Introduction to Small Business Health Insurance

A new employee discusses small business health insurance benefits with her employer.

Introduction to Small Business Health Insurance

It’s not just about wages anymore. In a competitive hiring environment, benefits matter, and small business health insurance could give your company an advantage in hiring. 

There is an art to making group benefit plan decisions. You want a plan that makes sense for the majority of your employees, and you need to keep a palatable budget for the company. We look at key definitions and considerations when thinking about small business health insurance.

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Employer-Sponsored Plans (or Group Health Insurance)

Any plan provided for employees and their dependents is an Employee Sponsored Plan. Not all types of plans require an employer contribution. Health plans are usually paid monthly, and the cost is mostly dependent on how many employees you have, their age and location, and how much you’d like to contribute. Employers typically sponsor health plans at 50 percent of the cost with buy-up options.

Requirements

When it comes to group health benefits, you are not required to offer an employer-sponsored medical plan until you have 50 employees or more. There are also no requirements to contribute to dependents. Typically, when an employee is enrolling in benefits they can add dependents, but employers are not required to contribute. Some employers choose to contribute around 25 percent to dependents as an additional benefit. 

Types of Health Insurance Plans

  • Preferred Provider Organization (PPO): PPOs are the most common plan, though they normally carry expensive premiums. Employees receive benefits for care from in-network (full) or out-of-network (partial) providers. Referrals aren’t mandatory, though out-of-network care will be significantly more expensive.
  • Health Maintenance Organization (HMO): With an HMO, employees only receive benefits from in-network providers and pay 100 percent of the cost out of network. Outside of emergencies, all special care must be referred by a primary care physician.
  • Exclusive Provider Organization (EPO): Benefits are provided from a list of specific providers though out-of-network care may be pre-approved.
  • Point of Service (POS): In-network benefits and a primary care physician is typically required for POS plans to make referrals for out-of-network care, which is very expensive and paid out of your employee’s pocket.

Can I Get Tax Benefits with Small Business Health Insurance?

In short, yes. Tax-deductible at the state and federal level, you can claim the full amount you pay for your employees’ monthly premiums.

If your small business meets certain criteria (such as 25 or fewer employees with an average salary of less than $50,000), it may qualify for the Small Business Health Care Tax Credit that allows half of your health insurance costs to be claimed as a tax credit. While tax deductions lower your taxable income, tax credits pay down what you owe one-to-one.

Minimum Cost, Minimum Value Requirements

A group medical plan must meet Minimum Cost, Minimum Value Requirements. Minimum cost means it can’t cost more than a certain percentage of an employee’s income. Minimum value means it covers at least 60 percent of total allowed cost of benefits. Pretty much all of the employer plans that you find on the market today will meet these requirements. 

Waivers

Sometimes employees can go to the exchange and get an individual plan. This typically results in some sort of tax credit or subsidy for the individual, which can have the effect of making individual plans cheaper than employer plans. If an employee waives an offered group plan in favor of individual coverage, they no longer qualify for tax credits or subsidies. Basically, the government is not going to subsidize your employee’s insurance if you’re already doing it.

What does that mean for you? You need proof that the employee waived group benefits to protect your company from government audits. Otherwise, the business could be on the hook for the difference. Tip: Receive a signed waiver during enrollment.

Related Post: A Small Business Health Savings Account (HSA) for Your Company is Good Business

Need Small Business Health Insurance? PayrollCentric Can Help.

If you have less than 50 employees, the decision to carry group health insurance ultimately comes down to if the benefits meet the budget. Quoting benefits is painless and straight forward. PayrollCentric can help. Call us at 310-258-9703 or contact us online.