Balance sheets? Cash flow forecasts? Business debt schedules? Debt service coverage ratios? Finding a loan?
That stuff is easy…
At least, compared to small business health insurance.
Figuring out small business health insurance is notoriously one of the most difficult, complicated, frustrating, and stressful parts of running your own business. Everyone needs it—but nobody understands it.
In fact, over 50% of Americans rely on their employers for health insurance, yet 1 in 4 business owners are uninsured. While the Affordable Care Act (or “Obamacare”) made some serious strides towards improving personal, family, and business health insurance, it’s still a pretty convoluted system—and plenty of entrepreneurs have nightmares about it.
Plus, making bad decisions about your small business health insurance could cost you more than time: picking the wrong plan can be expensive, harmful to your business, and most importantly, dangerous.
That doesn’t have to be you.
Let’s find out how. Here’s your all-in-one guide to understanding, searching for, and picking the absolute best small business health insurance plan for you and your employees.
Part 1: Why Even Get Small Business Health Insurance?
Plenty of small business owners navigating the messy world of small business health insurance have probably stopped and asked themselves…
Why do I need this in the first place?
It’s a fair question. Businesses—especially the small and scrappy ones—should always make sure that their expenses are worthwhile. Is small business health insurance really all that important if you’ve got just a handful of employees?
As it turns out, the answer is overwhelmingly yes.
Here are a few reasons why.
1. The Benefits of Group Coverage
Shopping around for individual or family insurance plans can be a pain—but while it’s complicated, small business health insurance can be a lot more flexible.
If you’re seeking “group coverage,” which applies to businesses (as well as other types of groups), then your insurance premiums and coverage eligibility won’t depend on your personal medical history. Instead, the insurance company will gather some basic demographic information about the group members—like age, geography, and so on—so they can try to assess the possible health risks.
In short, if you get insured with group coverage, neither you nor any of your employees will get penalized for medical histories or health problems.
(And while groups usually need to have at least 2 members, some states allow “groups of one” as well… So check out your local rules!)
2. You’ll Receive Tax Credits
That’s right—getting small business health insurance for you and your employees can be costly, but not as expensive as you might think.
In order to qualify for tax credits, you need to…
Have fewer than 25 full-time employees, or the equivalent based on working hours
Pay salaries of less than $50,000 per full-time employee, on average, each year
Front at least 50% of the premium cost of the small business health insurance
Your tax credit will vary depending on those aspects of your business, but you can receive up to 50% off your contributions towards employee premiums. That significantly reduces the cost of providing this service for your hard-working employees.
3. Other Tax Benefits
Beyond those tax credits, you’ll also be able to write off the health insurance premiums you pay as tax deductions, saving even more money.
Plus, with just a bit of extra paperwork, you can set up your small business health insurance so that your employees could pay their portions of the premium with pre-tax money. They save cash, which makes them happier and more satisfied with their jobs: win-win.
4. Job Satisfaction & Recruiting
Health insurance is a big deal for people on the prowl for a new job—and offering small business health insurance, even though you’re not a big corporation, shows how much you value your employees.
To be sure you’re attracting the best and brightest talent for your small business, consider investing in health insurance.
In fact, studies show that small business health insurance plans increase employee loyalty and decrease turnover, too.
5. Healthy Employees are Productive Employees
Employees without small business health insurance are less likely to get yearly checkups or visit the doctor when sick… Which actually leads to a decrease in productivity.
It’s simple: they get even sicker and have to take more time off from work. By focusing on saving money to the detriment of their health, these employees are hurting your bottom line—all because you didn’t want to purchase small business health insurance.
It’s a fact that wellness programs can bring huge, fiscal benefits to companies. Offering small business health insurance is just the tip of the iceberg, but it’s a start.
6. Job Security
If you’re a freelancer, consultant, or sole proprietor without any employees, then health insurance isn’t a useless expense…
It’s a necessity.
