Shopping for employee health insurance can be daunting as a small business owner. There are many different types of small business health insurance — and many places employers can go to find it.
Unfortunately, there’s no convenient website where small business owners can go to easily see and compare all of their health coverage options. That’s why employers must know a bit about what they’re looking for before they begin searching.
For instance, it’s important to understand self-funded vs. fully insured plans because you’ll tailor your search depending on which type of plan you’re looking for. Likewise, it’s important to know what benefits and perks are most important to your employees so that you can prioritize them as you shop. And, of course, setting your health insurance budget in advance is an important preliminary step.
Don’t worry if self-funded vs. fully insured sounds like gibberish to you. This blog post breaks down the basics of health insurance for small business owners to help you figure out what you’re looking for and where you can find it. At the end of the day, the best small business health insurance is the one that best fits your (and your employees’) needs and budget.
Checklist: Preparing to shop for small business health insuranceChecklist
- Understand your legal obligation to provide health insurance to employees and their families. This post details how the Affordable Care Act affects small business owners.
- Know the advantages of investing in small business health insurance. This post discusses the positive impact offering employee health benefits has on recruiting, retention, and performance. And this post explains how offering employee benefits improves company culture.
- Know what qualities to look for in a plan. This post lays out six things small business owners should look for in group health insurance plans.
- Learn more about small business health insurance costs in this post — and set your health insurance budget before you begin your search.
- Ask your employees which health and wellness benefits are most important to them, so you know what to prioritize during your search. The best small business benefits package is the one your employees will actually utilize and appreciate.
- Understand the difference between a fully funded/fully insured plan vs. a self-funded/self-insured plan:
- With a fully-funded plan, you will pay an insurance company a monthly premium to administer employee health benefits, pay out your employees’ claims, and assume the risk of any exorbitant healthcare costs should they arise. Insurance companies inflate premiums for fully funded plans to mitigate risk and ensure large profits.
- With a self-funded plan, you will still pay an insurance company a small monthly fee to administer employee health benefits and pay out your employees’ claims, but you will assume the risk of any large healthcare claims. This is because you’re only paying for the healthcare your employees actually use. This option, which eliminates inflated premiums, is cheaper as long as no astronomical health claims arise. Self-insurance plans with level funding remove the risk of paying unexpectedly high claims by placing a cap on how much an employer can spend on employee benefits in a given year. For small businesses, we recommend self-funded plans with level funding.
Where to go shopping for the best small business health insuranceWhere to go shopping for the best small business health insurance
Modern health insurance companies
Modern health insurance companies, such as Sana, tend to be newer, more tech-enabled, and less expensive than the big-name legacy insurance carriers. You might also hear this category of modern insurers called insurtech, which refers to the use of technology to drive innovation, lower costs, and increase efficiency in the insurance industry.
These insurers tend to offer self-insured plans, often with level funding. This tends to be your most cost-effective option as a small business owner.
You can find out which of these companies are active in your state and request a quote directly from their websites.
Legacy health insurance companies
You have probably heard of Aetna, Blue Cross Blue Shield, and UnitedHealthcare. They are some of the most well-known legacy health insurance carriers — and they usually offer fully funded health plans to small businesses. Legacy carriers are usually more advantageous to large companies than small businesses. You can either buy through a broker or go to the websites of these companies and request a quote.
While you do not have to use a broker to aid you in your search for small business health insurance, you can if you would like the support of a trained health insurance professional. Using a broker is one way to find, quote, and secure employee benefits — and many brokers can also assist you with the implementation and administration of the health plan you end up choosing.
Some brokers will only lead you to fully funded plans through legacy carriers with whom they have preexisting relationships — while others will guide to more modern insurance options, or even a mix of the two. If you do choose to use a broker, make sure they are helping you explore your diverse options rather than just trying to sell you on one insurer.
Professional Employer Organizations (PEOs)
A PEO serves as the official employer for the employees of multiple small businesses. As a small business owner, there are some practical and financial benefits to joining a PEO: The PEO will often take over your tedious HR tasks, such as payroll processing, tax filing, and benefits administration. And joining a PEO can save your small business money on health insurance by grouping you together with other small businesses — and then securing large-group insurance rates that might be more competitive than rates you could have secured on your own.
To join a PEO, you will need to consult with them directly to see if you qualify, and you will have to go through an application process in which they will assess the liability of your business.
It is important to be aware that PEOs can save you money, but they don’t always — if you get grouped together with less healthy, higher risk companies than yours, it can negatively affect your premium. In addition, PEOs tend to partner with legacy carriers offering fully funded plans, which tend to be more pricey than self-funded plans through modern insurers. It’s worth getting a quote through a PEO and a quote through a modern insurer and comparing the two.
Online health insurance marketplace
The online health insurance marketplace for small businesses, created under the Affordable Care Act, is called Small Business Health Options Program (SHOP). If you have fewer than 25 employees and you offer them a SHOP health plan, you can qualify for the small business healthcare tax credit. However, insurer participation in SHOP has dropped to the point that SHOP plans are difficult to access in some states. Learn all about finding and enrolling in SHOP plans here.
Qualified small employer health reimbursement arrangements (QSEHRAs)
If you do not want to (or are not able to) offer a group health insurance plan and you have fewer than 50 employees, you can consider offering a QSEHRA: an employer-funded health benefit used to reimburse employees for their healthcare expenses. You can claim a tax deduction for the reimbursements you make through the arrangement, and your employees receive the reimbursements tax-free. You get to decide how much you’ll reimburse per employee, up to an annual maximum set by the IRS. For 2022, the maximum payments and reimbursements under a QSEHRA are $5,450 for self-only coverage and $11,050 for family coverage.
To set up a compliant QSEHRA, you will probably want to partner with a third party HRA administrator that can review expenses and approve reimbursements.