health insurance alternatives for small business

• What is an HRA?
• What is an integrated HRA?
• What is an ICHRA?
• What is a QSEHRA?
• What are employee stipends?
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Small business health insurance options

Rising healthcare costs aren’t just a problem for individuals—they’ve also impacted businesses that offer health benefits to their employees. According to recent data , 98% of employers feel the cost of offering healthcare to their employees is excessive—and small business owners are especially vulnerable to these costs.

Increased health insurance costs and rigid participation requirements have caused many small businesses to drop their traditional health benefits. However, not offering health benefits costs more in the long run as they cause employees to look elsewhere for jobs with better benefits packages.

Fortunately, there are many small business health benefits options today that are affordable alternatives to traditional group health insurance. Below we’ll go over five popular coverage options and how they work, including what pros and cons employers will need to consider before they make a decision.

Learn how to use health reimbursement arrangements to your advantage in our guide

Do small businesses need to offer health insurance?

Before we dive into your options, let’s review why small businesses need to offer health insurance in the first place.

With so many businesses offering employees traditional group health insurance coverage, it might seem as though all employers are required to offer a group health insurance policy. However, that isn’t the case .

Under the Affordable Care Act (ACA), employers with 50 or more full-time equivalent employees (FTEs) must provide minimum essential coverage (MEC) to their employees.

This doesn’t have to be in the form of traditional group health insurance. Offering a health reimbursement arrangement (HRA) is another way to give your employees access to healthcare. We’ll review common types of HRAs and other health benefit options in the sections below.

Option 1: Small group health insurance

The traditional choice for most businesses is a group health insurance policy. Group plans are chosen by employers and provide health coverage to employees and, potentially, employees’ dependents. Companies with between two and 50 full-time employees (or as many as 100 in some states) can purchase small group health insurance.

Small employers offering small business health insurance pay a fixed premium for the policy. In some cases, they pass on a portion of the premium cost to employees. Employees are responsible for copays and deductibles associated with the services they receive.

Businesses typically purchase health coverage through an insurance agent, broker, or the public Small Business Health Options (SHOP) marketplace 1 . SHOP plans provide affordable health and dental coverage, but you’ll need to ensure you qualify for a plan before you can enroll.

Traditional group health insurance can be a good choice for small businesses because it's relatively easy to obtain, and most employees are already familiar with how it works.

However, employee premium prices with group medical plans can be costly. In 2022, employers contributed about $6,500 each year toward each employee’s individual coverage premiums and about $16,300 per employee with family coverage premiums.

Pairing an integrated HRA with small group health insurance

If you like the idea of offering a group health insurance plan but want to help offset your employees' out-of-pocket costs, a group coverage HRA (GCHRA), also known as an integrated HRA, is a great supplement.

Because of their lower cost, high deductible health plans (HDHPs) are a frequently offered group health policy. However, there’s a reason they’re less expensive: they cover less than other policies.

To mitigate some of that loss, small businesses can offer a GCHRA. With a GCHRA, you offer your employees a monthly allowance of tax-free money in addition to the group policy. Employees then pay for their out-of-pocket healthcare expenses, and the business reimburses them up to their allowance amount.

Generally, employees use the HRA to cover expenses like copays, deductibles, and prescription drugs. All items listed in IRS Publication 502 are available for reimbursement, but you can limit this list or require an explanation of benefits (EOB) for out-of-pocket expenses if you choose.

Reimbursements made through a GCHRA are free of payroll tax to the business and its employees. They’re also free of income tax for employees.

In addition, businesses can structure their employee eligibility requirements as long as employees participate in the group policy.

Option 2: Individual coverage HRA (ICHRA)

Another health benefits option for small employers is the individual coverage HRA (ICHRA). An ICHRA is an alternative to traditional group health insurance that can be leveraged as an employers’ only health benefit option or as an option for employees that don’t qualify for an employer’s existing group benefit.

With an ICHRA, you can reimburse the cost of individual health insurance premiums and—if you choose to—any eligible out-of-pocket health costs.The ICHRA works well for employers of all sizes, specifically because it has no employee count requirements or participation requirements.

With an ICHRA, employers offer employees a monthly allowance of tax-free money. Employees then enroll in an individual health insurance policy, and the business reimburses them up to their allowance amount.

The ICHRA has no contribution limits, and businesses can offer different allowance amounts based on unique employee classes . It’s only available to employees enrolled in individual coverage; employees enrolled in a spouse's group health insurance policy can't participate.

Option 3: Qualified small employer HRA (QSEHRA)

A QSEHRA is a formal, IRS-approved benefit for employers with fewer than 50 FTEs. A QSEHRA works much like an ICHRA, with a few exceptions.

Unlike an ICHRA, employees don’t need to be covered by a qualifying individual health insurance policy to participate. Reimbursements will be free of income tax for employees if the employee has a policy that meets MEC.

Also, unlike the ICHRA, QSEHRAs come with annual allowance caps that employers can’t exceed. A QSEHRA does not have a minimum allowance requirement, so employers can set their own budget and define a monthly allowance for their employees as long as it doesn’t exceed the cap.

Employees can use the allowance to purchase a health policy and out-of-pocket medical expenses that best fit their needs.

QSEHRAs also offer value to small businesses in unique situations, such as those with employees included on a spouse’s or parent’s group policy or who have employees without insurance.

Option 4: Self-funded health insurance

Some small businesses choose to self-insure to avoid group health insurance's expensive premiums and restrictions.

With a self-insurance arrangement, the business assumes the financial risk of providing healthcare benefits to employees. This means that rather than paying a fixed premium to an insurance company, the business pays for each employee's out-of-pocket claim as it arises.

The plan documents will outline eligibility requirements and covered benefits. Typically, the business sets up a trust fund to earmark money the company and its employees contributed to pay these claims. Businesses may also pair the fund with a stop-loss insurance policy that limits the businesses’ potential risk.

