Offering a health plan is a big step for a small business but one that makes more sense than ever as competition for talent heats up. Health insurance is the most popular employee benefit for most workers and it’s no wonder: It can have a real impact on their financial health as well as their overall well-being.
And health insurance can boost the health of your small business, too, by increasing employee satisfaction and productivity. Health benefits cost money, of course, but your small business will likely save on hiring and training costs because of lower turnover. And in some cases you can earn a tax credit or use a tax deduction to cover part of the cost.
If you are a small business with 50 or more full-time employees or, counting part-timers, you have the equivalent of 50 full-time employees, you already have had to offer health insurance as of this year or face penalties under the Affordable Care Act. Companies with 100 or more workers had to comply with the rules a year earlier, on Jan. 1, 2015.
But what about your small business of fewer than 50 full-time employee equivalents? You aren’t required by law to offer health insurance but you may be exploring your options.
Your business has several choices when it come to buying a group health plan for your team. Insurers have to offer plans that cover at least the "10 essential health benefits and services" legally required under affordable care rules, which include maternity and mental health care. These plans can be purchased in a variety of ways at a variety of price points, so we'll walk you through all of the options below.
The most common option: State or federal online marketplaces
These marketplaces, including the federal Small Business Health Options Program, or SHOP, are typically available to small businesses with 50 or fewer full-time equivalent employees. Marketplaces in California and Colorado are open to businesses with 1-100 employees.
A calculator to figure out your full-time equivalent count is available here. Just be warned that a full-time employee is one who, in the past calendar year, averaged just 30 hours a week in a month. And oddly, while you have to count part-time workers’ hours toward your full-time tally, you don’t have to offer them health insurance, even if you have more than 50 workers.
The online marketplaces offer a set number of plans from private insurance companies that are geared to the pocketbooks of small businesses.
A small business can enroll any time during the year as long as enough of its employees participate in its plan or have coverage elsewhere. A calculator for that is here. Otherwise, your small business can sign up during open enrollment between Nov. 15 and Dec. 15 any year.
Bronze, silver, gold, and platinum plans
The marketplaces offer four plan levels established by the affordable care act: bronze, the least fancy plan, and silver, gold and platinum.
Bronze plans: These typically have a lower monthly premium but a sky-high deductible. They can be good for younger, single, healthy workers who don’t expect to get sick much. There is typically about a 30% to 40% price difference between a bronze plan and the highest-level plan, platinum, which costs more but covers more of the cost of care, about 90% by law, on average across all enrollees.
Silver and gold plans: Employees with young families or several dependents often prefer these plans because they typically covers more of the cost of their often frequent doctor visits, even though the premiums are higher.
Platinum plans: Platinum plans can be a good, if pricier, choice for a workforce that is older with medical conditions that require them to use a wide range of expensive tests, specialists, and procedures.
On average, silver plans are often the most popular because they strike a balance between cost and benefits. As a small business, you can decide which plan, or combination of plans to offer your team. The online marketplaces will walk you through the process. To get started, you’ll need to know the ages of each of your employees and their zip codes. That’s because the price will be based on how an employee's age, location, and tobacco use.
How much does marketplace health insurance cost an employer?
To buy insurance on the marketplaces your small business has to cover at least 50% of the cost of health insurance for your employees (not their families) On average, the premium for employees at small firms nationwide was $6,163 a year, which equals $513.58 a month, according to a Kaiser Family Foundation report earlier this year.
So if as the employer you covered half of that, your small business’s share would be about $260 a month per employee, which adds up to $3,100 a year, per employee.
Other health insurance options
Trade associations: Check with your industry or professional trade group to see if it offers group health plans for your small business. Under the Affordable Care Act, health plans offered by a trade association have to meet the same requirements as those offered through one of the insurance marketplaces. Examples of trade groups that offer health plans to member companies include the Western Growers Assn. (WAG) and the Automotive Wholesalers Assn. of New England (AWANE).
Third-party benefits administrator: Newer online players like Gusto and Zenefits offer a health plan or plans they choose from an insurance company and then they handle the enrollment and administration online to keep costs down.
Traditional full-service agent or broker: You can still contact an insurance broker but the high cost and lack of variety available to small companies via this route in the past is part of why small businesses haven’t routinely offered healthcare. Many brokers now work with the federal and state marketplaces and can help walk you through the process. Under the affordable care act, all small-group health insurance plans whether sold through a marketplace or not have to offer the four levels of coverage, from bronze to platinum. But there is a lot of variation on how an insurance company can design a plan to meet the coverage levels.
Insurance companies: You also can contact an insurance company directly to see if it offers plans in your state. Companies like Aetna, HealthNet and Kaiser Permanente, for example, have easy-to-follow websites geared to small businesses. Traditionally, it has been hard for a small company to get the best rate straight from an insurance company, which is one reason why health insurance reform set up online marketplaces just for small businesses. Some experts say a small business won’t have much leverage to negotiate costs until it has 50 employees.
Small business tax benefits for health insurance
Once you sign up for a plan, your small business could qualify for a sliding-scale tax credit of up to 50% of the cost of premiums you pay on behalf of your employees. You’d have to have fewer than 25 full-time employees to qualify and pay an average wage of less than $50,000 a year and cover at least half the cost of health insurance premiums for your employees (not their families). You also have to have bought your group plan on a federal or state marketplace. If you qualify, you can take the credit in two consecutive tax years.
Even if you qualify for this new tax credit, you may still be able to take a traditional business expense deduction for the cost of premiums you paid that the credit didn’t cover.
Investing in health benefits for your team can give your small business a competitive advantage in attracting and retaining great employees and that is good for the health of your bottom line.