Is your small business legally required to provide health insurance benefits? Here's what you need to know about offering health benefits to your employees.
When deciding which benefits to offer employees, most business owners start with health insurance. Besides proving great value to employees, a comprehensive health insurance benefit package can be an effective way to attract and retain top workers. Learning the basics about health insurance plans and the legal requirements for them is the first step in putting together a comprehensive benefits package for your employees.
What are health insurance benefits?
Health insurance benefits are items or services covered under a health insurance plan, such as doctor and hospital visits, a health savings account, short-term and long-term disability insurance, and mental health services. These benefits shield insured individuals from high medical costs, making it more affordable for them to access medical care for illnesses, accidents, and overall health and wellness.
Are employers legally required to provide health insurance benefits?
Healthcare in the U.S. is increasingly expensive, so it makes sense that health insurance is one of the most desired employee benefits your business can offer. But is your business legally required to provide health insurance? Not necessarily.
The Affordable Care Act requires some employers to provide information about the health insurance marketplace, whether they offer health insurance or not. No law directly requires employers to provide healthcare plans for their employees, though the ACA generally imposes penalties on large businesses that don't provide health insurance.
Under the ACA, employer shared responsibility provisions – also referred to as the employer mandate – requires employers with 50 or more full-time employees (or the equivalent in part-time employees) to provide health insurance to 95% of their employees and those employees' dependents. Employers who fail to meet this requirement may incur fines of up to $3,860 for each full-time employee. Additionally, the employer mandate stipulates that the health insurance coverage must meet a minimum value standard – which, according to the IRS, means that the plan "covers at least 60% of the total allowed cost of benefits that are expected to be incurred under the plan" and will "substantially cover in-patient hospitalization services or physician services."
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What is open enrollment, and how does it work?
Businesses that provide health insurance must offer it to all eligible employees during open enrollment. Open enrollment dates vary by state, and some states extend their open enrollment periods to start before or after initial dates have been announced. Typically, open enrollment starts in November and runs through the middle of December.
"During this period, employees can make any changes to their current enrollment stats, such as adding or deducting dependents and deciding which insurance plan to enroll in if their employer offers multiple plan options," said Nicholas Tzoumas, president of Clearscope HR. "Once the open enrollment period ends, no changes can be made by employees unless they experience a qualifying event."
Employees who experience a qualifying life event – such as getting married or having a baby – may be eligible for a special enrollment period that allows them to sign up for insurance or change insurance coverage outside of open enrollment. Depending on the type of special enrollment, you may have 30 or 60 days before or after the qualifying event to enroll in or change a plan.
For new hires, the ACA says that employers can't wait more than 90 days to offer health insurance benefits to otherwise eligible employees.
What are health insurance premiums, and how are they calculated?
A health insurance premium is the amount your insurance plan costs, generally expressed as a monthly fee. For group employer-sponsored plans, insurance premiums can be shared between the employee and employer, according to Rocky Mehta, principal at Best Employment Solutions Team.
"The advantage of most group health plans that are sponsored by an employer is that the premiums are exempt from most payroll-related taxes for both the employee and employer, regardless of who pays for the premium," Mehta said. "Premiums are calculated by the carrier based on geographic region, ages of the insured, what group they are rated with and, most importantly, the level of coverage selected."
How do deductibles, coinsurance and copays work?
Deductibles, coinsurance and copays are all examples of what your employees will pay for healthcare expenses.
A deductible is the amount of money that plan participants pay for healthcare services before the insurance company begins to pay. For example, if your plan's deductible is $2,000, your employee will pay 100% of their healthcare bills until eligible expenses total $2,000. Then, the participant will share the cost of care with the health plan provider by paying coinsurance.
This is the money the plan participant pays to share the costs of a healthcare expense, such as a visit to the doctor. Once the participant meets the deductible, they will usually pay a percentage of the amount the health insurance provider allows to be charged for services.
For example, if the plan participant met the $2,000 deductible, they would pay coinsurance on the remaining allowable costs. If the allowed amount is $10,000, the coinsurance is 20%, and the out-of-pocket maximum is $5,000, the total out-of-pocket expenses would be $3,600:
- $10,000 (allowed amount) - $2,000 (deductible) = $8,000
- $8,000 (remaining allowable cost) x 0.2 (coinsurance) = $3,600
Then, if out-of-pocket expenses for the deductible and coinsurance reach $5,000, the health insurance provider would pay for all additional covered services for the remainder of the plan year.
