Evaluating health benefits is not as simple as it used to be. Ten or fifteen years ago, small business health benefit options were pretty simple: purchase a group health insurance plan. But today, the market has changed. There are new health insurance options available which leaves executives asking, “Which type of health benefits is the best fit for our small business?”
The first step in understanding health benefits is to understand the options available on the market today, then assess how the two main options align with the business’s goals.
Types of Health Benefits
As small business executives assess health benefits, there are generally two core types of health benefits to evaluate: group health insurance and employer-funded individual health insurance. Let’s take a look at how each works.
Traditional Group Health Insurance Plan
Most executives are familiar with how a group health insurance plan works; the business selects and purchases a policy to cover eligible employees and dependents. Generally, both the business and employees contribute to the premium costs. Group health insurance plans can be purchased through an insurance professional, and new options are available the SHOP Marketplace.
A traditional group health insurance plan might be the right fit if:
- The small business qualifies for Small Business Health Care Tax Credits.
- Employees do not have individual health insurance coverage and/or do not qualify for premium tax credits on the individual market.
A group health insurance plan might not be the right fit if:
- The business needs fiscal predictability year to year.
- The business has limited administrative resources to administer the plan.
- Employees have diverse health and financial needs.
- Employees already have individual health insurance coverage and/or qualify for premium tax credits on the individual market.
- Individual health insurance premiums are less expensive (or provide better doctor networks) than comparable group health insurance.
Employer-Funded Individual Health Insurance
A newer approach to small business health benefits is employer-funded individual health insurance. What does this mean? Simply that the business contributes to employees’ individual health insurance instead of purchasing a group health insurance plan.
With this type of health benefits, the employer sets up a formal, tax-advantaged reimbursement plan. Employees purchase any individual health insurance policy and are reimbursed by the plan, up to their allowance amount. (Tip: Under the Affordable Care Act, this type of arrangement is still allowed as long as the reimbursement plan meets certain rules and requirements.)
Employer-funded individual health insurance might be the right fit if:
- The business needs a fixed-cost benefits program.
- The business needs a health benefits plan that is easy to administer.
- Employees have diverse health and financial needs.
- Employees already have individual health insurance coverage and/or qualify for premium tax credits on the individual market.
Employer-funded individual health insurance might not be the right fit if:
- Group health insurance premiums are less expensive (or provide better networks) than comparable individual health insurance.
- The small business qualifies for Small Business Health Care Tax Credits.
What is the Best Fit?
If the choice isn’t obvious, a simple cost analysis can help clarify the right health benefits fit, as will asking these questions:
- Who will the health benefits cover?
- What is our budget?
- What do employees value most?
- Who will manage the health benefits program?
- What are our goals?
Conclusion
Evaluating small business health benefits does not have to be daunting. First, understand the options available in today’s market, and compare costs with a cost analysis. Then, assess the business’s needs by asking a few simple questions.
Christina Merhar is a guest author and Senior Editor for Zane Benefits, the leader in individual health insurance reimbursement for small businesses. She has a passion for helping small employers understand the ins and outs health benefits and Human Resources.