Just think about it. Health insurance helps you protect yourself, your dependents, your financials, and your business against potentially disastrous illnesses down the line. Insurance companies negotiate rates with health care providers, so getting and staying healthy is cheaper—and you’re protected against unexpected and potentially bank-breaking treatments in the future.
And as the sole owner and operator of your business, you need to be healthy—or your business is nonexistent. So since nobody can stop themselves from getting sick by sheer force of will, you’re going to need health insurance to protect yourself.
Depending on the state you live in, you may or may not qualify for small business health insurance. (We’ll cover this in a little bit.) Regardless, though, you need to make sure that you’re covered.
7. It’s the Law (If You’re Big)
If you’ve got 50 or more full-time employees—or the equivalent—then you simply need to provide health insurance. You might not feel like a large company, so you could still search for small business health insurance, but regardless… The law’s the law.
OK, Sure, But What Are the Costs?
Fair question. Like everything in life, small business health insurance doesn’t come free (or cheap, in many cases).
So what’ll it cost you?
Although you can deduct health care payments from your taxes, receive tax credits for providing insurance, and split costs with your employees, you’ll still need to pay for your insurance plan.
It’s up to you to decide whether your business can take the costs upfront—or whether you’re willing to roll the dice and pay more down the road if something happens.
2. Time & Effort
Finding, analyzing, and picking the best small business health insurance plan? Not easy or fast by any means.
You’ll be spending your time and energy searching online, filling out paperwork, talking to your employees about their needs, consulting fellow entrepreneurs and small business health insurance experts…
Plus, you’ll need to revisit your health insurance plan every year for open enrollment and make sure it’s properly maintained on an ongoing basis.
We think small business health insurance is well worth these costs, but you should still be aware of what it’ll take.
Part 2: Getting Started with Small Business Health Insurance
Before we go into how you’ll find and pick your small business health insurance plans, let’s discuss a few things you’ll want to keep in mind real quick.
Broker or No Broker?
There are plenty of compelling reasons to work with a broker when you’re looking for health insurance. They can help you with the mountains of paperwork, make sure your business is compliant with all relevant laws, ensure you land on plans with the most up-to-date policies, and help with implementation and renewals.
Of course, brokers earn a commission—that’s how they make a living.
If you’re more in favor of finding and picking a plan on your own, that’s fine… Just remember that there are many small business health insurance companies out there, and it can be easy to feel overwhelmed or get stuck with the wrong kind of insurance. The extra cost of a broker might very well save your business more money later on.
Also, thanks to the Affordable Care Act, you can check out your state’s health insurance exchange marketplace with or without a broker. You might want to try and navigate the small business health insurance waters solo and then, based on what confuses you, seek out some help if you need.
Documents You’ll Need to Gather
Applying for small business health insurance isn’t quite as intensive as looking for a business loan—but you’ll still want to prepare some documents and information beforehand to make the process go quicker.
Here’s a short list of the basic requirements:
Business address (must be a street address, not a P.O. box)
List of employees to be covered (if you’re covering one full-time employee, you must cover them all!)
Tax ID / Employer Identification Number
Business start date
Industry code (SIC)
Plus, since you’re looking for group coverage, you’ll need to provide an “Employee Census” that breaks down these employee demographics:
# of dependents
This is so the small business health insurance company can use their data to decide on premiums (and other costs) that match with your employees’ risk levels.
Figure Out Your Financials
So you’ve committed to getting small business health insurance—great!
But how much can you feasibly spend on this benefit?
Most business owners figure it out using one of two methods:
1. Percent of payroll
Pretty simple: how much of your payroll expenses can you devote to a small business health insurance plan?
Entrepreneurs use this method because the cost of your insurance is directly connected to the number of employees you have, and how much you pay them is related to how much you want to keep them.
2. Per employee, monthly basis
This one’s also fairly straightforward: how much can you afford to pay per employee, on a monthly basis?
