Buying small business health insurance is no small feat. There are quite a few variables to consider when deciding on employee health benefits for your small business, which can make selecting coverage seem overwhelming.
While these six tips for buying small business health insurance are not meant to be an exhaustive list of considerations, our goal is to help you get off on the right foot if you’re a small business owner or decision-maker considering offering health insurance for the first time.
1. Learn some basic information about health insurance.
This is a good first step for those unfamiliar with the world of health insurance, which we know can be completely bewildering at times. Knowing some key health insurance terminology, as well as generally understanding how health insurance plans function, will both give you confidence going into the shopping process and prepare you to take full advantage of whatever plan you end up purchasing. This list of ten commonly used health insurance terms is a good starting point.
We also recommend knowing what’s legally required of you as a business owner when offering health insurance to your employees. In a nutshell, if you have fewer than 50 full-time employees, you are not required under the Affordable Care Act to offer employee health benefits. Learn more details here.
2. Determine your budget before shopping for plans.
It’s important to set your budget before shopping for health insurance. Small business health insurance is an excellent investment, but that’s only the case if it doesn’t break the bank. Knowing what you can afford to spend will help you stay realistic throughout your search — and it’ll prevent you from accepting any exorbitant quotes from benefits companies that don’t have your best interest in mind.
3. Ask your employees what health benefits are important to them.
If one of your goals in buying small business health insurance is to make your employees feel valued and supported, why not ask them what health benefits they care about most before you even begin your search?
You can poll employees about their preferences in anonymous surveys, encourage employees to email their benefits suggestions to you or an HR team member, or even hold a town hall with employees to get their thoughts on health insurance.
You might gain some valuable insight into what health benefits you should be prioritizing. For instance, perhaps your employees will reveal that they don’t care too much about dental insurance, but consider low-cost access to mental health care non-negotiable. Or maybe you’ll learn whether they place a higher value on flexibility or affordability. This can help you decide whether to look at pricier plans with broader networks, or less expensive plans with narrower networks.
4. Assess all costs — monetary and otherwise — of offering employee health benefits.
Your health insurance premium, the amount you pay monthly to your benefits company in exchange for your active insurance plan, will depend on:
- the funding structure of the plan you choose
- the level of coverage provided by the plan you choose
- the administrative fees your benefits company charges
Your cost as the employer will also depend on the percentage of the premium you ask your employees to cover. Because of these variables, it is difficult to predict health insurance costs — so shopping around and comparing rates is important.
For small business employees in 2019, the average annual cost of individual coverage was $7,218, and $20,236 for family coverage. On average, employees pay 17% of the cost of individual coverage and 27% of the cost of family coverage, while their employer covers the remainder.
In addition to the monetary cost of offering employee health benefits, you should consider time costs. Buying, implementing, and managing small business health insurance require time and regular administrative legwork. While it is always an option to hire a broker or other professional(s) to handle these administrative aspects for you, it will come at an additional cost.
5. Understand the benefits of offering employer-sponsored health coverage.
Employees want employer-sponsored health coverage because most group plans are considerably less expensive than individual plans. Offering health insurance to employees will help your small business stand out as a desirable place to work. If you are looking to attract and retain top talent, and to compete with larger companies for talented employees, offering health benefits is a no-brainer.
Plus, workers with employer-sponsored health coverage tend to be healthier, miss fewer workdays, display greater employee satisfaction, and be more engaged in their work.
There are also tax breaks associated with offering employee health benefits. If you offer a SHOP plan to employees, you can qualify for a tax credit of up to 50% of the premiums your small business pays. And regardless of what plan you offer, all of your health insurance expenses are completely tax-deductible on both state and federal income taxes.
6. Explore and compare all of your health benefits options.
Now that you have acquired all of this new knowledge about small business health insurance, it’s time to shop for plans. Doing your due diligence is important during this stage, as coverage options and costs can vary enormously depending on where you look.
There are several places you can shop for plans: traditional insurance carriers such as Blue Cross Blue Shield, modern insurance companies such as Sana, the SHOP marketplace online, and professional employer organizations, to name a few.
An insurance broker can help you communicate and negotiate with these various insurance providers, but you do not need to hire a broker unless you want the additional support.
It is important to note that you will be faced with the decision between a fully funded (or fully insured) plan and a self-funded (or self-insured) plan.
- In a fully funded group health insurance plan, which tends to be more expensive, you pay a fixed premium to the insurer, and they assume the entire financial risk of your employees’ healthcare.
- In a self-funded group health insurance plan, your insurer takes a fee to administer your benefits and pay your claims, but you assume the entire financial risk of your employees’ healthcare — meaning you only pay for the healthcare they actually use. This tends to be the cheaper option because fully funded premiums are often inflated far higher than actual healthcare costs.
- However, self-funding can get expensive if your employees have costly health emergencies, so you should look for self-funded plans with a safeguard called stop-loss insurance. It kicks in to protect you if your claims surpass a given amount in a plan year.
Next steps: For more information on what to consider when buying small business health insurance, download our free ebook.