On average, our small business insurance accounts typically include five employees. This aligns with the U.S. Census Bureau statistics showing that a majority of small businesses have five or fewer employees, all with unique foundations, finances, and people. When it comes to health care, it is important to provide coverage around your employees’ needs. However, the number of coverage options you have can be challenging to navigate.
As a small business owner, you may be looking to offer your employees a comprehensive health benefits package while keeping overall financial costs at a minimum. Understanding your business’s landscape and what health policies are available to you will make it easier to provide quality coverage. One of the first places to start would be to compare small business health insurance (group insurance) with individual health insurance.
Small business health insurance is employer-selected and offered to employees for purchase. An employer who gets an insurance policy must offer it to all eligible employees, and 75% of those eligible must enroll. As defined by the Affordable Care Act (ACA) , no employee will be denied coverage based on pre-existing health conditions, and this will not affect insurance eligibility for everyone else.
It is important to understand that certain qualifying criteria vary by state. Have questions? Check out our FAQs.
Individual health insurance differs from small group health insurance in that it is obtained by an employee through a health insurance exchange, like the ACA marketplace, rather than their employer. There are several pros as to why it is considered:
Price is often the biggest motivator among consumers, which is the main reason why small business insurance is considered before individual insurance. Let’s discuss the cost of small business insurance plans further.
The cost of small business health insurance will depend on the type of plan you want to provide (ex. PPO, HMO). When comparing plans, consider premiums, out-of-pocket costs, and provider networks. On average, though, you’ll find that small business insurance is a more cost-effective choice compared to individual insurance. Let’s see why.
According to the Kaiser Family Foundation , average annual premiums for single and family coverage were statistically similar in 2022 compared to 2021, with businesses covering 73% of costs. For small group coverage, the employer is required to pay a certain percentage of all their employee’s premiums each month. In an individual health insurance plan, the covered employee is responsible for paying all on their own.
There are tax benefits for both employees and employers. Employees usually pay their premium portions with pre-tax money, which can mean significant savings. In turn, employers can deduct a portion of their premium contributions from their business taxes and even receive special tax credits.
Since insurance companies spread risk across a pool of policy holders, costs are typically lower the larger the pool is, making small business insurance plans cheaper than individual plans. In other words, with more people included, there are more options generally at a lower price.
All of these advantages considered, the benefits of group insurance often outweigh what a person could otherwise get through individual insurance. Every situation is unique though, so there will be times when choosing an individual plan is preferred over small group insurance.
If you are a business owner with one additional employee beyond yourself, the type of employee matters. Your one other employee cannot be another owner, spouse/partner, contractor, or seasonal worker. For example, the common dynamic of a “mom and pop shop” does not qualify for group insurance, as the only two employees are married. In this instance, you will likely need to consider individual and/or family health insurance.
It is possible to enroll in group insurance if your other employee does not fall in one of the above categories. You as the owner and the other employee would split the premium of the chosen group plan at a chosen ratio. That employee would be responsible for any additional costs as outlined in the coverage terms.
Similar to the spousal restriction, another possibility across some small businesses is that all employees are related to one another. Do you count your family members as employees? There are specific rules regarding who can qualify for coverage under a small group insurance plan in a family-owned business.
If you want family members (aside from a spouse) to count as employees, you will need to prove that they are actually under your employment. Even so, it is not guaranteed all insurance companies will accept family members as employees. That is why it is often ideal to have at least one other common law employee so that group insurance rules can apply.
If you’re unable to offer small group insurance to your employees or can’t meet the 75% enrollment rule, there is another route you can take to stay competitive in retaining and attracting new talent. As of January 2020, employers can offer their employees an individual coverage health reimbursement arrangement (ICHRA) . An ICHRA/HRA is an employer-funded spending account used to reimburse employees for monthly medical expenses.
How does setting up an HRA work? An employer will set up an HRA account and designate how much health care spend they want to offer their employees tax-free. The employee then purchases an individual insurance plan of their choice, showing proof of purchase. If their claim is accepted, the employee will be reimbursed using the money set aside in the HRA account.
There are many benefits of an HRA as an employer and employee:
With benefits also come potential disadvantages. ICHRA plans come with requirements and restrictions:
Now that you are more familiar with the differences between small group and individual health insurance, you’re on the way to choosing the right health insurance plan, one that balances employees’ interests with company costs.
Choosing the Right Health Insurance Plan for Small Business Owners
How to Sign Up for Small Business Health Insurance
Understanding the Cost of Small Business Health Insurance Plans