Third-party administrators (TPAs) manage claims and other filings. Small businesses can save money with self-funded health insurance, particularly in administrative costs. According to the Self-Insurance Educational Foundation 2 , cost savings in non-claims expenses compared to group health insurance can range from 10% to 25%.

However, self-insurance is risky, and larger-than-expected claims could put a small business out of business. For this reason, self-funded health insurance is more common among larger firms. In fact, the average size of a business with self-funded healthcare is 300 to 400 employees.

Option 5: Health stipends

Finally, health stipends are another option for small businesses to help their employees with medical expenses.

Businesses can offer stipends upfront or through a reimbursement model similar to an HRA. With a reimbursement system, employers grant employees an allowance that they can use to cover their medical expenses.

Employers are in control of employee classes and allowance amounts. When an employee submits a request for reimbursement, employers simply approve the amount for qualifying expenses.

Health stipends can reimburse employees for health insurance premiums plus out-of-pocket costs relating to medical care. This can also include expenses incurred by additional insurance plans your employees may have, like premium amounts for vision and dental plans.

Stipends aren’t subject to as many regulations as an HRA or traditional group health insurance. It’s important to note that with a stipend, you can’t require proof of health insurance or receipts for medical expenses from employees.

It’s also helpful to know that if you have employees who receive premium tax credits , their stipend allowance won’t interfere with their premium tax credit eligibility the same way a formal health benefit would.

Stipends are also flexible in that they can even work alongside group health insurance or an HRA. However, stipends are considered taxable income . While you won’t have to withhold any taxes for your employees, you’ll have to pay payroll taxes. Your employees will then pay taxes when they file their tax returns.

It may seem tricky for small businesses to find affordable benefits, but luckily, several health insurance options are designed for small employers. Whether you offer a small group health insurance policy, HRA, health stipend, or a combination of the three, understanding your options is the first step to finding the right policy for you and your employees.

PeopleKeep’s personalized benefit administration software makes offering employee benefits easy. If you’re interested in learning more about HRAs or employee stipends with PeopleKeep, schedule a call with one of our personalized benefits advisors today!

This blog article was originally published on January 6, 2020. It was last updated on April 3, 2023.

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The Best Health Insurance Options for Small Businesses with Under 20 Employees

Key takeaways

• While businesses of all sizes face challenges in accessing affordable health insurance, for small businesses with under 20 employees, it feels near impossible.
• Sales processes that take many weeks and high participation rates are extra challenges for businesses with small teams. Is it any wonder that more than 60% of SMBs with under 10 employees do not offer health benefits?
• Fully insured health insurance plans have historically been the "go to" for small employers, and now level funded health plans. But a new pre-tax, fixed benefit option called ICHRA has emerged that small employers are flocking to.

Small businesses have it tough when it comes to finding affordable health insurance for their employees. For businesses with fewer than ten employees, it's nearly impossible. Let's count the ways:

• Long-winded sales processes for traditional small group plans often take 30 or more hours over six weeks. Eek.
• Challenging participation criteria, often requiring 70% or more employees to enroll is a high hurdle.
• And, oh, the cost. Employee health insurance for small businesses has become an expensive venture with the average premium cost rising 25% in 10 years .

But how can you retain your current talent and recruit new ones, without health benefits? It's not all doom and gloom. There are a few health plan options for smaller-sized small businesses to consider including fully Insured, level funded, fixed pre-tax benefit (also known as ICHRA ), and association plans. Let's dig into the advantages and disadvantages of each.

The most traditional route: Fully insured group health plan

If you decide to offer traditional group health insurance, it's most likely a fully insured plan. That's because small businesses don't have the size or scale to offer a self-funded (which means the employer bears the risk.) Small businesses with under 20 employees will likely have to find a one-size-fits-all health plan for everyone. (In fact, a 2019 survey revealed that 76% of employers with under 200 employees only offered one health plan.) 

Advantages of a fully insured group health plan

• Less Risk: The insurance company bears the risk if the total claims exceed the premiums. This is a benefit for small businesses, where unexpected costs can have a much bigger impact.
• Regulated Coverage: Fully insured health plans are subject to state laws and regulations. This means that they provide certain standard benefits, ensuring employees have access to basic healthcare. (This could also fit the "less risk" category.)

Disadvantages of fully insured health plan

• Higher Costs: Fully insured plans often have the highest premiums.
• Less Flexibility: These plans are harder to customize. Small businesses often need to choose from the pre-designed plans offered by the insurer and one plan for all employees. (The disadvantage of this is pretty clear. Does everyone in your company really have the exact same healthcare needs?)
• Stringent Participation Rates: Most plans require that at least 70% of employees enroll. That's often a high bar.
• Unpredictable Premium Increases: If employees file many claims or there's an increase in the general cost of healthcare, the insurance company will increase premiums at the time of renewal. This can make it tough sustaining a benefits budget year-over-year.
• Complicated Enrollment and Onboarding: Small business owners, especially very small ones, are often managing the paperwork themselves, which can take 30 or more hours over many weeks every year. Oh, and wait until those open enrollment questions pour in from employees.

Health insurance is local, and not all carriers are available where your small business is located (or employees, if they are distributed in other states). The top 3 largest carriers across the U.S. include:

• Blue Cross Blue Shield
• Kaiser Permanente
• Aetna (CVS Health)

The step-sister of fully insured: Level funded health plan

Level funded health plans may present a more attractive alternative for small businesses with healthy workforces, somewhat bridging the gap between fully insured and self-insured models. (We just introduced a lot of terms here, so check this blog with some background on these group plan options.)

With level funded plans, monthly premiums are based on a company's projected medical claims, offering potential savings if actual claims fall below this estimate. The way they get to this projection is through underwriting, a process that includes a survey for each employee and their dependents. Common questions include address (where they live), weight, height, and if they or their dependents smoke. (If it seems weird that your employees health is surveyed, well, it is one of the disadvantages of this type of group health insurance.)

The risk is shared with the insurance company, reducing potential financial exposure for the business, but not to the level that a self-funded plan does. This also presents another problem. If claims are well above the estimate premium costs will rise significantly or your group plan might be canceled.