(In fact, the methods are very similar. The takeaway? The costs of your small business health insurance depend on how many employees you have, how much you pay them, what their health needs are, and how your business is doing financially.)
Part 3: Here’s How to Find the Best Small Business Health Insurance
Thankfully, there’s one easy, simple, quick strategy to figuring out which small business health insurance plan works best for your business, no matter what your needs are.
Oh, wait… That’s not quite true.
But hey—just because small business health insurance is complicated, that doesn’t mean it’s a bad thing! The more options there are, the more chances you have to cater exactly to your business’s needs.
It’s just a matter of figuring out where to go.
There are two different processes for finding your small business health insurance, depending on whether or not you’ve got any employees you’d extend coverage to.
Part 3a: Finding Small Business Health Insurance Without Any Employees
If you’re a consultant, freelancer, or sole proprietor, here’s the deal:
If the state you live in allows “groups of one” to purchase group coverage if you’re registered as a business, great! Move on to the next section to figure out exactly where and how you can find the various plans to pick from.
(This is preferable, since individuals can’t get denied health insurance under group coverage. Find your state’s health insurance page here to check.)
If not, you’ll need to buy individual or family health insurance instead. Though the plans and application process are different, a lot of our advice will still be relevant—so not to worry.
What Should You Take Into Consideration?
Since you’re only getting small business health insurance for you—and, possibly, a spouse and/or dependents—your choices are drastically simpler.
Here are some health-related factors you’ll want to think about when browsing through the individual, family, or small business health insurance plans you can choose:
Your medical history
The prescription drugs you need
How often you visit a general practitioner
How often you visit a specialist
Your family’s medical needs and history
Any plans you have for pregnancies, etc.
You’ll need to weigh these factors against the costs of the various plans you check out in order to make an informed decision. The essential question with health insurance is, would you rather pay more now or more later? In other words, how should you balance premiums and copays?
Of course, there are plenty of other variables in play—but we’ll discuss these in-depth in part 4.
Part 3b: Finding Small Business Health Insurance With Employees
If you have between 2 and 50 full-time employees (or the equivalent based on hours worked), then you don’t have to purchase small business health insurance.
But like we discussed, it’s generally a pretty good idea.
There are 4 main ways you can find small business health insurance, whether or not you’re working with an insurance broker.
Let’s take a look.
1. Contact Small Business Health Insurance Companies Directly
If you already know which insurance companies and plans suit you best, then you have a pretty good reason to go it alone—and contact those providers directly. They’ll have online applications, package descriptions, customer service lines, and reviews for you to deep dive into. And like we said, applying isn’t terribly difficult if you know what you need.
Picking One Small Business Health Insurance Plan
You should note that this route involves picking one single specific health insurance plan…
So make sure to confirm with your employees beforehand and understand what they actually want and need from their small business health insurance. After all, if you get a plan without the benefits they’re looking for, you’ve wasted your money… And theirs.
Although it’s illegal for employers to ask about your medical history (except for a few special circumstances), you can still send out an anonymous survey or offer a poll for them to express which benefits are most important.
The bigger your company, the harder it is to satisfy everyone—especially if you’re only working with a single plan. But it’s not impossible!
Also, it’s important to keep in mind that some insurance companies actually don’t sell direct to business owners. Some providers have special deals with brokers, for example, that prevent them from working just with you. If that’s the case with the insurance plans you want, you’ll either have to find an alternative or partner up with the right broker.
Choose the Right Provider
Finally, how can you be certain that the small business health insurance provider you’ve picked is trustworthy?
Make sure to use consumer review sites like Consumer Affairs and the National Committee for Quality Assurance (NCQA) to find insurance companies you’re eligible for and sort them by testimonials, benefits, and location. Take a look at J.D. Power’s annual regional survey of the highest-rated health insurance companies by state and region, as well as the NCQA’s report.
