Weighing Health Insurance Options for Your Small Business Employees

We’ve seen a lot of changes with regards to ObamaCare in recent months, and some of those affect both small businesses and their employees.

health insurance for small businesses

Entrepreneurs have plenty to occupy their minds, and health care is likely close to the top of that list for many. Recent months have brought significant changes to ObamaCare, impacting both small businesses and their employees.

Noteworthy Changes for Employees

One of the most widespread changes for taxpayers is the increase in fees for not having health insurance in 2016. Otherwise known as the “individual mandate,” this fee or penalty maximum increases from $975 in 2015 to $2085 in 2016.

As a business owner, expect some pressure from your employees if you don’t currently offer health insurance, because your uninsured staff will be required to pay this penalty. Also, company-sponsored plans might offer tax benefits that individual plans don’t. This puts more responsibility on small business owners.

Leverage Tax Benefits for Your Business and Employees

As a small business owner, you’re managing numerous responsibilities. Don’t let potential savings slip through the cracks. Have you considered the tax advantages tied to health insurance? The Affordable Care Act offers more than just regulatory guidelines; it’s a valuable resource packed with tax benefits you could be capitalizing on. To jump-start your journey, familiarize yourself with the Small Business Health Care Tax Credit.

Interested in optimizing that tax credit? The devil is in the details. To fully leverage this credit, aim to contribute at least 50% towards your employees’ premium costs while maintaining average annual wages under $50,000. But that’s just the tip of the iceberg. Your employees can also funnel pre-tax income into Health Savings Accounts (HSAs) or Flexible Spending Accounts (FSAs). This not only results in tax savings for them but also reduces your payroll tax obligations. It’s a mutually beneficial arrangement!

You’re this close to leveraging some serious tax benefits. Your next step? Consult a licensed insurance broker who specializes in small business health plans. They can guide you through the maze of regulations and help you pick the plan that offers the most tax advantages. And remember, keeping up-to-date with changes in the Affordable Care Act can save you from hefty penalties down the line. So, don’t just stand there; take action and make those tax benefits work for you and your team.

The Hidden Costs of Employer-Sponsored Health Insurance

You may believe you’ve covered all the bases in providing health insurance to your employees—from premiums to their contributions. However, there’s an often-overlooked aspect: administrative fees. Far from trivial, these expenses can accumulate into a substantial sum. The National Association of Insurance Commissioners reports that for small businesses, such fees can consume anywhere from 7% to 30% of your premiums. That’s capital you could be reinvesting into your company’s growth.

Now, let’s talk about compliance costs. The Affordable Care Act (ACA) isn’t just a set of guidelines; it’s a labyrinth of legal requirements. Missing a single deadline or failing to provide the right documents can result in hefty fines. In 2019, the IRS collected over $14 million in ACA-related penalties from businesses. And don’t forget, if you’re not compliant, you’re also exposing your business to potential lawsuits. Legal fees and settlements can quickly escalate, turning your cost-saving measures into financial pitfalls.

Wait, there’s more to consider, including the often-overlooked issue of potential liability. Imagine an employee encountering a severe health crisis and discovering that the coverage you provided falls short. You could find yourself liable for not fully disclosing the plan’s limitations. Given that medical debt is a major driver of bankruptcy, it’s a risk you can’t ignore. To safely navigate these complexities, it’s wise to consult with an expert insurance advisor. They can help craft a plan that minimizes these hidden liabilities while maximizing benefits for you and your team.

Updates for Small Business Owners

The new year also brings big changes to small businesses via the Affordable Care Act. While pundits may discuss the benefits and drawbacks of the bill, the fact is that the expansion of healthcare options for small business owners allows more opportunities to attract and retain the best employees. Large businesses have always had this advantage, and now thanks to the Small Business Health Options Program, or SHOP, small businesses with fewer than 50 employees (unless the business is located in a state that allows a higher limit) can price and purchase health insurance for their employees. In addition, small businesses with fewer than 25 employees may qualify for a Small Business Health Care Tax Credit worth up to 50% of premium costs.

