Businesses with fewer than 50 employees are not required by law to insure their workforce. However, about half of them do anyway. There are several options for very small businesses that want to provide health insurance to their workforce. Many still go the traditional route with group health insurance. Many, however, are finding other ways to provide coverage as health insurance premiums steadily rise.
The Rise of Health Care Costs
Employer-sponsored group health insurance premiums have been significantly increasing in the last couple of decades. According to the Kaiser Family Foundation’s 2015 Employer Health Benefits Survey, since 1999 employer-sponsored group health insurance premiums have nearly tripled from $2196 per year to $6251 per year in 2015.
With such steep annual increases in health insurance premiums, many small businesses are forced to cancel their group health insurance benefits because they’re not affordable.
As you can see, other than a couple of spikes, businesses with fewer than 50 employees offering health insurance to their employees has been steadily decreasing:
Many of the employers that are still offering health insurance are doing it in a different way than they used to: Employers are canceling their group plans and choosing to reimburse all or part of their employees’ individual plan’s premiums. There are a couple of reasons why this is a smart option.
Cheaper individual plans
Individual health plans are much cheaper than employer sponsored group plans. According to ZaneBenefits.com, this is the future of employer health insurance contributions for very small businesses. (The practice of reimbursing employees for their health insurance comes with some compliance requirements that Zane Benefits describes in their article.)
There is another benefit in this approach. Employees that qualify for government subsidies with the Affordable Care Act get cheaper health insurance. So employers can end up reimbursing less if their employees just enroll on their own. Many small businesses saw this win-win situation and dropped group coverage once Obamacare was implemented.
Other Small Business Health Insurance Options
While it can be cheaper, not all very small businesses that offer health insurance benefits reimburse their employees. Some still buy small group insurance because it’s convenient and because there can be a tax benefit if they meet the requirements.
“The Small Business Tax Credit helps small businesses afford the cost of health care coverage for their employees and is specifically targeted for those businesses with low- and moderate-income workers. Businesses that have fewer than 25 full-time equivalent employees, pay average annual wages below $50,000 (indexed annually for inflation), and contribute a uniform 50% or more toward employees’ self-only health insurance premiums may qualify for the small business tax credit.” – SBA
- SHOP (Small Business Health Options Program) is a marketplace where employers can find group health coverage. If you meet the requirements for tax credits, this is probably the way to go.
- Private small-group plans
- Private health exchange
For more information on these options, check out this informative blog post.