While contacting insurers directly gives you all (or most) of the decision-making power, it can get very overwhelming very quickly. If you choose this path, make sure you understand all your options and pick the plan that truly suits you best!
2. Partner With Purchasing Alliances
Also called private health exchanges, purchasing alliances are mini-marketplaces that offer a few different small business health insurance options for your employees to pick between.
The benefits here are pretty huge:
Instead of landing on a single one-size-fits-all plan, you can offer your employees a few different choices—and they can select whatever works best for their budgets and health needs. They’ll have more purchasing power, tailoring your customizable small business health insurance package instead of going along with what you’ve picked or opting out and finding their own plans.
As a result, your employees will have different premiums and copays depending on what kinds of coverage they elect for—but your bill will remain the same.
Pros & Cons
While purchasing alliances are great for employee choice, as well as deeper information and administrative help, they’re not necessarily more cost-effective for your business. You could get cheaper small business health insurance directly from providers, for example—just without the benefit of flexibility.
In terms of finding those purchasing alliances, you’ll have the same set of options: research on your own, work with a broker, or…
3. Use a Health Insurance Exchange
With the passage of the Affordable Care Act, the federal government mandated that each state set up a “health insurance exchange”—or, in other words, an online marketplace with easy-to-understand data points about various health insurance providers.
Finding Your Health Insurance Exchange
These health insurance exchanges are available for individuals and families, but also for small businesses in search of group coverage. The federal health insurance exchange database—or, in plain English, the website you can use to find your online marketplace of health insurers—is called the Small Business Health Options Program (or SHOP, because the government loves acronyms).
Use SHOP to locate your state-appropriate health insurance exchange and filter through personal and family health insurers, small business health insurance providers, and health insurance brokers. It’s an incredibly convenient and usable system for small business owners and brokers alike.
The Benefits of Small Business Health Insurance Exchanges
The big draw of health insurance exchanges?
They have the “free market effect” of lowering costs by increasing visibility of competition.
Employers can choose between various tiered categories for the health insurance plans they select, each with its own set of minimum benefits outlined by the government. Each small business health insurance plan comes labeled as bronze, silver, gold, or platinum, indicating pricing structures from low monthly premiums but high copays (for bronze) to the opposite (for platinum).
This lets consumers compare plans apples-to-apples, giving them a standardized metric to filter out what they don’t need and find what they want quickly and easily.
Plus, each tier comes with a few given benefits (like coverage for prescription medication and hospital stays) so you’ll never be left out in the cold.
A Quick Note About Exchanges and Alliances
Like we said before, purchasing alliances are also called private health exchanges…
Confused? Don’t worry.
Technically, those purchasing alliances are the privatized version of the public health insurance exchange we’re talking about right now. One is structured by the government to give everyone transparency into individual, family, and small business health insurance. The other is organized by private companies who benefit by providing flexibility.
In short, they’re two sides of the same coin, offering choice to consumers and business owners.
However, only through the public health insurance exchanges (like SHOP) can you get health care tax credits of up to 50% of premiums!
4. Trade & Professional Associations
Does your business belong to any trade or professional associations?
If so, be sure to check in with them and see whether they’re already covered by a group plan. That might very well be the best option for you and your employees—not the least because it would save you the time and energy of searching on your own.
By the way, you’ll probably want to investigate this on your own… Even if you’ve hired a broker. While brokers are experts in small business health insurance options, they’re probably not as well-versed in the intricacies of your particular industry as you are.
In other words, your trade or professional associations might not be on their radar—but they should be on yours.
Not sure about the trade and professional associations in your industry or area? Not a problem: check this list to find some nearby.
Part 4: How Do You Know Which Small Business Insurance Plan Is Best?
You’ve got the basics down. You’ve found the small business insurance policies you can apply for.
Now how do you pick the right one?
You’ll need to weigh a bunch of different factors according to your own personal and business priorities. What’s more important to you—paying more now or later? Broad coverage or saving money? Satisfying your employees’ needs or keeping your cash flow?
