How can small businesses in the US save money on health insurance?

Small businesses have a lot of financial challenges, especially in today's market. Costs have risen and continue to rise across the board for materials, freight, labor and yes, insurance. Small business health insurance premium costs continue to rise. Industry sources vary on the 2023 increase, however, the consensus is that businesses are paying 5% to 7% more in 2023 for their employee's health insurance than they did in 2022. Some states, like Colorado, are experiencing increases above 7% because of the recently implemented policies of Governor of the state, Gov. Jared Polis has implemented legislation forcing insurance companies operating in the state to cover gender reassignment surgery, bariatric surgery and other surgeries that are not deemed medically necessary in ACA coverage, to now be included in their covered benefits in their group health insurance plans. This requirement, along with other state implemented reforms, has caused a chain reaction where three of the states major carriers, Humana, Bright Health and Friday Health Plans have completely stopped selling group plans in Colorado. More politics, more problems. 

The good news is that if you are a small business owner there are some relatively new health insurance programs that can benefit your business by keeping your health insurance costs low. With more dramatic increases expected in 2024, when carriers will be renegotiating their contracts for group plans, this is the right time to get familiar with the best money saving options for your business. 

I.C.H.R.A.

In 2019 the Trump administration brought back the H.R.A. in a big way with an "Individual Coverage Health Reimbursement Account" or I.C.H.R.A. The I.C.H.R.A. is excellent for small business owners who want to save money and still attract and retain top talent. If your company has fewer than 50 employees, you can pay any percentage of the premiums from your business, there is no 50% minimum like there is with traditional insurance, There are also no participation minimums. Most traditional insurance plans require at least 50% participation and 50% employer contribution. This plan is much more financially flexible. This gives the small business owner more control over their premium costs and protects their business from annual price increases. 

The plan operates as a reimbursement to your employees for the individual plans they purchase from off market plans offered by major carriers with are plans that mirror the plans offered to individuals on either the Federal exchange or your states exchange. This allows your employee to choose from dozens of plans. If an employee wants a low deductible and a lot of benefits or a high deductible with an HSA or anything in-between they can have it, they simply have to pay for the difference between your companies contribution and their premium costs. The employee also enjoys the benefit of paying for their portion of the premium with pre-tax dollars taken directly from their paycheck. This gives your employee greater freedom in choosing the cost and benefits of their health insurance plans, they can also use pre-tax dollars to purchase plans for their spouse and dependents. The best part is that there are affordable software options that make enrolling and managing an I.C.H.R.A. simple. 

Self Funded Plans

The self funded plan has been available to large employers for decades. However, it has only been available to the small business market for a few years. Many small business owners are not aware that this option is available. The main benefit of a self funded plan is that at the end of the year if your employee claims have been low, you can receive a refund on a portion of paid premiums. With a standard major carrier plan once the premiums are paid the money is gone, even if your employees have no medical claims for the year, you will not see any of that money again. With a self funded plan, a business with as few as seven employees on the plan, could see a refund up to $20,000.00 (depending on the state.) Imagine having a win-fall of significant capital deposited back into your business account at the end of the year, it's possible with a self funded plan. 

Major carriers have been implementing and aggressively promoting self funded plans over the last couple of years. There are a couple of things to be aware of though. Self funded plans require a health questionnaire to be completed by each employee and the entire group goes to underwriting to determine the final price for the group. So, if you have a relatively healthy group, you can also save money on your monthly premiums compared to a standard group plan. However, if the opposite is the case, it may price you out of this option and make either a standard plan or an I.C.H.R.A. a more intelligent choice. 

Minimum Essential Coverage

This is also known as an M.E.C. and it is the least known and least expensive option for small business. It is a program that covers employees with benefits like low co=pays for doctors office visits, specialists, urgent care, preventative, etc. However, it has no benefits beyond that, meaning that it has no catastrophic coverage. The reason this can be a good choice for small businesses is that it can pair very well with an individual plan that is catastrophic only or a high deductible bronze plan that is inexpensive for an employee but has no co-pay benefits for doctors visits. It allows your employees to choose a less expensive individual plan because your companies M.E.C. plan covers the benefits that are typically associated with an individual Silver or Gold plan. 

Federal Tax Credit

Your business may also qualify for a tax credit. If you have less than 25 employees and the average income of your employees is less than $56,000.00 per year.

The tax credit is more the less your employees average income. There are limitations to the program and it will vary depending on your state exchange (18 states have exchanges) or if you are a Federal exchange. For instance in Colorado the program requires that businesses purchase solely from Kaiser Permanente. There are no other carrier choices. This program also only offers standard carrier plans. There are no self-funded or I.C.H.R.A. options. However for certain industries, like retail and restaurants where the average wages tend to be a bit lower, this is an excellent program that makes offering health insurance much more affordable for some small businesses.

If your start-up is located in the Mile High state, we would love to help you save money on your employee benefits. Benefits 4Business is the small business health insurance Colorado specialist. Please reach out, we would love to chat with you.