Health Insurance Plans and Alternatives for Small Businesses
Employer-based health insurance costs have increased modestly since 2012 — between 3% and 5% annually for family coverage, according to a 2020 report by Kaiser Family Foundation. These changes have added up over the past decade, and employers and employees are now paying 155% of the health care costs they were paying before, even as wages have stagnated.
Health care costs can be steep for small businesses, which can threaten their competitiveness. Therefore, small employers should know the health care plans available to them so they can choose the right fit.
Below are insurance and non-insurance options.
Traditional Group Health Insurance
Health Maintenance Organization (HMO): With HMOs, employees are generally required to use the providers that are in the network. If you want to save as much money as possible, HMOs are the way to go as they typically have the lowest monthly premiums when compared with other traditional group plans.
Preferred Provider Organization (PPO): PPO plans have a larger network of providers than HMOs and cover both in-network and out-of-network costs. Although PPO premiums are usually higher than HMO premiums, the plans offer more flexibility and greater provider access.
Point of Service (POS): POS plans are a hybrid of HMO and PPO plans. As with HMOs, employees must elect an in-network provider as their primary care physician, and as with PPOs, they can also go outside the network for care. Premium costs for POS usually fall somewhere between costs for HMOs and PPOs.
Exclusive Provider Organization (EPO): Like HMOs, EPO plans cover only in-network care. However, EPOs typically have a larger network of providers than HMOs do. The premiums for an EPO are normally higher than an HMO's and lower than a PPO's.
High-Deductible Health Plan (HDHP)
This is a type of health insurance plan that requires the employee to pay a higher deductible than they would for traditional plans like HMOs, PPOs, POSs or EPOs.
HDHPs have low premiums and can be paired with a Health Savings Account (HSA). An HSA lets employees put aside money pretax via payroll deduction to pay for qualified health care expenses. You can contribute to your employees' HSAs to help offset the HDHP's higher deductible.
Alternatives to Health Insurance for Small Businesses
- Health Reimbursement Arrangement (HRA). Employers of any size can reimburse employees tax-free for qualified medical, dental and vision expenses.
- Qualified Small Employer Health Reimbursement Arrangement (QSEHRA). Employers that do not offer health insurance and have fewer than 50 employees can give employees a monthly tax-free allowance to pay for medical, dental and vision expenses.
- Individual Coverage Health Reimbursement Arrangement (ICHRA). Employers can reimburse employees tax-free for the cost of buying their own health insurance instead of purchasing it for them. ICHRA covers medical, dental and vision expenses.
- Health Savings Account. As indicated previously, an HSA lets employees put aside pretax dollars to pay for medical, dental and vision expenses. The employee must be covered under an HDHP in order to open an HSA.
- Health Flexible Spending Account (FSA). Employees can set aside pretax dollars via payroll deduction to pay for medical, dental and vision expenses. They do not need to have health insurance in order to enroll in a health FSA.