Cost of Health Insurance for Small Business: What You Need to Know

Cost of Health Insurance for Small Business – Health insurance is one of the most important benefits that small business owners can offer to their employees. It can help attract and retain talent, improve employee satisfaction and productivity, and reduce absenteeism and turnover. However, health insurance can also be a significant expense for small business owners, especially in the wake of the COVID-19 pandemic.

In this article, we will explore the following topics:

How does small business health insurance work?
How much does small business health insurance cost?
What are the best health insurance providers for small businesses?
What are the tax benefits of offering health insurance to your employees?
How can you save money on health insurance for your small business?

How Does Small Business Health Insurance Work?

Small business health insurance is a type of group health insurance that covers a group of employees who work for the same employer. Unlike individual health insurance, which is based on the risk profile of a single person, small business health insurance is based on the risk profile of a pool of employees. This allows insurers to offer lower premiums than they would for individual plans.

Small businesses with fewer than 50 full-time equivalent (FTE) employees are not legally required to offer health insurance to their workers, but many choose to do so voluntarily. According to a 2021 Kaiser Family Foundation report, 53% of small firms (defined as those with three to 199 employees) offered health insurance to their employees in 2020.

To offer health insurance to your employees, you need to enroll in a group health insurance plan offered by a private insurance company. You can shop for plans through the Small Business Health Options Program (SHOP) marketplace, which is part of the Affordable Care Act (ACA), or through a broker or agent. You can also use a professional employer organization (PEO) or a health reimbursement arrangement (HRA) to provide health benefits to your employees.

Once you enroll in a plan, you can offer your employees the opportunity to join the plan. You will pay a portion of the monthly premiums for each employee, and your employees will pay the rest. Your employees will also be responsible for paying deductibles, copays, coinsurance, and any services that are not covered by the plan.

How Much Does Small Business Health Insurance Cost?

The cost of health insurance for small businesses depends on several factors, such as:

The type and size of the group plan
The level of coverage and benefits
The location and industry of your business
The age, gender, and health status of your employees
The employer and employee contributions

According to the 2021 Kaiser Family Foundation report, the average annual premiums for employer-sponsored health insurance in 2020 were:

$7,813 for single coverage, of which employers contributed $6,485 (83%)
$21,804 for family coverage, of which employers contributed $13,737 (63%)

These averages vary by state and region. For example, the average annual premium for single coverage in New England was $8,142, while in the South Central region it was $7,324. The average annual premium for family coverage in New England was $23,929, while in the South Central region, it was $19,865.

The cost of health insurance also varies by plan type. For example, the average annual premium for single coverage in a preferred provider organization (PPO) plan was $8,003, while in a high-deductible health plan (HDHP) with a savings option it was $6,890. The average annual premium for family coverage in a PPO plan was $23,032, while in an HDHP with a savings option, it was $20,571.

The cost of health insurance may also change over time due to inflation, medical costs, claims experience, and other factors. For example, from 2019 to 2020, the average annual premium for single coverage increased by 4%, while the average annual premium for family coverage increased by 5%.

What Are the Best Health Insurance Providers for Small Businesses?

Many health insurance providers offer plans for small businesses. Some of the most popular and reputable ones are:

Kaiser Permanente: Kaiser Permanente is one of the largest and most integrated healthcare systems in the U.S., with over 12 million members in eight states and Washington D.C. It offers comprehensive and affordable plans that include preventive care, wellness programs, telehealth services, and access to its network of hospitals and physicians.
Blue Cross Blue Shield: Blue Cross Blue Shield is a federation of 36 independent and locally operated companies that provide health insurance to over 100 million members in all 50 states and Washington D.C. It offers a wide range of plans that include access to its extensive network of providers, as well as value-added services such as wellness programs, discounts, and online tools.
UnitedHealthcare: UnitedHealthcare is one of the largest health insurance companies in the U.S., with over 45 million members in 49 states and Washington D.C. It offers flexible and customizable plans that include access to its large network of providers, as well as innovative solutions such as digital health platforms, behavioral health services, and wellness incentives.
Aetna: Aetna is one of the oldest and most respected health insurance companies in the U.S., with over 22 million members in all 50 states and Washington D.C. It offers a variety of plans that include access to its quality network of providers, as well as value-added services such as wellness programs, care management, and online resources.
Cigna: Cigna is a global health service company that provides health insurance to over 17 million members in 13 states. It offers a range of plans that include access to its network of providers, as well as benefits such as wellness programs, behavioral health services, and telehealth options.