A copayment, or copay, is a fixed amount that the plan participant pays to a healthcare provider after they have paid the deductible. Let's say a health insurance plan's allowable cost for a doctor's visit is $150 and the copay for a doctor visit is $25. If the participant has met the deductible, they would pay $25 upfront to the doctor. If the participant hasn't met the deductible, they would pay $150, which is the full allowed amount.
Which health insurance benefits do employees want?
The basic health insurance benefit that many employees want is medical coverage for doctor visits with a primary care physician. However, many other employee benefits are desirable, including vision and dental coverage and affordable prescription drugs. Offering progressive or flexible benefits like mental health programs, child care, urgent care and preventive care can help you attract quality employees and maintain high retention rates.
What are the advantages of offering health insurance benefits to employees?
Employees are your business's most valuable assets, and keeping them healthy and satisfied can increase productivity within your workforce.
Mehta believes that quality health insurance benefits are a key deciding factor for employees considering job offers. As such, offering health insurance helps you not only remain competitive by hiring the right employees, but also keep them for the long term.
Mehta noted that there are also financial incentives for employers to offer health insurance. "When properly structured, offering employee benefits (even if the employer is not paying for the majority of the premium) also has major tax advantages to both the employee and employer."
How can businesses qualify for a small business health insurance tax credit?
Federal law provides a tax credit to many small businesses that offer health insurance plans to their employees. According to the IRS, an organization must have fewer than 25 full-time employees in order to qualify for the small business insurance tax credit. The average wage of each employee must be less than $53,000 annually, with yearly adjustments to allow for inflation. In addition, the employer must provide a plan available through the Small Business Health Options Program (SHOP) Marketplace and pay at least 50% of the cost for the employee. The 50% requirement does not apply to any dependents, such as spouses and children.
What types of health insurance benefits should a business owner offer?
When deciding which types of health insurance benefits to offer, you should assess the needs of your employees to determine what your benefits should cover and how much the employee and employer contributions should be.
Employers should be looking for ways to meet employees' evolving needs and get the most value for their benefit spending, according to Peter Nieves, chief commercial officer for WINFertility. He gave the following examples of trending benefits that business owners can offer.
- Family-building benefits: A family-building benefit makes it more affordable for employees to build a family in a way that best suits them, such as egg and sperm freezing, IVF, adoption, or surrogacy.
- Stress management benefits: Work stress costs U.S. companies more than $300 billion annually in absenteeism, turnover, low productivity, and medical, legal and insurance costs. Helping employees to be happier, healthier and more in control is paramount to your organizational goals.
- Telemedicine: Coverage for virtual doctor visits makes it easier and less expensive for your employees to see quality healthcare providers.
Health insurance options small businesses can offer
These are a few options to consider offering employees if you own a small business:
QSEHRA: A QSEHRA – qualified small employer health reimbursement arrangement – allows employers to pay for medical expenses without providing a traditional healthcare plan. On this type of plan, you can subsidize employees' monthly medical bills, including insurance premium payments.
Traditional: Small businesses can provide traditional healthcare plans to their employees. A good place to compare plan options is the SHOP Marketplace, which is curated through the federal government. Traditional plans require the employer to pay a portion of the monthly premium and decide on employee contribution amounts.
HRA: With a healthcare reimbursement arrangements, a small business can set aside funds each month for an employee to pay medical premiums or cover healthcare expenses. The money placed in the HRA isn't subject to taxes. To qualify to offer an HRA, your business must have fewer than 50 employees.
Self-funded: Self-funded health insurance is a strategy some small businesses use to save money on benefits plans. Self-funded means that businesses pay for claims out of pocket. Paying claims as they arise mean that the employer doesn't make premium payments on behalf of employees. However, it does carry a financial risk, as expensive claims could be submitted for repayment.
- AHP: AHP, or an association health plan, refers to group health coverage plans. With this type of coverage, small businesses band together to provide health insurance to their employees under one umbrella policy. An AHP provides access to lower rates that are typically reserved for larger corporations.