Everybody wants benefits. When it comes to running a business, offering a benefit package feels like a no-brainer these days. With the labor market continuing to feel as competitive as ever, providing current and potential employees with benefits that not only cover their current needs, but also provide assurance that their future needs will be met is crucial. As important as this is, it doesn’t mean that offering a complete benefits package is necessarily easy. Sure, it’s relatively easy to list off the things you’d expect to see in a good benefits package. It’s not as easy to create a benefits package that includes all those things and doesn’t break the bank. This is especially true for small businesses that don’t have access to the same kinds of resources that larger enterprises have. This can result in your business losing out on top talent who might opt for an employer with more benefits that fit their needs.
At Payday HCM, we understand the balancing act that comes with running a small business and offering a competitive benefits package. We are constantly receiving questions from our clients on how they can offer benefits to their employees that not only fit their needs but also fit within their budget. And, while there are many different options available when it comes to benefits packages, there are several that can prove particularly helpful for small businesses that may not have a large number of employees.
So, in this article, we’ll be going over the options available to small businesses looking to offer benefits to their employees. We’ll go over things like traditional group health insurance plans, health reimbursement arrangements, and worksite benefits and other offerings to provide you with a clear picture of some of the options available. By the end of this article, you’ll have a better understanding of the kinds of options available for your business and how small group benefits plans can provide you with a solution.
In this article, you will learn:
- Group Health Plans for Small Businesses
- QSEHRA and ICHRA: Health Reimbursement Arrangements
- Life, Disability Insurance and Other Benefits Options
Group Health Plans for Small Businesses
To start, we’ll go over what offering group health insurance plans looks like for small businesses with a smaller number of employees.
How Group Health Plans for Small Businesses Work
If you’re a small business with a small number of employees (we’ll be using two employees as a general minimum—you’ll see why in a moment), offering a group health plan works about the same as it would if you were a larger business with a large number of employees. When it comes to looking at group health insurance plans for small businesses, you’re usually considering minimum participation and contribution requirements, as these will affect what options are available to your business and at what cost.
While participation and contribution requirements will vary by carrier, in general, group health insurance plans will require a minimum of two employees to participate. On top of this, businesses with more than two employees will often need to meet a percentage requirement—typically between 25 to 75 percent, but it will vary by carrier—of participation.
In terms of contribution requirements, employers should expect to pay somewhere between 25 and 50 percent of the insurance premium, although this will vary by carrier. For smaller businesses that don’t have a larger number of employees, this is where the biggest cost consideration comes in, although the amount an employer will pay will also depend on whether you choose a fully-insured or level-funded plan.
Fully-Insured vs. Level-Funded Insurance
While comparing insurance costs relies heavily on receiving specific prices from carriers, there are still some variables that, if you understand them, can help you acquire a broad understanding of the possible cost of a group health plan. One of these variables is whether a plan is fully-insured or level-funded.
When determining the premium amounts, there are a few different methods insurance companies use. Fully-insured group health insurance plans offer age-banded rates, meaning premiums are calculated based on the age of each individual in the group, with older members paying higher premiums and younger members paying a lower premium. Level-funded insurance plans charge the same premium amount to all employees.
For small businesses, it can be important to consider the differences between a fully-insured and a level-funded insurance plan. Depending on the number of employees that are seeking coverage, as well as any dependents or spouses who will be included in said coverage, one of these options might be better than the other.
QSEHRA and ICHRA: Health Reimbursement Arrangements
Now, it’s possible that your business may not have the budget for a full group health insurance plan. This is where a health reimbursement agreement may come in handy.
What is a QSEHRA?
A traditional group health insurance plan may not always be the best fit for every business. This is where a Qualified Small Employer Health Reimbursement Arrangement (QSEHRA) comes in. As the name implies, a QSEHRA allows employers to reimburse their employees for qualifying medical expenses, like insurance premiums, prescription drugs, preventive care, or mental health services.
QSEHRAs are designed for businesses with 50 or fewer employees. They allow the employer to set a limit on the amount that can be reimbursed annually, although the IRS sets a QSEHRA annual limit of $6,350 for individuals and $12,800 for households.
Employees would select a health insurance plan that offers minimal essential coverage through the Health Insurance Marketplace. Employees provide proof of their out-of-pocket expenses for their qualifying healthcare costs and are then reimbursed by the employer.
How is an ICHRA Different From a QSEHRA?
In addition to QSEHRAs, employers can also opt to offer their employees an Individual Coverage Health Reimbursement Arrangement. An ICHRA functions virtually identically to a QSEHRA, with employees finding an individual health plan through the Health Plan Marketplace and then being reimbursed for the qualifying expenses.
There are two key differences between an ICHRA and a QSEHRA: an ICHRA can be offered by any business, regardless of the number of employees, and an ICHRA has no annual limits (although the expense limit is still set by the employer). Both ICHRA and QSEHRA reimbursements are tax-free, however.
For businesses that may not be able to afford the cost of offering a full group health insurance plan to their employees, offering a QSEHRA or an ICHRA can be a good substitute. Similar to a level-funded group health insurance plan, utilizing a QSEHRA or ICHRA will allow you to budget for a set amount, as the reimbursement limits are set by the employer. Additionally, these arrangements are reimbursements, meaning you only pay the amount that reimburses qualifying expenses, which may not always be the reimbursement limit.
Life, Disability Insurance and Other Benefits Options
A group health insurance plan or a health reimbursement arrangement still aren’t your only options. Offering things like life and disability insurance or worksite benefits can also be a cost-effective way for small businesses to offer benefits to their employees.
Other Ancillary Benefits Options
There are more insurance and benefits options than just one. If a group health insurance plan or an HRA isn’t quite a good fit for your organization, there are still several options available to you. This includes offering things like:
- Life insurance
- Disability insurance
- Dental and vision insurance
While these types of insurance don’t provide the same kind of coverage as a group health plan or cover the cost like an HRA, they still offer employees some form of coverage. Once again, specific cost and participation information is carrier-specific, but generally, these forms of insurance can cost less than a group health plan.
That being said, there are still participation requirements—generally, 5 employees for voluntary (employee-paid) life insurance; 5 employees for disability insurance; and 2 employees for dental insurance. Again, these numbers will vary by carrier—use them as an estimate. Our benefits administration team can provide you with more information about specific participation or contribution requirements for certain carriers.
Worksite Benefits
Things like life and disability insurance often fit into the category of worksite benefits, also known as voluntary benefits. These are typically employee-funded benefits that help to cover unexpected expenses or other life events. Life, disability, accident, hospital indemnity, and pet insurance are all examples of worksite benefits.
Cost-wise, worksite benefits can be a great way for businesses to save money while still offering a comprehensive benefits package to their employees. Since most worksite benefits are employee-funded (sometimes with smaller employer contributions), smaller businesses can afford to offer these benefits.
Think Big With Small Group Benefits Plans
For most job seekers, a decent benefits package can often be the deciding factor when it comes to choosing one employer over another. For businesses, this means that offering a comprehensive benefits package is important not only for meeting the needs of their current employees but also for recruiting potential employees. However, businesses that don’t have a large number of employees might struggle with balancing the cost of a traditional benefits package with the number of employees they have. This is where small group benefits plans come in. With the options discussed in this article, businesses with a smaller number of employees can enjoy the benefits of a good benefits package without going over budget.
Good benefits administration not only involves creating a comprehensive benefits package that fits your business’s needs—it also means creating a benefits package that is cost-effective. It can be hard to know the exact cost of a benefits package, though. Check out our article for a comprehensive breakdown of the costs associated with a successful benefits enrollment process, providing a better understanding of the expenses involved.