The rising cost of health insurance has not just affected individuals but even businesses who want to make health benefits a priority for their employees. Though the rising cost has affected every business, small businesses have been specifically vulnerable. The health insurance cost to cover one employee under group health insurance has risen nearly 200% over the last 15 years. The rising cost along with the hassle and one-size-fits-all nature of the traditional group health plans have led small businesses to drop health insurance benefits for their employees.
The high costs of traditional group benefits along with their inconvenience and inflexibility have prompted small businesses to altogether avoid offering health benefits. This isn’t a great strategy of small businesses, especially during a time when unemployment rates are the lowest in 50 years, small businesses are sure heading for a competitive battle for talent in which good health benefits will play a crucial role in attracting the talent. The best thing is that in 2020 there are more health benefit options for small businesses than ever.
Health Insurance Options for Businesses in 2020
Individual Coverage HRA or ICHRA
In the year 2020, businesses have two new HRAs like the individual coverage HRA and the excepted benefit HRA. The Individual Coverage HRA works for all sizes of employers, as they are not restricted based on the number of employees. An ICHRA or individual coverage health reimbursement arrangement is a company-funded, tax-advantaged health benefit that reimburses employees for personal health care expenses.
ICHRA has several benefits over traditional group health plans that appeal to many employers. For instance, the reimbursement model of ICHRA gives employers the flexibility to control costs and provides more choices to employees. This is quite different from the current group health insurance, where employers choose a one-size-fits-all plan for the group, and employees are restricted to options sponsored by the employer. ICHRA is available only for employees enrolled in an individual health plan and employees enrolled in a spouse’s group health plan cannot participate.
ICHRA reimburse the employees for their health expenses rather than buying it. The ICHRA works in a simple way where employers design their plan, define employees who are eligible for the plan and establish reimbursement limits. Employees first purchase the individual plan of their choice, then submit claims for reimbursement after which employers reimburse employees for valid claims.
The Qualified Small Employer HRA or QSEHRA
QSEHRA is an increasingly popular health coverage subsidy plan designed for employees of businesses with fewer than 50 full-time employees. Much like other health reimbursement arrangements, businesses having less than 50 employees offer them a monthly allowance of tax-free money. Employees can enroll in an individual health plan, and then businesses reimburse them up to their allowance amount. Besides, employees can also use QSEHRA to obtain reimbursements for eligible out-of-pocket expenses. This enables businesses to have control over their budget and offer better benefits to their employees.
All reimbursement under the QSEHRA is free of payroll tax for the businesses as well as its employees. Reimbursement can even be free of income tax for employees, provided they are covered by a health plan offering minimum essential coverage. The QSEHRA is regarded as the best option for small businesses as it benefits both employers and employees. Employees can purchase a plan that best fits their needs whereas employers are able to set their budget. The QSEHRA is also a great option for small businesses, whose employees work in multiple states, whose employees are covered under a spouse’s group policy, and even businesses having employees without insurance.
Group Coverage HRAs
An integrated HRA or a group coverage HRA is an employer-funded medical reimbursement plan associated with a group health insurance plan, generally a high-deductible health plan. This group coverage is offered to employees who take part in the group health insurance plan, as it is an add-on that helps employees pay their deductible costs. In a group coverage HRA, the business sponsors a group health plan but keep the premium cost low while keeping the same coverage for the employees. High deductible health plans are the most frequently offered group health plan because of their low cost. Since HDHPs are less expensive they cover less than other plans.
In a group coverage HRA, the employees are offered by their employers a tax-free monthly allowance in addition to the group policy. Employees pay for healthcare and then employers reimburse them up to their allowance amount. Employees use this group coverage for reimbursing their out-of-pocket medical expenses. It is common for the group coverage HRAs to reimburse only deductible or co-insurance expenses covered under the group health plan. However, with each reimbursement request, an Explanation of Benefits is required. Employers are allowed to structure their employee eligibility requirements until their employees participate in the group policy.
Traditional Group Health Insurance
A group health insurance plan is the traditional choice of most of the small businesses to provide coverage to employees and to employees’ dependents. Small businesses pay a fixed premium for offering group health insurance to their employees. However, they may pass a portion of the premium cost to employees, who are also responsible to pay for copays and deductibles associated with the received health care services. This is typically purchased either through Small Business Health Options marketplaces or an insurance broker.
Small businesses find traditional group health insurance a good and lucrative choice because it is easy to obtain and even most of the employees are familiar with this plan. However, the biggest challenge is the premium prices, as the cost of this traditional group health insurance is about $15,375 per employee family in 2020 for businesses with fewer than 500 employees. The high cost is simply out of reach for many small businesses.
Self-funded Health Insurance
Some of the small businesses choose to self-insure to avoid high premiums and restrictions imposed on group health insurance.
In a self-insurance arrangement, accepting the financial risk businesses rather than paying a fixed premium to the insurance carrier pays an out-of-pocket claim for every employee as it arises. In the plan documents, covered benefits and terms of eligibility are outlined. The businesses set up a trust fund to allocate money, which is contributed by both the employers and their employees. The money saved in this fund is used to pay the claims. Businesses pair the fund with a stop-loss policy to limit their potential risk. The claims and other filings are managed by third-party administrators.
With self-funded health insurance, small businesses can save money, especially in administrative costs. Perhaps, self-insurance is considered risky, and more than expected claims can drive a small company out of business. Due to this fact, a self-funded health insurance option is common among larger businesses having 300 to 400 employees.