As a small business owner, offering health insurance to your employees can be a daunting and expensive task, especially if you have fewer than 10 staff members. While traditional health insurance plans may be hard to access and costly for small businesses, there are several alternatives that can provide coverage at more affordable rates. Let’s take a look at some of the best health insurance options for businesses with fewer than 10 employees.
Why Traditional Health Insurance is Challenging for Small Businesses
For businesses with fewer than 10 employees, health insurance can be more difficult to manage than for larger companies. Smaller businesses often face several barriers:
- Limited insurance options: Many major insurance providers have pulled out of the small group insurance market, leaving fewer options for businesses.
- Administrative burden: Setting up a traditional small group health plan can take up to 30 hours, which is a significant time commitment for small business owners with limited resources.
- High costs: The premiums for small group health plans tend to be higher for businesses with fewer employees. Small businesses end up paying more than larger ones, even if their insurance needs are smaller.
- Minimum participation requirements: Insurance companies often require a high percentage of employees to enroll in the plan—up to 70%. For a business with only six employees, this can be hard to meet if some employees prefer other coverage.
Given these challenges, many small business owners find it difficult to provide comprehensive health insurance for their teams. But don’t worry—there are other options available that might work better for your business.
Best Health Insurance Alternatives for Small Businesses
If traditional small group health plans are too expensive or difficult to manage, here are a few viable alternatives:
1. ICHRA (Individual Coverage Health Reimbursement Arrangement)
One of the best options for small businesses with under 10 employees is the ICHRA. This allows businesses to provide employees with tax-free money to purchase their own health insurance. Here’s why it’s a top choice:
- Pre-tax contributions: Money you contribute to your employees’ health insurance premiums is tax-free.
- Employee choice: Employees can select the plan that works best for them, ensuring more personalized coverage.
- Employer control: You set the amount you’re willing to contribute, so your budget remains predictable.
- No participation requirements: Each employee can decide whether or not to participate without affecting others.
- Easy setup: Setting up an ICHRA is simple and takes far less time compared to traditional group plans.
In short, ICHRA is an excellent choice for small businesses, offering flexibility, affordability, and ease of use.
2. SHOP (Small Business Health Options Program)
Another option to consider is the SHOP marketplace, which is specifically designed for small businesses. This program allows businesses to offer fully insured health plans to their employees.
- Tax credits: Businesses with fewer than 25 employees may qualify for the Small Business Health Care Tax Credit, which could cover up to 50% of premium costs. The credit is especially beneficial for businesses with fewer than 10 employees.
- Control over coverage: You can choose what type of plan and how much coverage you want to offer.
- Participation requirements: However, you must offer insurance to all full-time employees, and many states require at least 70% of eligible employees to enroll, which can be a challenge for smaller teams.
Although SHOP can help reduce costs, it comes with its own set of complexities, including participation requirements and additional paperwork.
3. Level-Funded Health Plans
Level-funded health insurance is a hybrid between self-insurance and traditional health plans. You pay a set monthly amount based on your employees’ expected healthcare costs, which is pooled to pay for claims.
- Predictable costs: You pay a fixed amount monthly, which helps manage your budget better.
- Refunds for unused funds: If your employees have fewer claims than expected, you could get some of your premium back at the end of the year.
- Risk of increased costs: If your employees require more healthcare, your premiums may increase significantly the next year. The unpredictability of healthcare costs makes this a riskier option for some small businesses.
Level-funded plans require some extra effort, such as underwriting (which evaluates the health of your employees), but they can work well for healthy businesses.
4. Health Stipends
A simpler, though less effective, option is to give employees a health stipend—essentially a fixed amount of money that employees can use for healthcare expenses.
- Flexibility: Employees can use the stipend for whatever healthcare needs they have.
- Low administrative hassle: This option is quick to set up and doesn’t require dealing with insurance providers.
- Drawbacks: Stipends are taxable, meaning your employees will have to pay taxes on the money you provide. Additionally, employees may not use the funds for healthcare, and you have no control over how they spend it.
While health stipends seem easy, the tax burden and lack of control over how the money is used make it less ideal compared to other options.
Conclusion
For small businesses with fewer than 10 employees, offering health insurance can feel overwhelming, but there are several options available beyond traditional small group plans. ICHRA stands out as a top choice for its flexibility, simplicity, and cost-effectiveness. SHOP plans can also be a good option for those who qualify for tax credits. Level-funded plans are worth considering if your team is relatively healthy, and health stipends, though simple, often come with limitations.
Every business is unique, and the right health insurance option will depend on your company’s size, budget, and employee needs. Take the time to explore these alternatives and find the best solution for your team’s healthcare needs.
