It’s become a given in today’s volatile job market that employers need to do all they can to offer some level of health insurance coverage for their employees. Yet, it is also an expensive offering for most employers, especially a small business.
Offering Health Insurance Plans as a Small Business
So, how do you know if yours is actually a “small business” when it comes to insurance purposes? Well, the truth is that there are a variety of definitions of an “SMB” out there. For example, business research giant Gartner, has this to say regarding SMBs,
“For the purposes of its research, Gartner defines SMBs by the number of employees and annual revenue they have. The attribute used most often is number of employees; small businesses are usually defined as organizations with fewer than 100 employees; midsize enterprises are those organizations with 100 to 999 employees. The second most popular attribute used to define the SMB market is annual revenue: small business is usually defined as organizations with less than $50 million in annual revenue; midsize enterprise is defined as organizations that make more than $50 million, but less than $1 billion in annual revenue.”
How does this compare to what the federal government uses as a business-size yardstick? Well, it turns out that even there the definition varies with the agency or program being considered. For example, according to a Wikipedia entry,
“[T]he Small Business Administration establishes small business size standards on an industry-by-industry basis, but generally specifies a small business as having fewer than 500 employees for manufacturing businesses and less than $7.5 million in annual receipts for most non-manufacturing businesses. The definition can vary by circumstance—for example, a small business having fewer than 25 full-time equivalent employees with average annual wages below $50,000 qualifies for a tax credit under the health care reform bill Patient Protection and Affordable Care Act.”
But, when it comes to providing health insurance, the Affordable Care Act (ACA) provides the litmus test for these purposes. If your company has 50 or more full-time employees, then you are legally required to provide affordable health insurance under the ACA.
What is defined as “affordable” health coverage is the annual cost for the employee can be no higher than 9.86 percent of their annual income as of 2019 (up from 9.56 percent in 2018). If an owner does not offer coverage, he or she will be subject to a penalty of $2,320 per full-time employee, excluding the first 30 employees.
This can be quite costly. Consider a business with 100 full-time workers and no health insurance offerings. That owner can be fined up to $162,400 by Uncle Sam for failing to do so. Yet, only 55 percent of employers with fewer than 100 employees offer it.
Tax Advantages for Small Businesses Offering Health Insurance
Along with the added benefit of being able to attract quality job candidates and helping to create a happier, healthier workforce in your business, offering health insurance coverage provides financial benefits to you as an owner.
According to an article by Fundera,
“Purchasing small business health insurance for yourself and your employees can help you qualify for tax credits. To qualify, you must purchase a plan through the Small Business Health Options Program (SHOP) Exchange, which is an insurance portal created by the Affordable Care Act. You can qualify if you meet the following requirements:
- Have fewer than 25 full-time employees, or the equivalent based on working hours
- Offer health insurance to all your full-time employees
- 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 toward employee premiums. That significantly reduces the cost of providing benefits for your hard-working employees.
Beyond the SHOP tax credit, you’ll also be able to write off the health insurance premiums you pay as tax deductions, saving even more money. Small business owners can save a lot by deducting expenses, and health insurance premiums are one of the most common small business tax deductions out there.”
The article goes on to note that another smart tactic is to set up your small business health insurance plan so that your employees can pay their portions of the premium with pre-tax money, allowing them to save even more.
Key Things to Consider When Shopping for Your Health Insurance Plan
Even for small business owners there are plenty of options. While you do not have to provide health insurance coverage for your workers if you have two and 50 full-time employees (or the equivalent based on hours worked), but it’s generally a good idea.
There are four major types of health insurance plans to choose from for your employees:
- Preferred Provider Organizations (PPOs) A PPO has a network (or group) of preferred providers. You pay less if you go to these providers. Preferred providers are also called in-network providers. With a PPO, you can go to a doctor or hospital that is not on the preferred provider list. This is called going out-of-network. However, you pay more to go out-of-network. The PPO pays less or nothing at all.
- Health Maintenance Organizations (HMOs) Typically, you must have a primary care doctor who provides your basic care and makes referrals to specialists. If you see a provider outside of your HMO’s network, they will not pay for those services aside from emergency and urgent care visits. The doctors and other providers may be employees of the HMO or they may have contracts with the HMO.
- Point-of-Service plans (POS) These are managed care plans that are somewhat of a hybrid between HMO and PPO plans. Like an HMO, participants designate an in-network physician to be their primary care provider. But, like a PPO, patients may go outside of the provider network for health care services.
- Exclusive Provider Organizations (EPOs) Instead of staying 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.
So, where do you go to shop for small business health insurance for your employees? In addition to the state exchange Covered California, there are typically three main ways you can find small business health insurance.
One approach is to approach a private health exchange, or purchasing alliance, which is like a small marketplace that works with numerous small businesses to allow them to purchase health insurance as a group. Since multiple businesses are in the pool, costs decrease for everyone.
Another option is to contact health insurance companies directly. While this may result in a better deal for an owner, it is also time-consuming and a bit overwhelming for most people. In addition, some insurance companies only work through brokers so getting information can be difficult if not impossible.
But probably the best way to find and purchase the best health insurance coverage for your business needs is to see an insurance agent. When you call any insurance company directly, you will be limited to the recommendations of their products. With an independent insurance agent, such as J.C. Lewis Insurance Services, we can tailor our recommendations to your company’s needs since we are licensed with all major carriers licensed to do business in California.
Small Business Health Plans: Help for Choosing Wisely
Finally, a few things to consider when looking to obtain California group health insurance for your employees:
Your Employer Contributions
As an employer, you are required to pay a portion of employee’s premiums, but you may be able to get contribution options as low as 50 percent and, depending on the carrier, you can choose between a fixed dollar amount or a percentage contribution. And remember that your employer contributions can be 100 percent tax deductible on your state and federal income taxes.
Your Employee’s Participation
For most plans, it is typical that 65 to 75 percent of your eligible full-time employees must participate in the program. Keep in mind that any employees who are considered eligible waivers (i.e. employees with Medi-Cal, military benefits, or who are covered under a spouse’s group plan) are not included in the total employee participation percentage. For any small business plan there must be a minimum of one full-time, W-2 employee who is not a spouse of the owner or partner.