Ask yourself (and your employees!) these 7 questions when considering each plan:
1. What’s getting covered?
Are you looking for a wide range of medical coverage, or do you prefer lower monthly premiums?
If everyone is happy, healthy, and comfortable paying more out-of-pocket when they need health care, then opting for less coverage and lower monthly expenses make sense. But if you or your employees frequently visit the doctor, require the aid of specialists, or have long-term medical conditions, then better coverage might be worth the higher recurring cost.
Essentially, you’ll need to find the right balance between coverage and cost. There’s no perfect system, but deeply understanding your business’s financial needs and your employees’ health insurance goals is an important first step.
2. What kind of plan are you looking at?
There are a few different types of health insurance plans, each with its own quirks. We’ll break them down briefly here.
HMOs, or Health Management Organizations, are famously limited—with the intention of cutting costs.
They’re great if you’re…
On a tight budget
Comfortable only going to doctors within a prescribed network of health care providers
Planning on needing routine care in the near future, like for a pregnancy
However, if you need specialist help, go outside the provider network, or suffer an accident or unforeseen illness, an HMO plan can leave you paying a lot of money for your medical visits.
PPOs, or Preferred Provider Organizations, have the opposite trade-off: they’re incredibly flexible with regards to health care provider networks, but tend to be higher-cost if you just need regular, routine medical assistance.
They’re great if you’re…
A fan of shopping around for doctors
Going to need specialists because of a specific condition
Comfortable with spending more
While you won’t get penalized nearly as much for going to doctors outside of your prescribed network (like specialists), you will have a deductible you’ll have to pay before the insurance actives—and, by the way, lower monthly premiums come with higher deductibles (and vice versa).
In addition, you’ll also have higher out-of-pocket costs for your doctor visits, paying coinsurance (or a percentage of the cost of your visit) instead of flat rates (as with HMOs).
Point of Service Plans combine HMOs and PPOs. You’ll still need to get specialist referrals from your primary care physician, like with an HMO, but you’ll pay less for out-of-network medical visits, like with a PPO.
Generally speaking, the costs of POS plans fall between HMOs and PPOs. If you like your doctor but will still need specialist consulting, this could be the right option for you or your employees.
EPOs, or Exclusive Provider Organizations, are the exact opposite kind of HMO/PPO hybrid.
Instead of sticking with your primary care physician to get specialist referrals, you’re encouraged to remain within your network—but don’t need to get a referral if you journey beyond it.
If you think you’ll probably stick to your provider network but still want that flexibility, this can be a cost-effective choice of small business health insurance.
It’s good to have a broad understanding of what, generally speaking, you’re signing up for. Using these four small business health insurance types can help you navigate what you need—and what you’re walking away with.
3. What’s the health care provider network?
Your network is the list of physicians and hospitals who your health insurance provider has contracted with. Because health insurance companies secure cheaper health care service only from a certain selection of doctors, your out-of-pocket payments will be lower when you stay within that network.
In short, your network is all the doctors who your insurance will help you afford.
So why does this matter?
Beyond the reasons we talked about before—like the fact that specialists aren’t necessarily going to be in your network—it’s also important to consider your network with regards to who your employees currently see.
Some employees, especially older ones, may not be comfortable switching their primary care physicians… Especially if they’ve been seeing the same family doctor for decades. Others, though, might be completely fine with hopping around from doctor to doctor.
It’s up to you to figure out where your employees’ priorities are—and try to meet them!
4. What are the premiums, deductibles, copays, and coinsurance payments?
Whew—that’s a lot of jargon.
In case you’re unfamiliar with these terms, we’ll simplify them real quick:
Premiums are the monthly payments you make to your small business health insurance company. Generally speaking, higher premiums mean lower out-of-pocket costs for doctor visits (and vice versa).
