Top 3 Small Business Health Insurance Alternatives for 2014

It’s that time of year when small businesses are looking at health benefits for 2014 and evaluating options. During this renewal season, small businesses are in an interesting position. Small businesses with fewer than 50 employees are notmandated by the Affordable Care Act (ACA) to offer traditional health insurance by 2015. And because of the ACA there are new options for small businesses to afford health benefits – including small businesses who have been priced out of traditional group health insurance. These two factors create new alternatives, and opportunities, for small businesses and their health insurance brokers.

Here are the top three health insurance alternatives small businesses are evaluating for 2014.

Top 3 Small Business Health Insurance ‘Alternatives’ for 2014

#1) Small Group Health Insurance Plan (The Non-Alternative)

The first on our list is the non-alternative – a small group health insurance plan. A small group health insurance plan is the traditional way for small businesses to offer health insurance, however there are new options for 2014.

One of the new options is the SHOP Marketplaces. The SHOP marketplaces are new state- or federally-run health insurance exchanges for small businesses. The SHOP Marketplaces could be a good coverage option for small businesses.

However, like traditional small group health insurance plans there are certain requirements that make them prohibitive for some small businesses. For example, in Massachusetts employers participating in the SHOP must contribute at least 50% of the premium amount, employers with 1-5 employees must have 100% of the employees enrolled, and employers with 6-50 employees must have at least 75% enrolled.

For eligible small businesses, the SHOP Marketplace gives access to the small business tax credits, which as of 2014 are only available for plans offered on the SHOP.

Brokers can help the small business select and purchase a traditional small group health insurance plan, through the SHOP Marketplace or “off” the Marketplace as they would prior to 2014.

#2) “Pure” Defined Contribution Health Plan

The second option is an emerging small business health insurance alternative, and is a simple approach to offering employee health benefits. It is a viable option for small businesses because it removes many of the barriers of offering traditional health insurance (ex: cost, minimum participation, minimum contribution, etc.).

With a “pure” defined contribution health plan, the benefit the small business provides is health insurance allowances.

  • Employees use the defined contribution health plan to reimburse themselves for personal health insurance premiums.
  • Employees usually work with a health insurance broker to select a plan — directly from the broker or insurance company, or from the public individual health insurance exchange in their state.
  • Eligible employees can access discounts on their premiums via the individual health insurance tax credits.

If the small business would like to contribute to employee’s premium expenses, they can use a defined contribution health plan to reimburse employees for the unsubsidized portion of their premium. And, the defined contribution allowances can be allocated by job criteria (e.g. $200/month to managers and $100/month to entry-level).

For many small businesses, a “pure” defined contribution health plan will be the most cost-effective solution because the small business can contribute any amount, and individual health insurance costs, on average, less than small group plans.

Brokers play an important role in defined contribution health plans and are generally involved to facilitate the setup of the defined contribution health plan, sell the individual policies to employees, and be a consultant-like resource to the small business.

See this overview of using a defined contribution plan to provide health insurance allowances.

#3) Offer Nothing

The last small business health insurance alternative is to offer nothing to employees. In otherwords, do not offer a formal health benefit.

Some small businesses are taking this approach because they cannot afford #1 (a small group health insurance plan) and they do not know that #2 (a defined contribution health plan) exists. Others do not want to contribute to employees health insurance expenses.

Brokers who have a defined contribution solution in their offerings can gain the business of those small businesses who want to offer health benefits, but cannot afford the small group health insurance plan.

Other Small Business Health Insurance Alternatives

Within these core three options there are variants. However, most options fall within the three core options.

For example, “sending employees to the individual health insurance exchanges” is an option small businesses are discussing. This could mean a couple different options. If the small business wants to contribute to employees’ expenses, then they could set up #2) a “pure” defined contribution health plan. If they don’t want to contribute, it would be option #3) offer nothing.

Similarly, a private health insurance exchange would be either a variant of #1) small group plan/s or #2) defined contribution with individual health insurance. And, a co-op is a variant of #1) small group plan.

What are your top small business health insurance alternatives (or options) for 2014? What are we missing from this list? Leave a comment below.

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