The best health insurance provider for your small business will depend on your specific needs, preferences, and budget. You should compare different plans and providers based on factors such as:

The cost of premiums, deductibles, copays, coinsurance, and out-of-pocket maximums
The coverage and benefits for preventive care, primary care, specialty care, hospital care, prescription drugs, mental health, dental, vision, and other services
The network of providers and facilities that accept the plan
The customer service and support that the provider offers
The ratings and reviews that the provider receives from customers and experts

What Are the Tax Benefits of Offering Health Insurance to Your Employees?

Offering health insurance to your employees can also provide tax benefits for your small business. Some of the tax benefits are:

You can deduct the cost of health insurance premiums that you pay for your employees as a business expense on your federal income tax return.
You may qualify for the small business health care tax credit if you have fewer than 25 FTE employees with average annual wages of less than $50,000 (adjusted for inflation) and you pay at least 50% of the premiums for a qualified health plan purchased through the SHOP marketplace. The tax credit can be worth up to 50% of the premiums you pay (up to 35% for tax-exempt employers).
You can offer a health savings account (HSA) or a flexible spending account (FSA) to your employees who enroll in an HDHP. These are tax-advantaged accounts that allow your employees to save money for medical expenses. You can contribute to these accounts on behalf of your employees or allow them to make pre-tax contributions through payroll deductions. The contributions are not subject to income or payroll taxes for you or your employees.
You can offer a health reimbursement arrangement (HRA) to your employees who purchase individual health insurance plans. This is a tax-free benefit that allows you to reimburse your employees for some or all of their medical expenses. You can set the amount and terms of the reimbursement according to IRS rules. The reimbursements are not subject to income or payroll taxes for you or your employees.

How Can You Save Money on Health Insurance for Your Small Business?

Health insurance can be a major expense for your small business, but there are ways to save money on it. Some of the ways are:

Shop around and compare different plans and providers. You can use online tools such as eHealth or HealthMarkets to compare quotes from multiple insurers. You can also work with a broker or agent who can help you find the best plan for your needs and budget.
Choose a plan that suits your employees’ needs and preferences. You can survey your employees to find out what kind of coverage and benefits they value most. You can also offer different plan options for your employees to choose from based on their situations.
Consider a high-deductible health plan (HDHP) with a savings option. An HDHP is a plan that has a lower premium but a higher deductible than a traditional plan. A savings option is an HSA or an FSA that allows your employees to save money for medical expenses. An HDHP with a savings option can lower your premium costs while giving your employees more control over their healthcare spending.
Negotiate with your insurer or broker. You may be able to get discounts or lower rates if you have a good claims history, a healthy workforce, or a long-term relationship with your insurer or broker. You can also ask about any incentives or programs that your insurer or broker offers to help you reduce costs or improve outcomes.
Educate your employees about health insurance and wellness. You can provide information and resources to help your employees understand their health insurance plan and how to use it effectively. You can also encourage your employees to take advantage of preventive care, wellness programs, telehealth services

Frequently Asked Questions (FAQ): Cost of Health Insurance for Small Business: What You Need to Know

How to Choose the Right Health Insurance Plan for Your Small Business

Choosing the right health insurance plan for your small business can be a daunting task. There are many factors to consider, such as the cost, the coverage, the network, and the customer service of the plan. Here are some tips to help you make the best decision for your business and your employees:

Assess your business needs and budget. You should have a clear idea of how many employees you want to cover, what kind of benefits they value most, and how much you can afford to spend on health insurance.
Compare different plan options and providers. You can use online tools such as eHealth or HealthMarkets to compare quotes from multiple insurers. You can also work with a broker or agent who can help you find the best plan for your needs and budget.
Consider the type and level of coverage. You should choose a plan that suits your employees’ needs and preferences. You can offer different plan options for your employees to choose from based on their situations. You can also consider a high-deductible health plan (HDHP) with a savings option, such as a health savings account (HSA) or a flexible spending account (FSA), which can lower your premium costs while giving your employees more control over their health care spending.
Review the network of providers and facilities. You should choose a plan that has a large and quality network of providers and facilities that accept the plan. This can ensure that your employees have access to the care they need without paying extra fees or traveling long distances.
Evaluate the customer service and support. You should choose a plan that has a good reputation and rating from customers and experts. You should also check the customer service and support that the plan offers, such as online tools, wellness programs, care management, and telehealth options.

