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Your Comprehensive Guide to Finding Small Business Health Insurance

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Small business health insurance takes a company to the next level. Whether you’re self-employed and looking to find the best rate for your personal health insurance, or a small business owner looking to offer a serious perk to your employees, it’s important to understand what insurance plans are out there for small companies.
In this article, we’ll give you a great guide to health insurance for small businesses. We’ll walk you through the basics of understanding small business health insurance, and requirements for getting group coverage. We’ll discuss the benefits of small business health insurance, and how it can help with recruitment, retention, and work culture. Lastly, we’ll look at the public exchange and possible tax credits you could be eligible for.

Small Business Health Insurance Basics

In order to understand how health insurance plans work and which one will be right for you and your employees, there are some key terms you should know:
Premium: A premium is the payment you make to a health insurance company to keep your coverage active. A premium can be paid by an individual, an employer, or partly by both.
Deductible: A deductible is a set annual amount that a person must pay toward health coverage before an insurance company takes over payment.
Copayment: A copayment is a cost that an individual must cover for every trip to a health insurance provider that offsets what an insurance company will pay.
The basic rule is: People tend to want low numbers for all three of these. Different plans will offer lower premiums but higher deductibles, others will guarantee a low copay for each visit, and a low deductible, but a high premium. It depends on what’s important to each employee.

Requirements for Small Business Health Insurance

If you run a small business and are looking into providing health care for your employees, there are questions you’ll need to answer about your eligibility. Requirements for group health insurance vary by state, but there are some consistent guidelines for small employers looking into offering health benefits.
For one, a big issue is whether or not you have any full-time employees.
If you are self-employed, and the only “employee” of your company, some states will label you a small group of one and allow you to buy group health insurance through an insurance company. The majority of states, however, insist that you have at least one full-time employee outside of yourself to be eligible for group insurance plans. If you live in one of those states and are self-employed, you will need to buy an individual health insurance policy.
These are the states which classify companies of one person as a “small business” eligible for group health insurance plans, via The Kaiser Family Foundation:

  • Colorado
  • Connecticut
  • Delaware
  • Florida
  • Hawaii
  • Iowa
  • Louisiana
  • Maine
  • Massachusetts
  • Mississippi
  • New Hampshire
  • New York
  • North Carolina
  • Rhode Island
  • Vermont
  • Washington

If you have one or more full-time employees outside of yourself, you will qualify in all 50 states (and the District of Columbia) to apply for group plans. Most states limit the size of a “small business” to 50 employees, so if you have more than that, you most likely won’t be able to shop for “small business” plans.

Options for Self-Employed Workers

If you’re the sole proprietor of your company and its only employee, and you live in one of the states listed above, you will have the choice to either try out group plans or find an individual health coverage plan, or a family health insurance plan.
If you are simply looking to provide for yourself, individual plans bought through a health insurance company or the public marketplace (more on that below) may actually be more affordable, or similar costs, to a group plan just for you.

Why Get Small Business Health Insurance for Employees?

Small business health insurance: Doctor in scrubs
If you have full-time employees working for you, offering a health plan can be an effective way to set your company apart.
Benefits of offering health coverage include:

  • Lower premiums
  • Tax incentives (more on that below)
  • Recruiting
  • Retention
  • Building a healthy company culture

Small group health insurance plans allow your workers to band together under your leadership to get lower premiums — subsidized by you, the employer — and get better deals with lower out-of-pocket costs. This makes it easier to find the best talent, and then keep the best talent by having happy, healthy employees who feel cared for. (The physical benefits are great, but you can’t underestimate the mental health benefits of providing people with health security.)
A small business health insurance plan that provides coverage of essential health benefits may represent an up-front cost, but as an investment in building a healthy company culture and retaining the best talent, it’s hard not to justify that cost.
You also have a lot of options when it comes to shopping for group plans. If health insurance premium costs are too much for your new company, you can work with a health insurance broker to set up a health reimbursement arrangement, or HRA. An HRA is a plan funded by the employer, which reimburses workers for medical expenses. Some HRAs even allow you to reimburse insurance premiums (either in total or in part) for plans that employees get for themselves.
Like an HRA, there’s also the option to get a qualified small employer health reimbursement account (QSEHRA). This is a bit of a hybrid plan, which is available for employers with up to 49 full-time employees. In a QSEHRA, the employer offers minimum health coverage, then sets an allowance for the QSEHRA fund. Employees can then submit their qualified medical expenses for a tax-free reimbursement. This type of account allows up to $4,950 in reimbursements, tax-free, for individuals, and up to $10,000 in reimbursements for families every year.

The Public Exchange

When shopping for a small business health plan, you can always work with an agent, or research private companies that offer plans in your state. There is also now a public option.
The Affordable Care Act (sometimes called Obamacare) was passed in part to give self-employed people and the owners of small businesses a public option to shop for health care. This public addition to the insurance market varies by state, but is accessible no matter where you are through Healthcare.gov.
The public exchange for employers is called the Small Business Health Options Program (or SHOP). The SHOP marketplace allows employers to shop coverage options, including private options.
The SHOP marketplace is limited to companies with at least one eligible full-time equivalent employee. If you want to enroll yourself in the plan, at least one of your employees has to enroll first.
Note: These must be full-time employees. States do not allow you to apply for small business group plans if you only employ independent contractors. You also cannot label your spouse, or a business partner or co-owner, as a full-time employee.

Tax Credits for Small Business Health Insurance

Doctors doing surgery in operating room
If you get a SHOP plan, you may be eligible for a small business health care tax credit. There are a few requirements for you to be eligible, however.
Those are:

  1. You have fewer than 25 employees
  2. Your group SHOP plan must last for at least two years
  3. The employer has to pay at least 50% of premium costs
  4. The employees can’t make more than $50,000 in average annual salary/wages

The tax credit is one benefit of finding health insurance through SHOP. But you aren’t limited to finding healthcare through the SHOP marketplace. If you don’t qualify for the tax credit, and the SHOP marketplace isn’t robust in your state (many states only have a few options available), you may be better off just going through private companies and pricing out options for your business.

Self-Employed Tax Credits

If you work for yourself and are the only employee of your “company,” you may be eligible for a self-employed health insurance deduction. This would allow you to deduct 100% of your health insurance premiums for your entire household. To find out if you’re eligible, it’s worth it to discuss it with a tax professional.

Finding Small Business Health Insurance Coverage

Providing health insurance isn’t required for small business, but for companies that want to treat their employees right, and find the best talent, it can be a fantastic way to stand out. Understanding how insurance plans work, and what options are available when you go to shop for plans, can help you find the best plan that makes the most sense for your business.

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