pre-existing medical conditions.
Also, all eligible employees and their dependents can enroll in the new plan regardless of their medical condition(s).
Number of employees
To qualify for small business health insurance coverage, you must have at least one employee on your payroll. However, some states allow you to count yourself as both a business owner and an employee.
You must pay at least 50% of the monthly health insurance premiums for your employees. The minimum percentage may vary depending on your state or insurance company.
Shopping for coverage
As a small business owner, you can shop around for health insurance coverage at any time, without needing to wait for your current plan to expire or for a special open enrollment period. However, once you buy a plan, you are typically locked in for at least a year, during which you can add new employees and dependents or drop coverage for former employees.
Once your contract is up, you have the option to renew or shop for a new plan.
Types of small business health insurance plans
As a small business owner, you can choose from five types of healthcare plans for your business.
HMO (Health Maintenance Organization)
An HMO is designed to keep costs low and predictable by only using doctors and hospitals within the HMO network. It typically has low premiums, deductibles, and fixed copays for doctor visits. Primary care physicians (PCP) are the primary point of contact for all medical care, including specialty referrals.
PPO (Preferred Provider Organization)
PPO networks let you choose where to go for care, without a referral from a PCP or having to only use providers in your plan’s provider network. These plans typically have higher monthly premiums and out-of-pocket costs like copays, coinsurance, and deductibles.
EPO (Exclusive Provider Organization)
An EPO offers a local network of doctors and hospitals to choose from. If you’re looking for lower monthly premiums and are willing to pay a higher deductible when you need healthcare, you may want to consider an EPO plan.
POS (Point of Service)
A POS plan requires that you get a referral from your PCP before seeing a specialist. This plan covers out-of-network doctors at a higher out-of-pocket cost than in-network doctors.
HDHP (High Deductible Health Plan)
An HDHP has low premiums but higher immediate out-of-pocket costs. Employers often pair HDHPs with a Health Savings Account (HSA). This is a tax-free fund used to offset costs such as deductibles.
Best small business health insurance providers
United Healthcare
United Healthcare is one of the best overall small business health insurance for employees. It’s the largest insurance provider in the United States by membership, with approximately 70 million members. It partners with over 1.3 million doctors, other healthcare professionals, and 6,500 hospitals and care facilities.
The carrier offers a variety of plan types for small businesses, including HMO, PPO, EPO, and POS plans. It also provides discounts to customers who bundle their health insurance with dental and vision coverage and publishes helpful resources such as free fitness, nutrition and self-care guides.
Besides offering a broad range of plan options, United Healthcare is an industry leader in technological integration. It offers convenient in-app services such as claim filing and mental health services (available with select small business plans via a dedicated app), features that can save prospective customers both time and effort.
Blue Cross Blue Shield
With coverage in every U.S. ZIP code and a variety of national networks to choose from, Blue Cross Blue Shield can meet the needs of almost any business. Its workplace wellness programs vary by state and offer a significant reduction in health insurance premiums for employees who commit to working out at least twice per week.
Other benefit offerings vary by region as well, but Anthem offers 24/7 virtual care, a convenient mobile app, a variety of plan types, and the option to bundle health coverage with dental, vision, life, and/or disability insurance. The Blue365 discount program provides your employees with robust discounts on wellness-related products and services.
But since BCBS is a group of companies, benefits vary by region, as do customer satisfaction ratings. It’s important to evaluate your BCBS company for issues like customer complaints.
Oscar
Oscar makes it easy for your employees to request virtual care from a convenient mobile app, and with most plans, there’s no cost to talk to a doctor online. Employees can also use the app to refill their prescriptions, message their care team, track their deductibles, and even get rewarded for meeting their step goals.
In addition, Oscar has partnered with Cigna to give members access to the company’s national and local provider networks.
You can give your employees two network options, both of which don’t require specialist referrals and which include the Cigna Behavioral Health Network.
Aetna
Aetna isn’t the largest small business health insurance provider. However, with 169 years of history behind it, Aetna brings a considerable amount of institutional experience. Numerous online sources also report that the company’s prices are affordable when compared to other providers.
However, Aetna has a complaint index of 1.94, according to the National Association of Insurance Commissioners. That means it has received roughly twice as many complaints as the average insurance company over the same period.
Additionally, Aetna sustained a $500,000 fine in 2020 for wrongfully denying many emergency room claims in California.
While this sounds troubling, it’s important to note that many large health insurance providers sustain high complaint levels and fines. Proceed with caution and further research what people say about Aetna in your state or region.
Humana
Humana offers greater flexibility than other insurers since customers can customize their plans with popular add-ons such as dental, vision and hearing insurance. Business owners can select from a variety of plans, including HMOs and PPOs.
Humana is America’s fifth-largest health insurance company, with over 20 million members. While not outrageously expensive, Humana’s prices tend toward the higher end of the spectrum. Quotes obtained from Humana’s website and numerous online review services show its prices trend slightly above the competition.