Advantages of level funded plans for small businesses:

• Cost Savings: If claims are lower than predicted, the business could see substantial savings. (See also the first bullet point under disadvantages.)
• Risk Management: These plans share risk between the business and the insurer. This means that businesses are not as exposed to high-cost claims (as they would with a self-funded plan), providing a degree of financial safety.

Disadvantages of level-funded plans for small businesses:

• Potential High, Unpredictable Costs: If employee claims exceed the projected amount, premiums will jump, which is hard to predict year-to-year. Or, your insurer may drop coverage altogether.
• Complicated Enrollment and Onboarding: Similar to enrollment for fully insured plan, the paperwork is a lot.
• Stringest Participation Rates: Like fully insured plans, a 70% participation rate may be too high to achieve for some employers.
• Underwriting Can Feel Weird: Requiring that employees provide their weight and height to get a quote may feel like an uncomfortable zone.

Nearly every major health insurance company and some insurance companies who do general lines (like workers comp and home) are getting into the level funded game. More on why here . In fact, small business owners who go through the quoting process for a small group plan might not even realize the option presented is a level funded one. Examples of companies offering level funded plans are:

The newest option: Fixed, pre-tax health benefit (ICHRA)

One of the newest and most flexible health insurance options for small businesses is the Individual Coverage Health Reimbursement Arrangement or ICHRA. The name is a mouthful, but the way it works is actually quite simple. Rather than offering traditional group health insurance, ICHRA is a newish small group option that allows employers to give pre-tax money to their employees (as their health benefit) to help cover premiums for a health plan the employee buys and owns.

To put this into context. Consider ICHRA as a potluck party, a popular and practical solution for gatherings. In a traditional group health insurance plan, it’s like you, the host prepares all the dishes for your guests — it’s a lot of work, costly, and doesn't always cater to everyone's tastes. ICHRA is the potluck version — each guest brings a dish according to their preference, and you just contribute to the expenses. It's more affordable, and everyone gets what they prefer.

If you’re wondering why you’ve never heard of it before, it’s because it’s relatively new, made possible in 2020 due to IRS legislation . A lot happened in 2020, and it has been slow to catch up. But that’s changing .

Advantages of ICHRA for small businesses:

• Financial Flexibility and Stability: ICHRAs allow businesses to set their own budget. Rather than being tied to the costs of a group health insurance plan and the unpredictable climbing premium prices, a small business owner can decide how much they can affordably contribute toward their employees' health insurance.
• Employee Choice: E mployees are not limited to a single group plan as they are with traditional fully insured and level funded options. Rather, they can choose a health insurance plan that best meets their needs and preferences.
• Customization: Want to give a different amount to your Full-Time employees versus Part-Time? You can with an ICHRA. The ICHRA plans allow you to customize the benefit per employee "category."
• No Participation Requirements: While all employees of a similar category (such as Full Time or Part Time) must be offered the ICHRA benefit, there is no minimum participation requirement. As many or as few can enroll or waive.
• Hassle-Free Enrollment: An ICHRA reduces the administrative burden for businesses. And because they do not own the group plan, they are also relieved of the weird role of coming in between an employee and their doctors.

Disadvantages of ICHRA for small businesses:

• Employee Confusion: With the freedom to choose their own plans, some employees may feel overwhelmed by the options and struggle to make an informed choice.
• Expectation Gap: Employees used to high-end health plans with lots of bells and whistles may not find those options on the individual marketplace.

While ICHRAs are catching on, it’s still a relatively newish option. ( Here's a bit more on why that is .) StretchDollar is one of the first to focus on small businesses with under 50 employees, a group that tends to have the most challenges when it comes to finding affordable, uncomplicated health insurance.

The "non-health insurance" route: Association plans

Association Health Plans (AHPs) are group health insurance plans that allow small businesses to band together to purchase the types of coverage available to large employers. As the subtitle of this section suggests, AHPs do not offer qualified health plans, and therefore it is not health insurance.

Advantages of association plans:

• Expanded Access: AHPs can help small businesses and individuals obtain health coverage where they might not have been able to before due to cost and availability.
• Increased Bargaining Power: Grouping together allows small businesses to have more negotiation leverage with insurance providers, potentially leading to more favorable rates.
• Customized Plans: AHPs often offer more flexibility for businesses to customize plans that better meet the needs of their employees.

Disadvantages of association plans:

• Lack of Comprehensive Coverage: AHPs are not required to cover all the essential health benefits that individual and small group health plans must cover under the Affordable Care Act, potentially leading to gaps in coverage.
• Risk of Higher Premiums: If a group has employees with higher health risks, the aggregated risk will result in higher premiums for the entire group.
• Limited State Oversight: AHPs may not be subject to the same level of state regulation as traditional health insurance plans, potentially leading to fewer consumer protections.
• Employee Dissatisfaction (Especially for Those with Unexpected Health Issues): Per the reason above, these types of plans fall outside typical regulations. Employees with unexpected serious health issues may get surprise bills without a lot of options for negotiating them.
• General Risk: AHPs are not health insurance, and this concept may not be well understood among employees when signing up.

Bottom line

Small businesses for many years have had a very hard time finding reasonable small group health insurance for their employees. It feels unfair. You want to take care of your employees, but the options are complicated out of your budget. The good news is that there are more options than ever before. Before jumping into the process, consider your priorities and the pluses and minuses of each. Interested in learning more about StretchDollar's ICHRA? Check out How it Works or get started here .

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The best alternatives to small group health insurance

The coronavirus pandemic continues to impact the country's businesses and workers significantly. As a result, remote work and hybrid arrangements are gaining a stronger foothold, causing a massive shift in the economy and healthcare. Employers are still the most common source of health insurance in the U.S. (though just over 50%, according to Census reports ), but this outdated model is rapidly losing its luster. 

Alternatives to Group Health Insurance

Many small business owners feel frustrated by the costs of group health insurance or find it Many small business owners feel frustrated by group health insurance costs or find it difficult to meet participation requirements because traditional health insurance coverage doesn't fit the new workforce. If you’re a business owner (or self-employed) and your company consists of remote workers, seasonal, hourly or part-time workers, you’re likely on the hunt for alternatives to group health insurance. Take Command is here to help you!

