Employee Benefits Options
Researching your small business health insurance options can be an overwhelming experience. It is our goal with this article to provide you with a complete and unbiased (Yes - unbiased - we’ll do our best to keep our opinions out of the way) resource for all of your options when providing health insurance to your employees, so that you can decide for yourself which is the right option for your company.
There are 6 primary methods for delivering health insurance to your employees. Each option has it’s pros and cons. Some are more expensive, some have more risk, some give you complete control. We’ll go through each of the options, providing you with a clear representation of each, so that you can decide which is the right option for your company.
Although, I do have to also mention a 7th option... If you have less than 50 employees, you can choose to not offer your employees health insurance. In this case, your employees will be responsible for purchasing their own individual coverage. As a business owner, you do have an option to give your employees a stipend to cover all or some of their health insurance costs. Recent programs (such as QESHRA and ICHRA) have also made it possible to reimburse employees tax-free for their medical expenses, including individual health insurance PEO Alternatives. If you go this route, you’ll want to pay attention to the preventive care requirements, or face [penalties of up to $100 per employee per day](https://www.irs.gov/pub/irs-drop/n-13-54.pdf).
But for the purpose of this article, we are going to assume that you (the business owner) has decided to offer your employees health insurance through a group plan.
This is the good old fashioned way of offering your employees health insurance. Fully insured plans are most common and familiar for most small businesses.
Being “fully insured” means that you are passing all of the risk to your insurance carrier (ie Blue Cross Blue Shield), who charges a flat monthly fee based on the age of your employees. Each year the carrier has the ability to change the monthly fee depending on the health of your employees. When increases happen, the insurance carrier is not required to disclose any claims data to justify the change.
Conversely, if your employees are generally healthy, you’re still playing the same flat monthly rate no matter what. This model provides the least amount of risk for the business owner, which makes it the most common and popular.
An HRA is a financial account funded by the business owner, used to reimburse employees (tax-free) for a portion of their medical expenses.
Fully Insured plans with an HRA are generally less expensive. Business owners can fund their HRA account with this savings. When an employee has a qualified medical expense, they can be reimbursed out of this fund.
For groups that don’t use their insurance often, there are often funds left in the account at the end of the year. Thus, a great way for healthier groups to decrease the flat monthly fee charged by their fully insured plans.
Level funded plans feel like being on a fully insured plan (you pay the same flat monthly fee), but if claims end up being low, you’ll get money back. In other words, you only end up paying for the medical costs actually incurred by your employees.
Similar to fully insured plans, the carrier has the ability to change the monthly fee amount every year. For companies with 50+ employees, this change to the monthly fee has the potential to be more volatile than on a fully insured plan. However, with level funded plans the carrier will provide access to claims information. Having claims data gives the business owner insight into what caused the monthly fee change, thus leveling the playing field.
Level funded plans are technically a type of self-funded insurance. With 100% self insured plans the business owner would pay for whatever medical expenses their employees have. As you can imagine, this could be quite volatile on a month to month basis. The “level” of level funding refers to the fact that you pay a fixed monthly fee which covers all medical expenses up to that amount. Anything over that amount will be covered by what they call “stop loss” alleviating you of having the burden of higher monthly PEO Alternatives.
A Captive (or Coalition) is self-funding with a group. Just like with the methods previously discussed, you pay a fixed monthly fee for your employees health insurance. Although with a captive, that monthly fee is dependent on the group (or pool) as a whole. Being underwritten as a group has the potential to drive down insurance costs. Captives are perfect for business owners that want all of the benefits of being self-funded, but are not yet large enough to justify the risk and volatility of doing so.
Being traditionally self insured means that the business owner pays the health insurance claims of the employees. Brokerly, the company becomes the insurance carrier. As you can imagine, this gives the company ultimate control over their health insurance expenses. It has the largest reward.
Historically, traditional self-insurance has been too risky for small businesses. However, the new self-funding options with Level and Captive have paved the way for companies to determine the level of risk associated with their group. Combine that with the rising cost of Fully Insured plans, and a bit of stop loss to protect against the spikes, and self-funding quickly becomes an attractive option for an increasing number of small businesses.
A PEO (Professional Employer Organization) bundles your employee health insurance, payroll, compliance, tax administration, workers comp and HR services into a single package. Think of it as outsourcing all of your HR responsibilities. With a PEO, your employee health insurance is pooled with other companies in the PEO, which gives the PEO leverage to negotiate better rates on fully insured plans. But it also comes with an admin fee typically billed per employee per month.
A fairly new offering is a PEO alternative. A PEO alternative is often offered through an employee benefits broker, who bundles all of the services (payroll, compliance, workers comp, etc) so that it feels like a traditional PEO. The broker does not have the advantage of pooling your insurance with other companies, although there are typically more insurance options at the brokers disposal.
We’re here to help
Navigating the ever-changing world of employee benefits can be difficult, costly and at times, confusing. In a world of complacent brokers with reactive service, it can be down right frustrating. We started ThinkTank to be the antidote for the typical broker. Think of us as your "un-broker." A nimble and motivated group looking out for your best interests, with a full spectrum of benefit consulting services.