Kaiser
Kaiser offers a range of health plan options, from PPO plans to deductible HMOs that can be paired with a health savings account or health reimbursement arrangement. It is affordable to add extra benefits for your employees, which include not only dental and vision but also complementary care, such as acupuncture and chiropractic.
While the company provides resources and support for establishing a workplace wellness program, Kaiser is less hands-on than some Blue Cross Blue Shield companies when it comes to specific workplace programs. The company does, however, offer a variety of fitness discounts, and members can speak with a wellness coach at no cost.
Cigna
Cigna offers multiple group health options including PPO, HMO, and Open Access plans. Plans include free access to wellness programs and savings and spending plans. Cigna also maintains relationships with more than 1.5 million healthcare providers worldwide and over 99% of U.S. pharmacies.
Cigna holds an A- rating with the BBB and a 4.3/5 rating on Trustpilot with 1,551 total reviews. Customers complain about being denied coverage for medically necessary procedures and poor customer service.
Why should you offer small business health insurance?
Starting and running a small business is expensive and it can be easy to dismiss health insurance as an unnecessary cost to help stay within your budget. However, health insurance is a vital part of running a successful business that people want to work for.
Here are a few reasons why you should offer health insurance to your employees:
Group coverage may cost less and cover more
Whereas an individual plan offers coverage for only you or your family, group health insurance is insurance that businesses purchase and offer to eligible employees and their dependents. Group insurance offers certain advantages over individual health insurance, including generally being more affordable and offering more extensive coverage.
You may qualify for a tax credit
The purchase of health insurance for yourself and your employees can help you qualify for tax credits if you purchase a plan through the Small Business Health Options Program (SHOP) Exchange, an insurance portal created by the ACA. You must meet the following requirements:
- Have fewer than 25 full-time employees.
- Offer health insurance to all full-time employees.
- Pay salaries of less than $50,000 per full-time employee, on average, each year.
- Front at least 50 percent of the premium cost.
As a small employer, you can receive up to 50 percent of your contributions toward employee premiums, which can significantly reduce the costs of providing health benefits to your employees.
It can increase job satisfaction and recruiting success
Offering a health insurance option can greatly increase your chances of attracting and retaining top talent, as it shows that you care for and value your employees.
Healthy employees are productive employees, and the best way to ensure your employees remain so is to provide comprehensive health insurance. Employees without insurance are less likely to receive annual checkups or visit the doctor when they’re sick, which can cause them to become sicker and take time off work.
If you’re self-employed with no employees, health insurance is a necessity that can help you protect yourself, your dependents and your business against a potentially disastrous illness.
Cost of health insurance for small businesses
Since the costs of health insurance depend on your specific business, it can be difficult to estimate how much health insurance will cost. When choosing health insurance for your employees, it’s important to consider the financial cost but also the work that goes into selecting benefits, educating your team on their options, and administrative work to support the plan.
Monetary costs
The monetary costs of providing health insurance depend on the type and number of benefits you plan on providing, who you are covering (employees only, or employees plus dependents) and the percentage of the monthly premium that you are going to cover as your employer contribution.
If you plan to use a broker, a professional employer organization (PEO) or another third party to find health insurance coverage options for your business, prepare to factor in those fees as well.
Time costs
Time costs are often not considered, but they are an important part of finding a health insurance plan. You will be spending a considerable amount of time searching for providers, understanding your employees’ needs, setting up the insurance carrier plan, educating your employees about the plan options, looking over your health insurance plan every year for open enrollment, and ensuring it’s properly maintained.
Health insurance costs for employees
On the employee side of things, insurance costs will look substantially different. For the most part, these costs can be split into three categories: premiums, deductions and out-of-pocket costs.
Premiums
Premiums are the regular payments made to the insurance company. For employee health insurance, premiums are typically deducted from every paycheck. This is a fixed price that does not depend on how much the employee works or earns.
Think of premiums as a monthly subscription cost for being on the insurance plan.
Deductions
Deductions are where things get complicated. Every policy has a deductible, which is the amount of money the employee pays for medical expenses before insurance benefits kick in. To make things more complicated, every policy has exceptions to this rule.
For example, it is normal for a policy to include a free annual check-up that doesn’t require the deductible to be met.
When large medical expenses crop up, however, the deductible can be a little bit easier to understand. Say the deductible is $5,000. If an employee incurs a $10,000 medical bill, they will have to pay $5,000 toward the bill from their own pocket before the insurance will pay. After the deductible is met, the insurance coverage will pay for bills as outlined in the policy — usually a percentage of the total bill.
Out-of-pocket expenses
Out-of-pocket expenses are expenses not covered by insurance. The employee is on their own to pay these expenses, which can include deductibles. They can also include copays, which is where matters again can be complicated. With a copay, the insurance policy sets a specific price that comes out of the patient’s pocket for a given service or medication.
For example, an eye insurance policy might have $10 copays for eye appointments. The $10 refers to the out-of-pocket expense the employee pays toward the appointment. The rest of the visit may be covered by the insurance company.
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