How to Enroll in a Small Business Health Insurance Plan

Once you have chosen the right health insurance plan for your small business, you need to enroll in it. The enrollment process may vary depending on the plan and provider you choose, but here are some general steps to follow:

Check the eligibility requirements. You need to make sure that you meet the eligibility requirements for offering health insurance to your employees, such as having fewer than 50 full-time equivalent (FTE) employees, paying at least 50% of the premiums for your employees, and having at least 70% of your employees participate in the plan.
Choose an enrollment period. You can enroll in a small business health insurance plan at any time of the year, but you need to choose an enrollment period that works best for your business and your employees. You can choose a 12-month or a shorter enrollment period, depending on the plan and provider you choose.
Complete the application process. You need to complete the application process for enrolling in the plan, which may include providing information about your business, your employees, and your chosen plan. You may also need to provide documents such as tax returns, payroll reports, or employee census forms.
Pay the first premium. You need to pay the first premium for the plan to activate it. You can pay by check, credit card, or electronic funds transfer (EFT), depending on the plan and provider you choose.
Distribute the plan materials and cards. You need to distribute the plan materials and cards to your employees, which may include a summary of benefits and coverage (SBC), evidence of coverage (EOC), member handbook, ID cards, and enrollment forms.

How to Manage and Renew Your Small Business Health Insurance Plan

After you have enrolled in a small business health insurance plan, you need to manage and renew it regularly. Here are some tips to help you do so:

Monitor your plan performance and usage. You should monitor how well your plan is performing and how much your employees are using it. You can use online tools or reports provided by your plan or provider to track metrics such as claims, costs, utilization, satisfaction, and outcomes.
Communicate with your employees and providers. You should communicate with your employees and providers regularly to ensure that they are satisfied with the plan and that there are no issues or complaints. You should also inform them of any changes or updates regarding the plan or your business.
Adjust your plan as needed. You should adjust your plan as needed based on your business needs and budget, as well as your employees’ feedback and preferences. You can change your plan options, benefits, contributions, or network during the renewal period or a special enrollment period if you have a qualifying life event.
Renew your plan on time. You should renew your plan on time before it expires to avoid any gaps or penalties in coverage. You can renew your plan online or by phone, depending on the plan and provider you choose.

How to Communicate with Your Employees About Health Insurance Benefits

Communicating with your employees about health insurance benefits is crucial for ensuring that they understand and appreciate the value of the plan you offer. Here are some tips to help you do so:

Educate your employees about health insurance basics. You should educate your employees about health insurance basics, such as the types of plans, the levels of coverage, the costs and benefits, and the terms and conditions. You can use online tools, videos, webinars, or workshops to explain these concepts simply and engagingly.
Inform your employees about the plan details and options. You should inform your employees about the plan details and options that you offer, such as the plan name, provider, network, premiums, deductibles, copays, coinsurance, out-of-pocket maximums, and covered services. You should also inform them about the different plan options they can choose from based on their situations.
Encourage your employees to enroll in the plan. You should encourage your employees to enroll in the plan by highlighting the benefits and advantages of having health insurance, such as access to quality care, protection from unexpected medical expenses, and tax savings. You should also make the enrollment process easy and convenient for them by providing online tools, forms, and assistance.
Support your employees in using the plan effectively. You should support your employees in using the plan effectively by providing information and resources to help them find providers, make appointments, fill prescriptions, file claims, and manage their healthcare spending. You should also encourage them to take advantage of preventive care, wellness programs, telehealth services, and other benefits that can improve their health and well-being.

How to Evaluate Your Small Business Health Insurance Plan

Evaluating your small business health insurance plan is important for ensuring that it meets your business goals and your employees’ needs. Here are some tips to help you do so:

Set clear and measurable objectives. You should set clear and measurable objectives for your health insurance plan, such as reducing costs, increasing satisfaction, improving outcomes, or enhancing productivity. You should also define the indicators and methods that you will use to measure your progress and performance.
Collect feedback and data. You should collect feedback and data from your employees and providers to evaluate your health insurance plan. You can use surveys, interviews, focus groups, or online tools to gather feedback from your employees about their experience and satisfaction with the plan. You can also use reports or analytics provided by your provider to collect data on your plan usage and results.