As a small business owner, you are already familiar with the complexities of building, running, and growing a company. And, when it comes to providing employee benefits such as affordable health care coverage, the complexities can seem to compound.
The health insurance industry has always been a multi-faceted and somewhat complicated field to navigate, which is why most business owners turn to brokers and agents for guidance.
However, with the passage of the Affordable Care Act, or ACA, in 2010, the intricacies of choosing and purchasing group health care coverage has made this type of assistance even more of a necessity.
For example, when shopping for small business group health insurance plans, it’s important to understand the various options available to business owners. While it may be tempting to forgo the effort of choosing and offering small group health insurance for those businesses that are not required to, both employers and employees can often be better served with an employer-based policy.
If you are an employer with less than 50 full-time equivalent workers, you could choose to simply refer your employees to California’s health insurance exchange, Covered California. However, we believe that it is worthwhile for all parties involved to consider a group health insurance plan.
FOR HEALTH INSURANCE COVERAGE, ALL BUSINESSES HAVE OPTIONS
A few definitions might be helpful first. For example, what do we mean exactly when we speak of “group coverage” for businesses?
According to one definition from HeatlhCoverageGuide.org,
“Group medical coverage refers to a single policy issued to a group (typically a business with employees, although there are other kinds of groups that can get coverage) that covers all eligible employees and sometimes their dependents.”
Of course, the IRS has a version found in Title 26 of the Internal Revenue Code,
“The term ‘‘group health plan’’ means a plan (including a self-insured plan) of, or contributed to by, an employer (including a self-employed person) or employee organization to provide health care (directly or otherwise) to the employees, former employees, the employer, others associated or formerly associated with the employer in a business relationship, or their families.”
At one time not so long ago, group health insurance plans for small businesses were seen more of a premium benefit rather than an expectation by employees. However, more smaller companies are offering their employees group health insurance plans, with some employers covering the entire premium.
In 2020, the Kaiser Family Foundation (KFF) released its Employer Health Benefits Survey which revealed, among other trends, the following findings:
- 55 percent of small firms offered health benefits to at least some of their staff.
- 27 percent of covered employees in small firms are in a plan where the employer pays the entire premium for single coverage/
- 28 percent of covered employees are in a plan where they must contribute more than 50 percent of the premium for family coverage.
So, the question isn’t so much whether small businesses should offer group health insurance plans, but what kind should they offer?
THE MOST COMMON TYPES OF GROUP HEALTH INSURANCE PLANS FOR SMALL BUSINESSES
Here is a brief overview of some of the most common types of group health insurance plan options available for small businesses:
Fully-insured plans are one of the more traditional options. Fully-insured plans involve an insurance company that charges your business an annual premium for the benefits in the insurance policy. This premium is partially paid for by your employees.
Self-funding places the burden of covering the expense of employee health costs on the employer. This can often lead to more affordable rates and more control over a plan, but the tradeoff is that your business accepts the risk of having to pay for any catastrophic claims.
This path is often seen as an option for large businesses, but small groups can also take advantage of what are known as partially self-funded plans. This option limits your risk so that you can still reap some of the benefits of self-funding without taking on the entire burden of any catastrophic claims.
Level-funded plans differ in that they’re based on a monthly payment rate. Insurance carriers will use census information to determine the amount your small group should pay. This rate is based on factors like fees, stop-loss coverage premiums, and claims allowances. At the end of the year, the insurer adjusts the monthly level based on group performance.
- Health Maintenance Organization (HMO)
An HMO is a group coverage organization that has group members who pay for specific health services through monthly premiums. Through an HMO, you’ll have access to a network of healthcare providers and locations, but services will be limited to those that fall under that network. HMOs are usually more affordable than other types of health insurance plans.
- Preferred Provider Organization (PPO)
PPO plans are like HMO plans but offer more flexibility. PPOs have a network of healthcare providers and facilities but allow group members to see other physicians or locations not in the plan network. These visits do result in higher co-pays and additional service costs, however, but give members more freedom than in an HMO plan.
- High-Deductible Health Plan (HDHP) and a Health Savings Account (HSA)
An HDHP offers lower premiums and higher deductibles for group members. This means that members with this type of healthcare insurance will have to pay more out-of-pocket before the plan pays for its share. This option allows for monthly premiums to be lower, which makes it a good group health insurance option for some employees who don’t use many medical services.
The primary benefit of a choosing a group plan is that it spreads risk across a pool of insured individuals. This is a benefit to group members as that helps keep premiums low, and the insurer can better manage risk when they have a better understanding of who they are covering.
Some key points to keep in mind when considering group health coverage:
- Group members receive insurance at a reduced cost because the insurer’s risk is spread across a group of policyholders.
- Plans usually require at least 70 percent participation in the plan to be valid.
- Premiums are split between the organization and its members, and coverage may be extended to members’ families and/or other dependents for an extra cost.
- Employers can enjoy favorable tax benefits for offering group health insurance to their employees.
YOUR LOCAL EXPERT SOURCE FOR GROUP HEALTH COVERAGE
J.C. Lewis Insurance has been a local, family-owned firm based in Sonoma County since 1979, and our expert brokers offer individual and small business insurance plans.
In addition, our firm only provides small business and individual health insurance plans from the leading health insurance carriers that are licensed to do business in California.
In addition to being experienced, professional brokers, we are licensed and certified by each of these insurance carriers to offer coverage to individuals, families, and small group employers in addition to Medicare supplemental and prescription drug plans for seniors.
When you’re shopping for health insurance for your employees, or for you and your family, or vision and dental coverage, you probably have several questions and concerns.
At J.C. Lewis Insurance Services we welcome your questions about insurance coverage, and you can be confident that we will help you find the right solution.