Note that starting this year, companies with 50 or more full-time equivalent employees must provide health coverage for at least 95% of their workforce. This has changed from prior requirements applying this rule to businesses with 100 or more full-time employees. Not providing coverage will get you fined to the tune of up to $2,000 per full-time employee.

Keep in mind that even if you don’t have 50 full-time employees, you may still be required to pay, because the calculation is taken as an average of all employees’ workloads. Some things to know:

  • Employees working 30 hours or more weekly are considered full-time.
  • Part-time employees are calculated by taking hours worked in a week by all part-timers and dividing by 30.
  • Seasonal employees working fewer than 120 days a year aren’t included in the calculations.

Making Big Choices

Most small business owners know that health benefits are crucial to employee compensation. Historically, small businesses have been at a disadvantage when attempting to procure affordable health insurance, lacking the negotiating leverage of large-group health plans. Today, small businesses have alternatives when it comes to offering health benefits to their employees. Just as there is no one-size-fits-all option when buying business insurance, selecting health insurance offers the same array of choices, including group health insurance and defined contribution health plans.

Let’s look at both of these options.

Group Health Insurance

This type of insurance is chosen by the employer, who subsidizes a portion of the premium. As mentioned above, some businesses may qualify for tax credits that can make premiums much more affordable.

Offering health care coverage may help your business retain more capable employees, especially if they have dependents who can benefit from expanded health insurance. One significant advantage is that group health insurance plan premiums may offer tax deductions to the employee and employer. However, confirm that whatever coverage you choose under this option complies with the Affordable Care Act’s rules and regulations, otherwise, you could find your company subject to penalties.

Defined Contribution Health Plan

This type of plan allows small businesses to offer health benefits with dependable costs that are deemed affordable by the employer. In addition, employees may be able to capture significant tax savings when they set aside pre-tax income for spending accounts, such as a health savings account (HSA) or a flexible spending account (FSA). Much of the decision making becomes the responsibility of the employee, as employees select the plans that suit their individual requirements. One challenge to this type of insurance is that the policies usually come with higher deductibles and out-of-pocket costs for the insured.

Employers wanting to expand the benefits they offer have many options, but the rules and regulations are a bit complicated. A licensed insurance broker can help you decide on the right healthcare benefit for your small business and in most cases, there’s no increase in costs or extra fees for the assistance.

Keeping on top of new changes to the Affordable Care Act only benefits your business, and can keep you from racking up serious penalty fees that can threaten the future of your business.

Innovative Solutions to Reduce Health Insurance Costs

Navigating the demands of small business ownership is no small feat, especially when health insurance costs keep climbing. But what if there was a way to flip the script? Lower those expenses without compromising the health benefits your team deserves. Curious yet? You ought to be. Consider adopting a Health Reimbursement Arrangement (HRA) as your secret weapon. With an HRA, you allocate a monthly budget for each employee’s healthcare needs. The best part? Any unspent funds simply roll over, meaning you only foot the bill for the medical services your staff actually needs. And don’t forget the cherry on top: HRAs are tax-deductible for your company and tax-free for your employees. It’s a mutually beneficial arrangement all around.

Still not satisfied? Then you’ll want to tune in for this: ever heard of level-funded health plans? These ingenious options blend the advantages of traditional and self-funded plans. You get the cost savings of self-funding, but you’re shielded from sky-high risks. Here’s how it works: you pay a consistent monthly fee, covering both administrative overhead and claims, all calibrated to your team’s healthcare use. Even better? If year-end claims don’t live up to projections, you’re in for a refund. It’s like enjoying all the perks without the financial headache. For personalized guidance through these choices, consider a chat with a specialized insurance advisor to tailor a plan that perfectly suits your business.


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