What Are My Options Besides Group Health Insurance? 

Traditional group health insurance has a lot of drawbacks for business owners. It can be expensive with pricey yearly renewals and doesn’t offer the flexibility modern business owners need – the ability to work with a remote and mixed workforce. These obstacles send business owners looking for alternatives to group health insurance. So what options are there besides the traditional group health insurance route? 

1. Don’t offer any health benefits. While technically legal (if you have 50 or fewer full-time employees), we don’t advise this if you want to attract and keep good talent. There will always be another company that offers health benefits, so make sure you’re not missing out on great team members by choosing not to offer coverage. 

• Gives employees funds for health coverage: No
• Offers a tax advantage for your business: No 

2. Offer health stipends. This option lets you provide some health benefits, but your business has no tax advantage. Employees get a fixed, taxable stipend to purchase the individual health insurance plan of their choice and use it on out-of-pocket expenses. But there is no tax advantage for your business. 

• Gives employees funds for health coverage: Yes

3. Increase employee salaries. When you dig deeper into what this entails, it’s not as attractive as it sounds. When you increase employee salaries, you and your employees take a tax hit – more payroll taxes for you and more income taxes for them. So a portion of that extra cash goes to income taxes. 

• Gives employees funds for health coverage: Yes…but part is lost to income taxes
• Offers a tax advantage for your business: No…more like a tax disadvantage

4. Offer a Health Reimbursement Arrangement. A health reimbursement arrangement is an affordable, tax-advantaged alternative to traditional insurance where employers reimburse their employees for individual insurance premiums and medical expenses (if applicable). HRA coverage is done on a pre-tax basis and is often considered the best health insurance for small business option. 

• Offers a tax advantage for your business: Yes 

Ask us about tax-free health insurance reimbursement!

→ Check out our 5 tips for choosing a small employer health insurance plan

→ Compare QSEHRA vs ICHRA to see what's best for you.

Health Insurance Alternatives For Self-Employed

If you’re self-employed, you are the business owner, which means you’re responsible for getting your own health coverage and health benefit, and company group coverage isn’t an option. 

So what are health insurance alternatives for the self-employed? 

1. Health insurance marketplace. Thanks to the Affordable Care Act (ACA), people who don’t have employer-sponsored health insurance plans can find affordable individual health coverage plans, like Blue Cross health insurance self-employed. Our individual health insurance platform can help you shop for the best plan for you. 

2. Health care sharing ministries (HCSMs) are cost-sharing membership groups available to people who share religion or ethical beliefs. Members pay monthly dues (like a premium) that cover medical costs for other members. These can be tricky since it’s not an insurance plan, they’re not required to pay out anything, and they’re not required to follow (ACA) mandates. Read our CEO's review of Medi-share here. 

3. A health reimbursement arrangement  is an affordable, tax-advantaged alternative to traditional insurance where employers reimburse their employees for individual insurance premiums and medical expenses (if applicable) on a pre-tax basis. 

Check out our brand new small business health insurance guide to dive deep into these ideas. 

Bonus! You can reimburse employees who have both an individual and medicare plan. Through your HRA, you can reimburse medicare premiums for medicare-eligible employees. Read more about that process here and how Take Command can help you.  

Self-employed ICHRA Insurance 

If none of the above health insurance alternatives for self-employed work for your specific situation, you may qualify for an even better option – an HRA for self-employed. This is a great affordable health insurance alternative for self-employed people. For a business owner to participate in an HRA, they must be considered an employee of the business and depends on how the plan and business are set up . These are some common ways companies are set up and what that means for HRA eligibility. 

• C- Corps are legal entities separate from the business owners. Under a C-corporation, the business owner and dependents can utilize an HRA!
• S- Corps prevents businesses from taxing by passing any profits and losses through shareholders' income tax returns. Because of this setup, an S-Corp owner who owns more than 2% of the company is considered self-employed, not an employee, which means they can't participate in an HRA. 
• Partnerships also are not subject to income tax. Partners are directly taxed, making them self-employed and not eligible for participation. The Loophole: if the partner’s spouse is a W-2 employee (and not a partner spouse) then the owner can participate in the HRA as a dependent of the spouse.
• Sole-Proprietorships are unincorporated businesses owned and operated by one individual with no distinction between the business and owner. The owner is not an employee and will not qualify for the HRA unless their spouse is a W-2 employee; then the owner can access the HRA as a dependent of the spouse (for QSEHRA only).

“As a self-employed individual, you generally are not eligible for an HRA because you’re not an employee; your spouse can be an employee and eligible for an HRA and health plan that covers you.”

• Even though you're self-employed and can't directly qualify for an HRA, you can still take advantage of everything an HRA offers. Here’s how to make an HRA work for you if you’re self-employed (and have no employees other than yourself) and married. 
• Hire your spouse as a W-2 employee.
• Make your spouse the primary member of your family health plan.
• Cover yourself as a dependent on your spouse’s major medical health plan.
• Set up a One-Person 105 HRA, ICHRA, or QSEHRA for your spouse.
• Save all your medical bills and records and have your company reimburse the bills each month from a separate account.
• If you’re self-employed with no employees and you’re married, this post walks you through the steps you can take to participate in an HRA.

Please note: This strategy only works if you don’t hire any other W-2 employees that would be eligible for either ICHRA, QSEHRA or a One-Person 105 HRA (make sure to look at those rules closely) and assumes that you and your spouse don’t own any other businesses that have employees (common ownership rules would likely apply and the plan would fail to meet Section 105 requirements). And remember to keep good records! 

Take Command can help with ICHRA for the self-employed!

