Small Business Health Insurance Options for 2019 -How to choose a provider

It’s 2019, and the costs of healthcare continue to skyrocket, According to the estimates from the Wall Street Journal, the US currently spends $3 trillion a year, and it soon will spend close to 20% of GDP on care for health  The costs do not only affect older people on Medicare or individuals with pre-conditions, small businesses, which want to provide health insurance benefit plans for their employees, are also feeling the pressure.     

According the 2018 Kaiser Employer Survey,  the average cost for an annual premium for employer-based family coverage increased by 5% to $19,616 from the previous year.    

For small business owners with less than 50 employees, these costs can seem overwhelming, and it does not help that many traditional health insurance plans do not offer much flexibility- they only have one size fits all options.  And, especially if you are looking to hire the tech skilled developer types, the benefits such as health coverage or paid leave, maybe a deciding hiring factor for your company to attract the best talent. Fortunately, there are a bunch of small business health insurance plan options to consider in 2019.   

1 Traditional Small Business Group Health Insurance Plans

Group health insurance policies are a common option for small business employers that provide insurance plan benefits to its workers and sometimes their dependents. Typically how it works is that the company will look for the coverage on a Small Business Health Options (SHOP) marketplace or possibly go through an agent or insurance broker. For most small business plans the employer pays a fixed premium for the policy, and some of the costs may get pushed on to their employees. An example of this is when the employee might be required to pay the deductible or copay when they need to go to the doctor or clinic for a service.  If this option sounds interesting for your startup, then there are few major small business insurance providers to consider. There may be some variables to consider such as seeing a doctor in or out of the preferred network (discounts etc), or using a health savings account (HSA) to lower out of pocket expenses. The website called the Balance put together a top 5 providers article.  Based on their research they have it broken down into categories, of which is the best for each one.  So here it goes:

• The best for providing online care – Unitedhealthcare  
• The best for health savings plans – Aetna
• The best for tax saving benefits – Humana    
• The best for having the largest provider network – Blue Cross Blue Shield
• The best for managed care – Kaiser Permanente      

2 Group-integrated Health Reimbursement Arrangements (HRAs)

The next option I would mention is one is called group-integrated health reimbursement arrangement (HRA.) Many companies will choose to give or offer group health policies that come with higher deductibles because its cheaper for them. The caveat with using these is the health insurance plans do not cover as much as other policies,  Now if you look into using a group-integrated HRA, the company or business can offer their workers an additional monthly allowance of tax-free money, besides the group health coverage plan. How it works: it gives the employee flexibility to pick a health plan in the individual market and pay for the insurance policy and the company can then reimburse them up to their allowance amount.

Usually, workers will use the HRA for paying for expenses such as deductibles, copays and even medicine prescriptions. Some of the things that are considered reimbursable are items found in IRS publication 502, although the company does not have to reimburse every line item in the publication. Another thing to know is that any reimbursements made through the HRA plan is also free from payroll taxes for both the company and the worker. HRAs qualify for pre-tax treatment because they are considered group health plans. HRA group policies give the small business the options to set up their own employee eligibility requirements, with the only stipulation being that each employee must be a part of the integrated-group policy. What is interesting about going with a group-integrated HRA is that both the company and the worker get some of the personalized benefits of using a QSEHRA (which we explain next paragraph) but they are tied to a group policy with can be tedious and costly to manage.

3 Qualified Small Employer Health Reimbursement Arrangement (QSEHRA)

In 2016, Congress, enacted legislation that was meant to help small businesses with more health insurance options, called the qualified small employer health reimbursement arrangement (QSEHRA). Previously, the Affordable Care Act (ACA) had issued some guidance

that made standalone HRAs unlawful, which was very limiting for small businesses that wanted to offer health reimbursement arrangements (HRAs) as an alternative to group plans (such as HMOs and PPOs) and get a tax break for doing so.  

For your business to qualify, you have to have less than 50 employees, and then you can offer your workers a monthly allowance or stipend of tax-free money.  So as mentioned earlier with the integrated-group HRA, the employee can also pick and pay for a health insurance policy, and then their employer can reimburse them up to allowance amount.  Small businesses like this option because it allows them to control their budget and also give health benefits coverage to their people. So just to clarify, QSEHRA does not replace health insurance. To participate in a QSEHRA, your employees must get health insurance coverage on their own either through the individual health insurance market or through another employer-sponsored plan.

