Small business owners: Should you offer group health insurance?
As a small-business owner, you have to decide: Should you offer group health insurance or not? It's a tough choice to make, but start by asking some basic questions.
One important factor small-business owners have to consider is whether their employees can get adequate health insurance elsewhere, says Karen Marlo, a vice president for the National Business Group on Health, a nonprofit health policy association that represents employers.
Since the Affordable Care Act and health insurance marketplaces offer consumers more options, the answer now may be "yes." According to Marlo, "That's the good news."
With that in mind, here are four questions to ask to help you decide whether to offer traditional group coverage to your employees.
1. How many employees do I have?
Costs can make it difficult for very small employers to offer group health insurance, says Roger Howell, president of Howell Benefit Services in Wilkes-Barre, Pa. He's seen a number of employers with fewer than 10 employees drop group coverage recently.
Even for companies with a few hundred employees, it's tough because smaller businesses lack the bargaining power of large corporations, Marlo says. "You can't really negotiate great rates," she adds.
However, businesses with fewer than 25 full-time employees, or the equivalent, that meet certain requirements can get tax credits if they buy insurance on the Small Business Health Options Program (SHOP) marketplaces.
However, many small-business owners choose to buy small group insurance outside the SHOP marketplaces to get more choice and the ability to offer the same benefits to all their employees, Howell says.
In most SHOP marketplaces, employers can only pick one carrier and one plan category, and rates are set differently for each employee or family unit, he says.
2. How fast is my business growing?
Consider not just the current size but also the growth potential of your organization, says Lenny Sanicola, practice leader in the benefits area for World at Work, a nonprofit human resources association.
Going from 25 to 50 or from 50 to 100 employees could put you in a different category in terms of ACA offerings and requirements, he says.
For example, only employers with 50 or fewer full-time, or equivalent, employees can buy insurance through the SHOP marketplace in 2015, he says. (But, those with up to 100 will be able to purchase those plans in 2016.)
3. Do I need to attract and keep skilled workers?
If you're competing against larger companies for talent, consider providing group insurance, Marlo says. For example, she once worked for a company with 20 employees that was hiring from the same pool of talent as several large pharmaceutical companies. "If they hadn't offered health insurance, I wouldn't have worked there," she says.
Group insurance also is important for businesses such as law offices and medical practices, Howell says.
"But health insurance has always been a big part of the total compensation package for any employer," he says.
While this might change in the future, most highly skilled employees still expect group coverage, partly because the shaky rollout of the ACA marketplaces reinforced the idea that individual insurance is a less attractive option than group coverage, Marlo says.
"I think you need a few more years before the myth that you need to get insurance through your employer is gone," she says.
4. How rapid is my staff turnover?
If you have high turnover, such as a retail store, your employees might not stay at your company long enough to really benefit from the health insurance you're paying for, Marlo says.
When you have a lot of turnover, group insurance might not make sense, she says.
Alternatives to group health insurance
If traditional group insurance isn't right for you, here are two other options.
Self-insurance, in which the company pays the claims of its insured employees, has become more attractive to small-business owners for various reasons, including the ability to skirt some ACA regulations, Sanicola says.
If you have a fairly young and healthy workforce, you might be able save money, he says, adding that you'd need to do a risk-benefit cost analysis.
Companies that self-insure need to have the financial resources to pay claims, which means it's not an option for some small businesses, according to the self-insurance lobbying group Self-Insurance Institute of America.
However, some businesses with as few as 25 employees successfully self-insure, according to SIIA.
2. Defined contribution
"Some employers are saying, 'I want to get out of the business of health care,'" Sanicola says. They can give employees a stipend to buy an individual policy in the marketplaces, he says.
One downside: You and your employees don't get the tax benefits you would with group insurance. However, your employees can get subsidies if they qualify. Another plus: You know exactly how much you're paying, Sanicola says.
Or, if you have 50 or fewer full-time employees, or the equivalent, you can opt not to offer coverage at all, without having to pay a fine.But that has drawbacks. "You might save money, but if your employees don't have health insurance and can't get to the doctor, that impacts your productivity," Marlo says.