We’re ready to chat on our site if you have specific questions about your business and how HRAs could help. Setting up an ICHRA is simple and quick, and our team is here to help if you need it. You should also check out this amazing guide to learn everything you need to know about individual coverage HRAs. And we have resources available to you specifically for small business owners so you can learn all about ICHRA; think of this as your ICHRA for dummies guide! Learn more about details like administration costs, how to set up your HRA, ICHRA rules 2022, ICHRA vs group plan and ICHRA vs QSEHRA for your small business or self-employed plans. 

When is open enrollment for health insurance 2023? Open enrollment starts November 1 so hop over to our handy tool to help you navigate the healthcare marketplace, and check out our open enrollment resource guide. 

Health Insurance Alternatives 2023

As we enter open enrollment season and you're browsing the healthcare marketplace on healthcare.gov or considering health insurance alternatives, keep in mind that you have options regarding healthcare coverage. 

Our team can help you decide what type of health insurance alternative is best for you and your business – whether it's a health care sharing ministry or health reimbursement arrangement – with our step-by-step tools and resources to help you find the best fit. 

You can access many valuable resources, including FAQ pages for the ICHRA and QSEHRA and many informational posts on our blog . You can also chat with one of our team of experts anytime!

Ask our experts how to get started with a plan that works for you! 

Susanne is a copywriter specializing in the health and wellness industry. Before starting her own business, she spent nearly a decade at a marketing agency doing all of the things – advisor, copywriter, SEO strategist, social media specialist, and project manager. That experience gives her a unique understanding of how the consumer-focused content she writes flows into each marketing piece. Susanne lives in Oklahoma City with her husband and two daughters. She loves being outdoors, exercising and reading.

We’re on a mission to create a consumer-centric healthcare system.

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You are here: Home » Reference Guide » Coverage Types » Alternatives to Offering Group Coverage

Alternatives to Offering Group Coverage

Individual coverage, other ways to obtain group coverage, discount medical programs, public or subsidized health insurance, obtaining care without insurance.

• Tax Implications

Other Resources

• Select Trade/Professional Associations
• Public and Subsidized Insurance Programs
• Health Care Services for the Uninsured
• Advocacy Organizations

Affordable Care Act

• Shared Responsibility Requirement

Once you’ve learned about health insurance basics for small businesses, you may decide that purchasing group coverage is simply not an option for your business right now. If so, it’s important to understand there are several alternatives for you to explore that may protect your employees at little or no expense to your business. The sections below offer an overview.

Even if your business doesn’t offer a group plan, your employees might be able to obtain coverage on their own, as individuals.

With individual coverage, insurers typically require a detailed medical history and sometimes a medical exam of the individual and any family members applying for coverage. The individual’s rates will depend on his or her medical condition; in some cases, the insurer may exclude coverage for preexisting conditions for up to 12 months. In 2014, when the Patient Protection and Affordable Care Act is fully implemented, waiting periods will be limited to 90 days. Currently, individuals in less than perfect health may be denied coverage altogether. However, when fully implemented in 2014, the Affordable Care Act will bring important changes to the individual market, including eliminating the ability of insurers to deny coverage based on preexisting conditions.

Full implementation of the ACA will have a significant impact on individuals who do not get insurance through their employer. All such individuals will be required by law to obtain health insurance by 2014 or pay a penalty.

In 2014, a small business employer who does not offer coverage can direct employees to their state’s individual health insurance exchange market. Individuals will be able to research a host of plans and purchase one for themselves through these online marketplaces. Small businesses with fewer than 50 employees are not required to provide insurance to their employees under the ACA, but it is important you understand the act’s Shared Responsibility Requirement.

To learn more about what the Affordable Care Act requires of small business and to find out more about how penalties are calculated see “Shared Responsibility Requirement.”

Being an employee isn’t the only way to be part of a group for insurance purposes. Some associations, professional groups and other organizations offer group health insurance options for their members. If you can’t afford a group plan for your business, you might encourage your employees to explore this possibility. Be aware, however, that fewer groups are offering this option these days, and premiums may be quite high. Still, employees who experience difficulty obtaining individual insurance may find it worth looking into.

Finding a group with the right membership criteria—and that actually offers group coverage—simply takes some research. Brokers aren’t usually much help in finding these types of opportunities. One reason for this is that each association is likely to have an established relationship with a broker or benefits consultant, so independent brokers may not have an incentive to seek out these arrangements.

See “Selected Trade/Professional Associations” in the tool box for contact information.

Some healthcare providers and insurance carriers offer discount programs instead of or as a complement to insurance coverage.

• For individuals who are uninsured, a discount program may help offset the costs of basic and specialty care that is obtained through a limited set of providers or facilities. To participate in such a program, individuals must pay a monthly or annual fee in order to obtain a discount card.
• For individuals with insurance, discount programs can complement existing coverage by lowering costs for out-of-network or uncovered services, such as laser vision correction, in-vitro fertilization, or alternative/complementary medicine. Often this type of discount program is available through a health plan at no additional charge to the employer or employee.

An important limitation of these programs is the difficulty in assessing their value. Because “list” prices vary considerably and are not always readily available, it can be hard to tell how much savings discounts really offer. Also, the providers that accept discounts may change. As a result, enrollees may find that by the time they use services, some providers are no longer available at the discounted price.

State and federal programs such as Medicaid provide coverage for many low-income children, some parents and aged, blind or disabled individuals. These programs provide comprehensive benefits at low or no cost for those who qualify. There are sometimes extensive, complicated rules about who qualifies.

In the tool box, see “Public and Subsidized Insurance Programs” for contact information and details about program eligibility guidelines.

Programs for Low/Modest-Income Individuals and Families

Medicaid.  Medicaid provides comprehensive publicly funded health insurance coverage to low-income residents who meet specific eligibility criteria. Individuals may qualify for fully subsidized Medicaid if they meet income guidelines and fall into one of the following categories:

Aged, blind, or disabled according to Social Security rules.

Children and pregnant women.

Individuals with specific healthcare needs including dialysis, tuberculosis services, intravenous nutrition services and short-term nursing home stays.

Individuals who exceed income limits may still be eligible for Medicaid, but are required to pay a share of the cost of their health services. Undocumented immigrants do not qualify for Medicaid, except for emergency and pregnancy-related services and some nursing home care. Medicaid is jointly funded by the state and federal governments.