A Little More Details on How it Works

First the company will set the allowance, which is typically done on a monthly per employee basis allowance of tax-free money to make available for use.   It does not have to have any minimum requirements for contributing. And it also gives the startup some flexibility on how much they want to give depending on if the employee has a family or dependents. So QSEHRA set up the contribution limits for 2019, which are :

• Up to $429.16 a month for single employees
• Up to $870.83 a month for employees with a family

Next, employees can make purchases. People can pay out of pocket for as much medical, dental and vision check-ups or care. There are a bunch of small business health reimbursement arrangement eligible expenses, which includes doctor copays, doctor visits, lab work, Long-term care coverage, health insurance premiums, deductibles, and even pharmacy prescriptions.

The next step in the process is an employee submits a healthcare bill receipt showing proof of it being paid out- of pocket to the employer. Which can include documents stating the details of the visit and or appointment, the cost of the expense and the date of when it happened. 

The final part is simply having the company’s HR department review and reimburse any incurred eligible expenses.  You can also have the review process outsourced to a 3rd party vendor that will look at healthcare expense and then if approved reimburse the employee. By using a QSEHRA plan, all of the reimbursement payments are also payroll tax-free.  And the reimbursements can be considered tax-free income for the employee if they are covered by a policy that offers minimum essential coverage also known as (MEC). Many startups and small businesses find the QSEHRA plan beneficial because of the personalization and flexibility of them.  Companies can set their budget and employees can buy what is right for their healthcare needs.  A few of the situations where this option is useful is, if you have employees in more than one state, or when an employee is already covered under their spouse’s employee group policy plan, and sometimes when some employees do not have insurance.  For more guidance, the IRS published Notice 2017-67, which covers 79 questions and answers relating to everything about QSEHRAs.

4 The Self Funded Health Plans

Sometimes companies will decide they want to avoid costly insurance premiums and the restrictions of group health insurance, and they will opt for the self-funded insurance route.  The basics of this insurance arrangement are that the business will assume any financial risk for providing their employees with healthcare benefits. So it means instead of paying a fixed premium to a traditional insurance provider, the company pays for each employee out-of-pocket claim as they happen.

If you want to set one of these up, then the eligibility and covered benefits should be outlined in a professional document.  The business can set up a trust fund of sorts to earmark resources, which can be contributed from both the company and the employees. And way to limit the risk, a business can set up an aggregate stop-loss policy.  The exposure (i.e., specific deductible) should be a function of the company’s size, risk tolerance, financial resources, location, benefits plan, PPO network and claims experience.

Who manages the employee benefits and insurance claims and filings? Something called third-party administrators.  These types of plans can save the company a significant amount of administrative fees. As an example, the cost-savings benefits for non-claims expenses can be anywhere from 10 to 25 percent, according to the 501C3, non-profit organization called Self Insurance Education Foundation. It not just for cost containment opportunities, it also helps with the company’s cash flow. The company maintains control over the health plan reserves, enabling maximization of interest income – income that would be otherwise generated by an insurance carrier through the investment of premium dollars.

Now even though many big companies such a Home Depot and Wholefoods use this method, it does not mean it cannot come without any risks especially if a large insurance claim happened.  For this reason, it is more popular with larger companies, that have at least 300 or more employees.

5 Association health plans   

The department of labor issued a ruling titled Definition of “Employer” under Section 3(5) of ERISA—Association Health Plans in June 2018, which opened up more availability of more types of small business health plan coverage, one that is called association health plans (AHPs).  And these association health plans allow small businesses to make partnerships within industries, professions or even geographical regions to purchase large group health coverage or the self-funded kind. Once the benefit is in place it functions pretty similarly to a typical group policy or self-funded health insurance policy would. One difference is that the AHPs and not subjected or regulated by the ACA’s rating rule, which can prevent insurers from changing the pricing or costs in a specific area based on things such as age, health conditions or sex. Another difference from ACA compliant insurance policies is that AHPs are not obligated to cover the “essential health benefits”.

Usually, the association will manage the administrative costs, instead of each individual small business member. And the yearly cost savings for companies choosing to go with AHPs can range from as low as $1,900 to $4,100 per employee.  One thing to point out is that the way these cost savings are achieved is by widening the risk pool, and also stripping out standard coverage items. Meaning the AHPs may not cover essential health benefits, like prescription medicine, maternity care or mental health treatment services.

Conclusion

Where is the healthcare options and system going to go in the future? Who knows for sure. But many small businesses gripe about the costs and challenges of using traditional group health insurance provider plans, and less than 30% of small businesses with less than 50 employees go the traditional group insurance option. Thankfully, the health benefits choices for startups are getting more diverse.