Small businesses have a major impact on the economy and on the welfare of their employees’ lives, but they don’t typically have the resources (cash or otherwise) that larger employers do, limiting their options when it comes to providing health insurance (which is still the most important employee benefit).
Of course, small businesses with fewer than 50 full-time employees aren’t held to the employer mandate — it’s up to each employer to decide if they want to offer health insurance to their employees. However, many small business owners view health insurance as one of the most effective ways to attract and retain the best employees and improve productivity (by keeping everyone healthy).
But when the numbers game counts against them, what options are available to small employers?
Small businesses essentially have four health insurance options (in addition, of course, to not providing coverage at all):
As with most pieces of major legislation, the Affordable Care Act (ACA) had both positive and negative effects on different groups, and the impact on small business health insurance options was no exception. It ended the practice of using a small group's claims experience to set rates, and instead required insurers to pool the risk across all of their small group business in a given geographic area, a practice which is known as community rating.
While this was good news for businesses with older and less healthy workers (who saw their premiums moderated by younger and healthier groups), it was bad news for employers that already had younger, healthier groups. The ACA also mandated that small business health insurance would not be exempt from new provisions, including the requirement to cover all essential health benefits, with no annual or lifetime benefit maximums.
Nevertheless, private small group plans are most certainly still a very viable option for most small businesses. In fact, some small groups have been able to keep the plans they’ve had since 2013 (complete with health-history underwriting), thanks to rules from the Obama administration that have been carried forward by the current administration. Those rules have been extended to permit these "grandfathered" plans to remain in effect through 2018.
Insurers and brokers also now offer self-funded plans which allow companies to circumvent community rated plans. And with risk-limiting features such as stop loss insurance and level-funding arrangements, smaller companies can embrace self-funding without taking on more risk than they might be comfortable with. In addition, self-funded plans aren’t beholden to nearly as many of the ACA reforms.
Commonly referred to as a small business HRA, these reimbursement plans allow employees to shop the individual marketplace for insurance policies and then receive a tax-advantaged reimbursement from their employer to help cover the premiums.
In order to offer a QSEHRA, a small business must meet the following criteria:
Other than health insurance premiums, many medical, dental, and vision expenses (similar to an HSA or FSA) are eligible for reimbursement through a QSEHRA. In 2018, businesses can offer up to $5,050 per year for individuals and $10,250 per year for families. Employees can purchase insurance through an insurance broker, online on their own, or through the ACA marketplace.
SHOP stands for “small business health options program” — it’s the small business section of the ACA health insurance marketplace. The SHOP Marketplaces are public exchanges which sell small group health insurance policies. A small business qualifies for SHOP insurance if it has fewer than 50 FTEs.
Similarly to state-run versus federal-run individual ACA marketplaces, some states run their own SHOP Exchanges. Because each state may have different eligibility requirements, make sure you read the SHOP website carefully (or talk to a SHOP-licensed broker in your state) to make sure you qualify.
Enrolling in an ACA SHOP plan is the only way a small business can qualify for a Small Business Health Care Tax Credit and all of the following criteria must be met:
A MEWA is a multiple employer welfare arrangement, but it is also sometimes referred to as a multiple employer trust (MET). An AHP, or association health plan, is a type of MEWA. Both allow small employers to band together to create a larger pool of employees. This allows them to take advantage of economies of scale. This could mean as little as two employers in the group, or as many as deemed necessary to form a large enough employee pool.
MEWAs have been around for a long time, but were made more popular in part because the ACA put measures in place to restrict their abuses and allow more uniformity across states. Generally speaking, the ACA treats MEWAs as regular group plans and requires that each plan follow the rules for basic essential coverage under the law.
AHPs have been pushed back into the news cycle lately because President Trump signed an executive order requiring the Department of Labor to loosen restrictions on these types of MEWAs. Basically, the order exempts association health plans from ACA regulations that require basic essential coverage and expands the rules for who can form an AHP, such as crossing state lines or venturing outside your industry. This also means that sole proprietors could band together to form an AHP instead of being forced to purchase through the ACA marketplace.
If you don’t already have one, now is a good opportunity to find an employee benefits broker you can trust. They can help you model various scenarios — and you may just find that small business health insurance doesn’t have to be as intimidating (or expensive) as you once thought.
And before you choose to opt into a multiple employer welfare arrangement, association health plan, or even a QSEHRA, be sure to check with your lawyers to make sure you’re following proper local, state, and federal regulations. You do not want to be embroiled in a legal battle because you didn’t cross your T’s and dot your I’s.
Are you looking into your small business health insurance options? Leave us a comment below or contact us. We’re happy to discuss the possibilities with you!