For those receiving Supplemental Security Income/State Supplemental Payments (SSI/SSP), Medicaid coverage is automatic. Others may apply for Medicaid at their local county welfare office or at one of the many hospitals and clinics where county eligibility workers are outstationed.

Healthy Families. The Healthy Families Program is a state and federally funded health insurance program for children with family incomes above the level eligible for no-cost Medi-Cal and below 250 percent of the federal income guidelines (in 2011, $46,332 for a family of three, according to the Department of Health Care Services ).

Children’s Health Insurance Program. CHIP is part of the country’s efforts to increase medical coverage of pregnant women and their infants. CHIP provides low-cost insurance to women and newborns whose family is not eligible for Medicaid.

Health Insurance Premium Payment (HIPP) Program.  Under HIPP, your state pays private health coverage premiums for some Medicaid beneficiaries. By purchasing health coverage premiums, the program defers the cost for medical care to private health insurance carriers or private health plans. To enroll in this program, employees must meet all of the following criteria:

Be eligible for Medicaid

Have a high-cost medical condition (pregnancy, HIV/AIDS, organ transplant and so on).

Currently have private medical coverage or be covered under an employer-sponsored medical plan (including COBRA).

Have filed an application in a timely manner allowing sufficient time to process the application and start payment of premium.

Programs for Low-Income Children

Kaiser Permanente Cares for Kids. Kaiser Permanente offers the Child Health Plan for uninsured children from families with incomes between 250 and 300 percent of the federal income guidelines, and who do not qualify for government-sponsored programs..

Programs for “Medically Uninsurable”

The Pre-Existing Condition Insurance Plan, is still in effect for those already enrolled, but cut off new enrollees in February until further notice.

Programs for Seniors

Medicare. Individuals over 65, regardless of income, qualify for coverage under the federal Medicare program. Medicare also covers some disabled people under 65 years of age.

No question—if you or your employees are uninsured, there’s good evidence that you’ll have a tougher time finding and paying for care than if you had coverage. But if you’ve ruled out the possibility of obtaining health insurance right now, you should know that some health care providers, such as community clinics and public hospitals, provide services to uninsured and underserved populations as part of their mission. These organizations, sometimes referred to as the healthcare “safety net,” receive government funding and often charge on a sliding scale basis depending on income.

See “Health Care Services for the Uninsured” in the tool box.

Sana Benefits - What can small business owners do for health insurance?

What can small business owners do for health insurance?

Last updated on February 21, 2023

Small businesses are the backbone of the U.S. economy — 99.9% of U.S. businesses are small businesses. And almost half (46.4%) of all U.S. employees are employed by one. This means that the responsibility of providing affordable health insurance to a whopping 61.7 million American workers falls to small business owners. 

Chances are, you are a small business leader weighing the pros and cons of offering employee health insurance and trying to determine what type of group health plan to offer. There are lots of things you can do for health insurance:

• You can use a broker or source health insurance plans yourself. 
• You can offer a fully-funded plan or a level-funded plan.
• You can obtain health insurance by joining a professional employer organization (PEO).
• You can use the Small Business Health Options Program (SHOP) to shop for plans.

Keep reading to learn more about what you can do for small business health insurance and why it’s so important to offer it to employees.

Related: The Small Business Guide to Offering Employee Benefits

What is health insurance.

According to healthcare.gov, health insurance is “a contract that requires your health insurer to pay some or all of your healthcare costs in exchange for a premium.” Health insurance can be purchased as an individual or as a group. 

Healthcare.gov defines group health insurance as “a health plan offered by an employer or employee organization that provides health coverage to employees and their families.” 

According to the Kaiser Family Foundation (KFF), the smallest businesses are the least likely to offer group health insurance . In 2022, the percentages of businesses offering group health insurance were as follows:

• 39% of businesses with 3-9 employees
• 58% of businesses with 10-24 employees 
• 73% of businesses with 25-49 employees
• 91% of businesses with 50-199 employees

Who are the top providers for small business health insurance?

The health insurance provider you choose will depend on what type of health plan you decide to offer. 

Below, we explain the differences between fully-funded health plans and self- or level-funded health plans. 

The top providers of fully-funded plans are the five legacy carriers known as the BUCAHs: Blue Cross Blue Shield (BCBS), United Healthcare, Cigna, Aetna, and Humana. 

Some legacy carriers also offer level-funded plans, but there are modern health insurance companies such as Sana and Oscar that are more tech-enabled and specialize in level-funded offerings for small businesses. 

Related: 4 best health insurance options for small business in 2023

Small business owners may also choose to offer health insurance through a professional employer organization (PEO), which acts as the official employer of record for multiple small businesses. PEOs allow small businesses to outsource their HR functions and can give them access to lower health insurance rates than they’d be able to secure on their own. The top PEOs are Paychex, Justworks, TriNet, ADP TotalSource, and Insperity.

How to reduce your health insurance costs

There’s no getting around the fact that healthcare, in general, is expensive. Additionally, healthcare costs go up every year — they are likely to rise by 6.5% in 2023. 

But, there are ways to reduce your health insurance costs while still providing great benefits to your employees. While traditional, fully-funded plans are the most common (think the big guys, like Blue Cross Blue Shield, Aetna, Humana, United, etc.), their cost and unpredictability drive many small businesses to look elsewhere. And where there is demand, a solution is sure to follow.

Self-funded plans are an alternative to traditional plans and are attracting small businesses across the country. It’s essential to understand the difference between a fully-funded health plan vs. a self-funded health plan.

Related: Healthcare inflation in 2023 — and how employers can combat it

The expense of fully-funded plans.

A fully-funded health plan is sponsored by the insurance carrier rather than the employer. The carrier assumes all risk and holds the policy. Your company pays a fixed monthly premium for the carrier to pay your employees’ claims and manage/administer the plan for you. No matter how many claims your employees make or how expensive those claims are, the carrier, not your company, is on the hook for paying them (or declining them). 

