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Health Insurance as a Benefit
Health is our most important asset. Success of your business is determined by the ability of you and your employees to do their job; physical and mental wellbeing are key to achieving this. Offering a benefit to offset health care expenses has been shown to recruit/retain employees and increase employee satisfaction. Offering health insurance or helping to offset health care costs through a Qualified Small Employer Health Reimbursement Arrangement are two options. As employers with less than 50 employees there are some considerations and options.
Considerations for small business employers offering health insurance group plans:
● Who can you provide health insurance for?
✓ You can choose to offer coverage for your employees and their spouse/domestic partner but you are not required to offer the latter.
✓ Full-time employees are typically included in your plan.
✓ You may be able to offer insurance to part-time employees (those who work less than 30 hours per week) and 1099 contractors. Be sure your insurance carrier allows it.
✓ You must offer the same benefits to all employees who work the same number of hours and you must offer similar benefits and make the same employer contributions to employees who are similarly classified.
✓ Employees do have the right to decline your coverage as they may be covered in other ways. If this is the case, they must complete a waiver of coverage form. This helps with your liability and also your insurance carrier won’t include that
employee in your total employee count and impact participation numbers.
● Are there tax benefits for offering group health insurance?
✓ Employer-provided premiums for group health plans are tax-exempt, meaning you don’t have to pay taxes on them.
✓ Your contributions to your employees’ premiums are a business expense, meaning you can deduct it from your taxable income, which lowers the amount of taxes you have to pay.
✓ For small group plans, insurance carriers often require that employers contribute to at least half of their employees’ health insurance premiums. You can contribute more as a benefit to your employees.
✓ If you set up a Section 125 premium-only plan (also called a cafeteria plan), your employees can pay their part of the premium with pre-tax dollars which reduces payroll taxes for both you and your employees.
✓ If you’re a small business with 24 or fewer full-time equivalent employees, there is a small business health care tax credit. If your business meets all the criteria and qualifies, you can get a tax credit for up to half of your contributions toward employee premiums.
● Can I use a broker?
✓ A health insurance broker can help you choose the right plans and set up health insurance for you. Look for someone who is licensed by your state, is experienced in working with businesses of your size, is savvy with compliance, and can easily communicate with people on your team.
✓ If you’re getting small group health insurance, it doesn’t cost you anything to use a broker as the prices are fixed for these plans and brokers are paid directly by the insurance companies.
✓ There are certified state Health Insurance Marketplace Business (SHOP) brokers. You can find these individual on healthcare.gov.
● Do I have to offer health benefits right away?
✓ Decide on when you want to start an employee’s health insurance coverage. You can start as soon as they are employed up to 90 consecutive calendar days after they start. 90 days is the maximum amount of time you can make an employee wait before their health benefits starts.
✓ Work with your broker and insurance company to determine the annual open enrollment period; the time when employees review plan options and choose the plan.
● Are there other health care benefits I could offer?
✓ Determine if you want to offer dental and vision insurance for employees. If you decide to offer dental and vision benefits, you’ll need to offer them to all employees within the same group. Dental and vision benefits can also be purchased as standalone group plans.
✓ Depending on the health insurance plan you are offering, you could also set up a Health Savings Account or Flexible Spending Account. Each of these allows you or the employee to set aside tax-free dollars to cover eligible out of pocket medical expenses. In order to offer these types of accounts a traditional health insurance plan must be offered.
What if I want to offset health care expenses without offering health insurance plans?
There are two options available to small business owners. A Qualified Small Employer Health Reimbursement Arrangement (QSEHRA) and Individual Coverage Health Reimbursement Arrangements (ICHRA) are both types of Health Reimbursement Arrangements (HRAs) that allow employers to reimburse employees tax-free for individual health insurance. The main differences between QSEHRA and ICHRA are:
✓ Eligibility based on company size: QSEHRA can only be offered by businesses with less than 50 employees, while ICHRA is available for businesses of any size.
✓ Limitations on contributions from employers: QSEHRA has a defined annual allowance cap based on annual IRS figures, while ICHRA offers more flexibility in setting reimbursement rates.
✓ Design flexibility: ICHRA offers more design flexibility than QSEHRA, allowing businesses to offer differing reimbursements based on employees' health statuses and job class (fulltime, parttime, resident alien, etc.)
✓ Both are compliant with the Affordable Care Act
✓ For either type of account, employees pay their provider or insurance company for their health care costs, then submit proof of payment to be reimbursed. Reimbursement is tax-free. Typically, amounts claimed by employees are paid monthly by their employer.
✓ Employers deduct the reimbursements made to employees, reducing their overall tax liability. And reimbursements given to employees are not considered taxable income, so employees won’t have to pay taxes on reimbursements.
✓ To be eligible for QSEHRA, employees must have individual health insurance coverage and cannot be enrolled in a group health plan (they can have individual coverage). Employers must offer the same terms to all eligible employees, except for variations based on age and family size.
✓ ICHRA can be offered by employers of all sizes and can vary contributions and terms for different employee classes. Employees must have individual or Medicare coverage to be eligible for ICHRA, while QSEHRA also accepts coverage under a spouse or parent group plan.
There is help offered through the healthcare.gov and IRS websites that provides more information about these plans, cost calculators and steps to start the process. See link in reference section below.
Action Steps/Questions to Consider
Who would I like to offer health insurance benefits to?
What classification of employees do I have?
How much can I afford to contribute to employee health care?
What type of option would help my employees most- a health care insurance plan or reimbursement arrangement? How can I find out?
Who can I talk with to help sort out my options?
What are my next steps?
References
WashU Olin Business School. (February 7, 2022). Research links health insurance in small firms to higher worker productivity and retention. Found: https://olin.wustl.edu/about/news-and media/news/2022/02/research-links-health-insurance-in-small-firms-to-higher-worker productivity-and-retention.php
Gerson, Emily S., (2019). Everything You Need to Know About Offering Health Insurance. Gusto. Found: https://gusto.com/resources/articles/benefits/health-insurance/guide-offering health-insurance
HealthCare.Gov. Health Reimbursement Arrangements (HRAs) for small employers. Found: https://www.healthcare.gov/small-businesses/learn-more/qsehra/
IRS (2019). FAQs on New Health Coverage Options for Employers and Employees. Found: https://www.irs.gov/pub/irs-utl/health_reimbursement_arrangements_faqs.pdf
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This material is based upon work supported by USDA/NIFA under Award Number 2021‐70027‐34693, and is funded by the NE Risk Management Education Center.