Deductibles are amounts you’ll have to pay before your health insurance kicks in. For example, you might have a $500 deductible—which means that your health insurance provider won’t subsidize your health care until you’ve paid off that first $500. (Not all health insurance plans have deductibles.)
Copays are fixed amounts you’ll pay when getting a certain health care service. When you go for a routine checkup, for example, you might pay a flat rate of $15 before your insurance pays for the rest.
Coinsurance is a similar idea—out-of-pocket expenses for your visits—but executed differently. Instead of flat rates, coinsurance costs are percentages of the total cost of your medical service. For example, you might pay 10% of the total health care bill, while your insurance company covers the other 90%.
Understanding these terms, and how they relate, will help you figure out which plans are best for you.
Here’s one general formula: higher premiums mean lower copays and coinsurance payments, and vice versa. In other words, the more you pay each month, the less you’ll pay per doctor visit.
What’s the point?
Well, you’re better off with a high premium and low copay if you need health care often. But on the flipside, healthy individuals who rarely visit their physicians would probably save money if they stuck to low premiums with higher copays.
Find the point along this spectrum that fits you and your employees’ medical needs best, and you’ll all be satisfied with your small business health insurance.
5. What’s the cost share?
The whole idea of small business health insurance is that the business subsidizes some of its employees’ health care expenses, right?
That’s the idea behind cost share. How much does the business pay—and how much do the employees?
Generally speaking, employers will need to pay at least 50% of their employees’ monthly premiums—although many companies will pay more along the lines of 80%, since these expenses are tax deductible, tax creditable, and great for morale.
(Here’s a hint for your employees if you’ve gone with a purchasing alliance, by the way: the higher the premiums they choose, the less those plans will be subsidized,)
So—how much can you afford to spend helping your employees out, and how much do you want to subsidize their health care costs?
More may be better from their perspective, but you’ll have to take your cash flow and other business financials into account before making that decision. Be honest and upfront about your decisions here, and your employees will most likely be understanding.
6. How much choice will your employees have?
This could make the difference between buying a small business health insurance plan directly from a provider and going with a purchasing alliance or health insurance exchange.
The more choices your employees have, the better they can tailor their own health care expenses and, probably, the happier they’ll be.
But on the other hand, those options might be out of your price range, and you may have to compromise on a single plan that fits everyone well enough (but not perfectly).
Again, this depends both on your financials and on what your employees want.
7. What benefits do your employees absolutely need?
Although you’re not legally allowed to ask your employees about their medical histories or requirements, you should try to understand where their priorities are.
For example, is everyone fairly healthy, with no long-term medical conditions or need for a specialist? If so, they might prefer to save money through a plan with lower monthly premiums and higher copays—which would save money for your business, too.
On the other hand, if you have a larger staff with diverse medical needs, you might elect for a middle-of-the-road plan (or opt for a purchasing alliance so they can choose their own way).
This is one of the most important questions to ask yourself when picking your small business health insurance policy, because it will determine whether your health insurance actually provides that value we discussed way back in the beginning of this guide.
8. Do you trust the insurance company?
Bottom line: don’t partner up with someone you don’t believe in.
When you’re evaluating a health insurance company, take a look at a few important indicators of quality:
How are their customer reviews?
What’s their reputation among fellow entrepreneurs and professionals?
How is their customer service?
Are they doing well economically?
What impression do you get from their website, marketing, and staff interactions?
While you should try to be as objective as possible, if you have a bad gut feeling about a potential small business health insurance provider, you might want to steer clear.
Part 5: The End! (Almost)
Congratulations! You’ve successfully found and picked the absolute best small business health insurance out there for you, your employees, and your business.
It’s not exactly the end—you still have to fill out paperwork, apply, make payments, walk your employees through their own paperwork and choices…
But by and large, the hard part is over. So rejoice: you’ve done a big, tough, important thing, and your employees (and your business!) will thank you.
Let us know if there’s anything else you’d like to learn about in the comments below, too. We’re here to help!
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