While a fully-funded plan is predictable from month to month, it is highly unpredictable from year to year. You may know precisely what you will pay during an annual term, but there is no way to know what you will pay the following year. If your company’s overall healthcare claims exceed what your carrier anticipated with their premium fee calculation, you can expect your rates will increase the next year. 

The cost savings of self-funded plans

A self-funded health plan is sponsored by the employer instead of the insurance carrier. That means your company takes on all of the risk and pays your employees’ claims as they come in. Your company will also be responsible for managing and administering the plan. 

This may seem overwhelming, but there are significant cost advantages with a self-funded health plan. First, by eliminating the carrier, you avoid markup fees and get some tax advantages. You are also paying only for the healthcare that employees use. You pay less when employee claims are low and more when they are high. A traditional carrier works like your auto insurance: you pay a fixed premium whether there were claims or not.

For even more protection against high claims costs, there is a type of self-funded health plan called a level-funded health plan. A level-funded plan includes stop-loss insurance to protect you from “catastrophic” claims that could overwhelm your budget. Stop-loss insurance covers the overage above a set limit (a cap) you would be required to pay. If claims are higher than your cap, the stop-loss insurance kicks in, and if claims are low, your company receives a rebate to cover the difference. You’ll never see a rebate from a traditional, fully-funded plan. 

Related: Understanding self-funded vs. fully-funded health insurance

Another benefit of some level-funded health plans is that your employees will not be required to choose “in-network” providers, no matter what type of plan they choose. For instance, employees who want the least expensive plan with high deductibles do not have to sacrifice the ability to choose their own doctors and specialists. Giving your employees this flexibility is a great way to sweeten the benefits package that businesses with traditional health insurance can’t do.

Do small businesses really need to offer health insurance?

The Affordable Care Act stipulates that small businesses with fewer than 50 employees are not required to offer health insurance benefits to their employees or pay a no-coverage penalty to the IRS. That doesn’t mean they shouldn’t provide health insurance benefits. 

No matter the size of the employer, health insurance benefits are a big deal to employees. A 2020 survey of 2,000 people found that 84% put health insurance at the top of their most desired benefit list, and the Society of Human Resource Management (SHRM) reported that 92% of employees say benefits are important to their overall job satisfaction .

These numbers prove that benefits are a major contributor to talent acquisition and retention. Happy, healthy, cared-for employees are more loyal, productive, and complimentary of your business. Yes, health insurance plans can be costly, but with so many small businesses (your competition) offering health insurance benefits, can you afford not to? Think of health insurance benefits less as a cost and more as an investment, one that will result in higher-quality employees.

The best time to offer health insurance to your employees

If you are a startup or a small business without health insurance benefits, now is the time to find a plan if you have the budget. The longer you wait, the greater the chance you will lose good talent. To keep morale high and build your brand reputation, health insurance benefits have to be a priority.

Offering health benefits may depend on the size of your company. If you only have a handful of employees, you may not be ready to jump in just yet, preferring to grow a bit first. Just remember that benefits have become an expectation, even for employees at the smallest companies. Some companies view their plan as another “hire,” allocating part of a budget they would spend on a new employee for a health insurance plan to cover all employees. Startups often build in the cost of a benefits package into their financial plan they fund from investors.

Your employees have different healthcare needs and budgets, so offering various plan options is the best way to ensure those who want to participate can find a plan that works for them.

Once you choose a health insurer and plan options, you will be able to offer health insurance to your employees as soon as the provider gives you the green light. Open enrollment is the period of time your employees will have to sign up, and it is set by the insurer. Not all employees have to sign up, as some may be covered already by a spouse’s or parent’s plan, or choose to seek their own health insurance.

When the open enrollment is over, employees who didn’t participate cannot sign up until the next open enrollment period, typically a year later. There are exceptions, such as if an employee has a qualifying life event (QLE) that includes losing their current health plan coverage, getting married or divorced, having a baby or adopting a child, or changing their residence. New hires can sign up at the time of their hire, despite open enrollment dates.

Healthcare coverage is exciting, so market it to your employees in creative ways across multiple channels. Make sure you allow time for Q&As. Your health insurer should be able to answer any questions you can’t answer. 

Sana reduces healthcare costs for small business owners and makes it easy for small businesses with lean (or nonexistent) HR departments to offer health insurance for the first time. Get a quote today.

Related: Buying small business health insurance in Texas: The ultimate guide

Frequently asked questions about small business health insurance.

For most businesses, employer-sponsored health insurance is the second largest expense after payroll. When setting your health insurance budget, choose a monthly amount you can sustain, keeping in mind that employers are expected to pay at least 50% of employees’ premiums (though often pay more). The more of the premium you ask employees to cover, the less likely they are to participate in the group health plan — and most states require 70% employee participation in order for employers to be able to offer coverage.

Choosing a bundled vision and dental package — as opposed to buying two individual plans — can save you money, simplify the shopping process, and offer the convenience of just one monthly bill. However, buying separate vision and dental plans often allows for greater customization.

The SHOP marketplace is a health insurance marketplace for small business owners that was created under the Affordable Care Act (ACA) in 2010.

A licensed agent can help you choose, buy, and enroll in a health insurance plan that suits your needs. Agents usually work for and represent a single health insurance company, while brokers represent the consumer and may sell plans from multiple health insurance companies.

A provider network is the list of medical providers, facilities, and suppliers a health insurer or health plan has contracted with to provide its plan members with healthcare at a negotiated price.

Small business health insurance guide infographic

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By: Patty Hilger

As one of the most expensive aspects of running a small business, health insurance is top of mind for many employers. What is the best way to provide insurance? Should you provide insurance at all? Are there alternatives? If you’re asking yourself any of these questions, this article is for you. Understanding the different types of health insurance for small business owners doesn’t have to be overwhelming; in this article we’ll examine the following options and share benefits, costs, and use cases for each:

• Group health benefits for small businesses
• Self-insured health insurance plans
• ICHRA plans
• PEO group insurance plans

Why Health Insurance For Small Businesses Matters

Offering quality health insurance plans as a small business owner gives you a competitive edge when recruiting and hiring talent. To be blunt, if you want to find the best people, you have to offer the best benefits—especially when it comes to health insurance.

