- By Robert Dillard
- Posted January 29, 2022
What Type Of Health Insurance Is Right For My Small Business? A Financial Planner’s Overview.
If you own a small business, I’m sure you’ve often found yourself with a lot of questions related to health insurance. For instance, you might have seen or heard the research that shows offering health insurance or health insurance benefit programs greatly increases employee retention and now you’re wondering if it’s right for your business. You may have noticed in your own business that when your employees feel they are valued and cared about they tend to stay longer and be happier, and you’re wondering if health insurance can help give you just the competitive edge you’ve been looking for to attract top talent. You may simply know that offering certain benefits could allow you and your employees to save money and you want to know more! Regardless of how you came to these questions, they’re good questions to ask. As small business financial planners, we hear these sorts of questions regularly and today we aim to answer them.
The most difficult part of obtaining Health Insurance for your Small Business is navigating and understanding the health insurance system and how health insurance plans differ. So, let’s begin by exploring the two different types of health insurance and how each option can enrich both your life as well as the lives of your employees. Since as an employer you can begin enrollment on health insurance for your small business at any time, it’s never too late or too early to get started! If there’s a plan that seems right to you, feel free to reach out as we’d love to talk more about helping you implement it within your small business!
Navigating health insurance plans for a small business can understandably be a very daunting experience. It’s easy to be overwhelmed by all the options when financial planning and the fact that many of the options seem to be nearly identical doesn’t help. However, by focusing on the small and subtle differences between the types of health insurance we can begin to understand which is correct for your business specifically.
The first type of health insurance for small businesses that we are going to discuss is “traditional” plan small group insurance. The biggest factor that sets this type of health insurance apart from others is that with this option an employer selects the group plan and benefits that will be universally applied to everyone who is enrolled. This means every employee who is enrolled will be on the exact same plan with the exact same benefits. This type of insurance will also have a requirement on how many employees must enroll. Beyond making this process simpler by giving everyone enrolled the same plan, this type of health insurance also typically includes those enrolled contributing a split amount of the monthly premium. A business will sometimes contribute either the whole amount or a percentage of the monthly premium for their employees.
The second type of health insurance we are going to talk about is HRAs, or Health Reimbursement Arrangements. This is a type of insurance that consists of employer-funded plans that reimburse employees for certain things. HRA’s are be split into two different kinds of plans: Individual coverage HRA (ICHRA) and Qualified Small Employer HRA (QSEHRA).
Let’s begin with ICHRA. An Individual Coverage HRA allows for selective offerings based on the classification of employees. This means the same health insurance plan and benefits do not need to be applied to every employee. Instead, employees get to choose their own plans and then get reimbursed by the employer based on their classification. While on this kind of insurance plan an employee cannot receive any of the premium tax credits, also known as Advance Premium Tax Credits (APTC) available from the government on the private health insurance exchange. It is very important for employees to know that they cannot receive this type of governmental aid while on this type of plan. Also, unlike all other plans, an ICHRA has no Maximum contribution limit placed on the employer. These kinds of plans are built around allowing more flexibility for the employer and employees.
In contrast, a Qualified Small Employer HRA (QSEHRA) requires that all full-time employees be offered the plan. This type of HRA is often used by small businesses and Non-profits. While in this case there are limits placed by the IRS on the maximum amount an employer can contribute, the employee can still choose the individual health plan that’s right for them. The employee chooses from qualified Health plans and uses some of their available premium tax credits (APTC) to offset the cost. This rule can be a little complicated but the simplest way to think about it is that any costs will be reduced equally by the employee’s available tax credits (APTC) and their QSEHRA reimbursement rate. If an employee has a higher amount of available tax credits (APTC) than what is offered to them by QSEHRA, they can further reduce their costs by the amount that their APTC exceeds their QSEHRA. These plans are often very complicated, but they are built around providing tax incentives to employers and employees.
We have now covered the two types of health insurance you can obtain for your small business and have even discussed two different types of HRA-specific plans. By utilizing one of these opportunities, you can not only give your employees great benefits that help cultivate a happy and committed workforce, but you can also promote company longevity! And you can do this simply by maximizing your tax savings, building attractive hiring and retention options, and in my opinion the most important thing you can do: taking care of everyone who makes your company run!
After reading this you may already have an idea of which type of insurance you would like to begin to implement but the whole process can still feel tough to navigate. Remember you don’t have to tackle this by yourself! There are professionals and specialists, such as the ones at Tenpath Financial, that can and will help you complete the discovery process and then implement the plan. When you are done you will feel more empowered and free to focus on what you are good at making money and building your business!
Our certified financial planning team has many individuals qualified and ready to help with the process outlined above. We not only have the expertise, but also the passion and resources to help you achieve your financial goals your way. We look forward to helping empower you and your business to strive more effectively into the future!
Contact Tenpath Financial Group for certified financial planning services.
