Outside of salaries and wages, health insurance costs are often a small business’ biggest expenditure. While there are strict laws under the Affordable Care Act mandating which companies are required to offer health insurance to their employees and what those plans must cover, understanding exactly what kind of health insurance coverage your company should offer is a bit trickier.
Every business is different, and what might be the right level of health insurance coverage for a large manufacturing company with 100 employees could be total overkill for a small software company with a twelve person team.
If know you want to (or are required to) offer health insurance to your employees but aren’t sure what level of coverage is best, here are three questions to help guide your decision:
Why Small Businesses Should Offer Health Insurance
If you’re a growing business that has yet to offer employees access to health insurance, you might be in a constant limbo of weighing the costs and benefits associated with providing health insurance.
Even if you’re still not sure if it’s the right time to move forward, it’s smart to start considering how health insurance might play into a robust hiring and retention strategy, and how you can expand beyond the basic medical, dental, and vision coverage.
How Many Small Businesses Offer Health Insurance?
According to the Bureau of Labor Statistics in a March 2020 report, only 55% of small to medium businesses with fewer than 100 employers offered access to health insurance. This figure stands in stark contrast with what employees are looking for from their employers.
In a study conducted by Justworks, 88% of employees said the quality and options of health benefits were important, and 45% stated that health insurance matters most when deciding to accept a job.
Beyond taking care of your team, health insurance also plays an instrumental part in being able to bring on top talent and create a competitive workforce.
Do You Have to Offer Health Insurance to Employees?
The ACA does not require companies under a certain size to offer health benefits. However, it does offer an incentive for you to do so. You may be eligible for the Small Business Health Care Tax Credit if you:- Have fewer than 25 FTEs;- Pay average annual wages to your employees for the year of less than $50,000 per FTE; and- Cover at least 50% of your full-time employees’ health insurance premium costs.
Use our guide to simplify creating a benefits package.
Considerations When Offering Health Insurance
What Are Your Company’s Demographics?
If your employee demographics run the gamut in age and marital/family status, it’s important to offer access to a rich variety of coverage options. The ACA was designed to flexibly meet the needs of employees of all ages — with high-deductible health plans, often chosen by younger enrollees, helping offset low-deductible richer insurance plans.
If the majority of your employees are young, unmarried, and don’t have children, they’re less likely to need rich, often more costly, coverage options, or rarely use their coverage altogether. They might be satisfied with only a high-deductible health plan and access to an HSA.
If the majority of your employees are older and have families, it’s likely that they’ll expect access to higher quality health insurance plans with more extensive coverage.
Related Article: Offering Employee Benefits in a Multigenerational Workplace
What Are Your Competitors Offering?
Health benefits are a clear and competitive way to recruit and retain top talent, and if you’re not offering access to health insurance to prospective employees, you may be falling behind in the game.
And as remote workforces become more and more commonplace, hiring candidates are no longer only weighing your company next to local competitors and industry peers — they’re able to now look at opportunities nationally (even internationally), now that physical location is less impactful. So it counts to try to bolster your benefits offerings, which are a crucial part of compensation for many candidates, especially so you don’t lose your talent pool to other companies.
Because there’s such high demand for software engineers in San Francisco, for example, some companies will completely cover health insurance premiums as a way to entice new recruits.
Of course, it’s not always financially feasible for a small business to provide such generous coverage options, but if you have a sense of what your competitors are offering, you might consider offering slightly more to give your company an edge (like, say, covering 65% of a plan’s premium instead of your competitor’s 60% offer).
However much you plan to cover of your employees’ plan premiums, you should consider whether standard contributions are right for your team
What Are Standard Employer Contributions?
Employer contributions, also known as company contributions, are the portion of the monthly premium that your company pays for each employee that elects coverage and any enrolled spouse/dependent(s).
Standard contributions are when the company uses the same contribution scheme for all of the medical plans to which the company provides access. Two examples of this include:- The company contributes 90% of the Employee only tier premium for plans A2, B3, and C3.- The company contributes $600 to the Employee only tier premium for A2, B3, and C3.
How Important Are Mental Health Benefits?
Employer-led mental health programs are becoming more and more prevalent, to the extent that, according to a study by mental health platform Ginger:- 85% of employees surveyed said that behavioral health benefits were important when evaluating a new job, and- 91% of respondents also believed employers should care about their emotional health.
So when you’re evaluating health insurance, look holistically at how you can provide for your employees beyond just the basics.
What Health Insurance Costs Can You Afford?
Ultimately, it all boils down to health insurance cost savings for many small businesses. Knowing your demographics and competition doesn’t mean all that much if you don’t have the budget available to pay for health insurance access anyway.
While the Affordable Care Act mandates that employers of a certain size offer affordable health insurance, it doesn’t require that employers pay for 100% of the costs.
If funds are tight, you may only be able to offer a high-deductible plan for your employees, but could help sweeten the deal by contributing a small amount of money to those employees’ HSA accounts, for example.
Another financial option is to consider how you might save your business money holistically through a Professional Employer Organization (PEO). Some PEOs, like Justworks, take care of more than just health coverage and benefits, but also payroll software, HR administrative tools, and a rich variety of big-company perks.
So even if the costs of health insurance seem steep, you might be saving in other areas of your business by teaming up with a PEO.
Related Article: What’s a PEO?
Even if you can’t afford a lot for insurance, you can access high-quality benefits packages at competitive rates. By using a PEO like Justworks, you get access to large company benefits even as a small business. You can learn more about us here.
This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, legal or tax advice. If you have any legal or tax questions regarding this content or related issues, then you should consult with your professional legal or tax advisor.