When it comes to recruitment, 46% of people say health insurance was either the deciding factor or a positive influence in choosing their current job.

And the importance of providing high-quality health insurance doesn’t wane when you’ve found the right employee. Look at this eye-popping stat:

56% of people with employer-sponsored health benefits said that whether or not they like their health coverage is a key factor in deciding to stay at their current job.

Finding it a challenge to offer great benefits? You can change the game by partnering with a PEO. Find out more here.

Health Insurance For Small Business Owners: 4 Options

1. small group insurance plans.

How it works: Employers purchase group plans and then offer them to eligible employees. In the small group market:

• Rates are regulated 
• Plans typically require 70% or more employee participation
• Plan options may be limited
• Carriers have contribution requirements

Essentially, you have three options for purchasing health insurance coverage in the small group market: through a licensed broker, a health insurance carrier, or the open market (called different things in different states). Either way, your small business has access to certain products, which usually don’t include many of the more robust insurance plans offered to larger companies. Keep in mind there is little-to-no support for education for this option, or for gaining insights into how the health insurance plans will change from year to year.

Who should use it: Purchasing a group insurance policy for small business might be a good option for you if you meet the requirements: you understand the insurance market, know how to compare prices and products, and have time to handle plan administration, open enrollment, etc. 

Historically, fully insuring your company in the small group market has been the most common means of offering health insurance to employees, though it may not be the most advantageous to you. (Keep reading for our recommendations!)

2. Self-insured Plans

How it works: Self-insured employers pay insurance claims out of pocket instead of paying a predetermined premium to a carrier for a small group plan. Companies ensure losses on a self-insured plan, as they have enough income to pay out claims and can take the risk that an employee’s claims won’t exceed what the employer can pay.  Who should use it: This option may be appropriate for some large companies who can afford to carry significant risk, as they are responsible for paying out actual claims. We do not recommend this option for small businesses.

3. Individual Coverage Health Reimbursement Account (ICHRA) Plans* (Genesis Pick)

Individual Coverage Health Reimbursement Account s are not insurance plans; instead, employers can offer ICHRAs to provide payment for insurance, allowing employees to select individual plans at pretax prices in the open market. 

How it works: ICHRA requires employers to provide funds for employees, on a pretax basis, to purchase their own health insurance. Employees can use pretax dollars to pay for the plan that works for them. Unlike other employer-sponsored health insurance plans, HRAs require no administration, no renewal each year, and no decision-making on behalf of your employees. 

Who should use it: ICHRA is a good strategy for small businesses and startups and for busy business owners who want to give employees the option to pick a plan themselves. Choosing an HRA is one of my favorite options for small businesses. 

ICHRAs honor the individual’s choice. Not every person uses health insurance the same way, and by providing an HRA, employees are able to choose the coverage that best fits their needs and lifestyle. Employers are more likely to ensure their employees are happy by allowing them to pick their own coverage, as opposed to picking a small group plan, which, by nature, is required to be one-size-fits-all.

*GenesisHR can help your small business get HRA plan documents; administer your ICHRA; take deductions through payroll, and more. When choosing an HRA, you’d simply opt out of our master plan and select individual coverage. You can learn more here.

4. PEO Group Insurance* (Genesis Pick)

PEO stands for “professional employer organization”; small and midsize businesses that engage a PEO gain an ally when it comes to health insurance. Not only does a PEO open up doors when it comes to offering better benefits packages  but it also handles all the administrative aspects such as selection, renewals, open enrollment, employee education, onboarding, and even advocating for your employees if there’s a claim issue. 

How it works: A PEO brings individual clients into one “large group” arrangement that allows for access to product offerings they can make available to their small business partners.  From the initial policy selection to the annual renewal and open enrollment—all is handled by the PEO.

Who should use it: A PEO partnership is the best plan for small businesses and startups in growth mode. If you’re a business owner who wants to provide the very best options to attract and retain top talent, a PEO can help you do that— plus remove the time-consuming burden of administration. 

PEO health insurance benefits add value to your employees’ lives. This benefit is arguably the most important. By partnering with a PEO to offer competitive health insurance coverage, you protect the investment you make in your employees—happy, valued employees are less likely to leave your company in search of other opportunities.

Which health insurance option is best for your small business? Connect with Genesis to get answers.

If you’re a small or midsize business looking for excellent healthcare benefits for your employees, GenesisHR can help. We are proud to have best-in-class provider Blue Cross Blue Shield of Massachusetts as our healthcare partner. In fact, we are the only PEO in Massachusetts to offer this premier coverage to our clients and their employees throughout the country! With a BCBS Massachusetts plan from Genesis, you get to choose one or more health plans that fit your organization’s budget and the needs of your team perfectly.

That partnership is just one of the reasons to explore working with Genesis; we also have many additional benefits-related offerings that allow you to attract and retain the best employees, including:

• Group Health, Dental, and Vision
• 401(k) Options
• Life/AD&D
• Long- & Short-Term Disability Coverage
• Employee Assistance Plans (EAP)
• Health Savings Account
• Health Reimbursement Account
• Flexible Spending Programs
• Retail & Entertainment Discount Program
• Integrated Employee Onboarding
• Online, Mobile-Friendly Access To Review/Enroll in Benefit Plans & Offerings

If you’d like to know more about how Genesis HR Solutions might be able to remove the considerable burden of finding and managing health insurance plans off your shoulders, get in touch with us today. We’ll look at your health insurance benefits strategy and discuss how we can work together to offer your employees the highest-quality health plans simply.

See related posts

Should You Offer Sabbatical Leaves?

Small Business 401(k): Choosing Your Plan Type & Match

How Much Can A Business Owner Contribute To A 401(k)? 4 Rules To Know

Should You Offer Blue Cross Blue Shield Healthcare?

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