4 Options for Small Business Health Care

 

If you operate a small business, you may be weighing the pros and cons of offering health insurance to your staff. While firms with fewer than 50 employees are not required by law to provide this benefit, more and more are choosing to offer it because of the advantages it provides to the company itself.

Here are a few things to consider:

  • Health care is a good recruiting tool. With unemployment rates at record lows, the competition for good workers is fierce. Employees—who are more willing than ever to change jobs—are using this to their advantage. Those companies that offer health and other benefits have the upper hand in attracting these workers.
  • Health care helps with employee retention. In a recent study by Glassdoor, workers said that health care was the most important benefit an employer could offer. More important than vacations. More important than retirement plans. If you want your best and brightest to stay, offering health insurance may be a key to making that happen.
  • Health care helps build a positive culture. By offering health care benefits, you are showing your employees that you care about their well-being. That goes a long way in building a culture of mutual respect and trust. What’s more, it builds loyalty among your staff.

Understanding Your Healthcare Choices

While small businesses certainly don’t have the vast selection larger corporations have, there are a handful of viable and attractive options. These include the Affordable Care Act (ACA) plans, Multiple Employer Welfare Arrangement (MEWA) plans, level funding and reference-based pricing (RBP) options.
Let’s take a look at each.

Affordable Care Act

The ACA established the Small Business Health Options Program (SHOP) for small employers who want to provide health and dental coverage to their employees. These health plans operate under separate exchanges from the individual health plan marketplace.

Here’s what you need to know about the ACA option.

  • With ACA, you decide what coverage you want to offer and how much you want to pay toward employee premiums.
  • ACA plans are not medically underwritten and do not require employees to fill out health care forms.
  • ACA plans are available to employees with preexisting conditions, no questions asked.
  • ACA offers fixed pricing based on demographics, which include age, gender, location and tobacco use. For many employers, this is attractive because they don’t have to spend their valuable time shopping around.
  • ACA plans are more expensive. Because ACA plans are not medically underwritten, insurers cannot evaluate the health status, health history and other risk factors of applicants to determine the terms of the coverage. As a result, they place a higher premium on their offerings.

Multiple Employer Welfare Arrangement

A MEWA is a way for multiple employers to pool their resources and use their collective buying power to lower rates. MEWAs are particularly useful for small companies, allowing them to provide their employees benefits beyond the government-run health insurance exchanges.

  • To participate in a MEWA, employers must be a member of a chamber organization.
  • MEWAs mitigate rate exposure for employers by enabling them to be part of a larger, self-funded group.
  • MEWAs are medically underwritten, so employees must complete a medical application.
  • Because MEWA rates are based on health conditions and demographics, groups who are younger and healthier will enjoy substantial savings. Those who are older or have a history of medical issues would see higher rates.
  • The MEWA pool allows for more stable renewal increases.

Level Funding

Designed for companies of 25 or more, level funding adds an element of predictability to a company’s health care costs. With level funding, employers pay a set amount each month to their carriers, including the maximum amount of claims expected, plus assorted administrative fees. If an employer’s payments exceed its claims, they will receive a refund check from their carriers. In the event that claims exceed payments, that employer is protected by stop-loss insurance which is embedded into the monthly premium.

Here’s what you need to know about level funding:

  • It adds more cost certainty for employers.
  • You don’t have to pay premiums that are based on community rates, which might be higher than your employee group’s risk.
  • Administrative fees have the potential to cut into the savings you hope to gain from running a self-funded plan.
  • Level funding offers a better variety of plan designs, including deductible options, HSAs and HRAs.
  • Premiums are based on demographics and health history.

Reference-Based Pricing

The most notable difference between a reference-based pricing model and other types of plans is that it does not involve a traditional provider network. Instead, all fees are negotiated between the medical provider and the insurance company based on Medicare costs plus a premium.

Here’s the lowdown on reference-based pricing:

  • RBP can significantly lower employer costs.
  • It enables you to better predict your health care costs.
  • Employees run the risk of unexpected balance billing issues, causing significant expenses in some cases.
  • The employer-set spending limit would mean an employee and their family would only be covered up to the set amount for the service.
  • Certain hospital systems have refused to accept RBP.

For small businesses with less than 50 employees, offering health care benefits is starting to make good business sense. With a variety of options available, it’s important to understand the advantages and disadvantages of each option.

Talk to the small business experts at DS Benefits Group, who can explain your alternatives and help you select an option that is right for you and your employees. Contact us.

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