How to Build a Healthcare Plan for Your Small Business Team

All small business owners know that today’s job market is extremely competitive and it can take a lot of effort to attract and retain top talent. But one great way to get that talent in the door and keep them on your team for as long as possible is to offer healthcare benefits. Employees want to know they are valued at your company and that you see them as more than just another cog in the wheel.

Truth be told, navigating the complex world of benefits administration can be daunting, with various plan options, costs, and compliance requirements to consider. We want to provide a deep understanding of healthcare benefits for small businesses, the advantages of offering them, different plan types and costs, legal obligations, and best practices for effective benefits administration. So, let’s dive in!

Demystifying the process

As a small business, if you have less than 50 full-time employees, you are not legally required to offer healthcare benefits to your employees. However, investing in your team’s health and happiness, helps build a stronger and more loyal workforce.

Healthcare packages play a vital role in providing your team members and their families with access to health services like annual exams, unexpected hospital visits, and medication. 

As a small business owner, ensuring the well-being of your employees should be a priority. They help contribute to your company’s success, so offering health benefits and a streamlined benefits administration process is a meaningful way to express gratitude for their hard work. 

Small business owners have the flexibility to customize benefits packages to suit both their own and their employees’ needs. With a variety of plan options available, the standard elements typically include coverage for:

Not every benefits package has to include all of these elements, but some are legally required by certain states such as workers’ compensation and unpaid medical leave. 

So now that you know what to expect out of benefits packages, let’s talk about why they are valuable to small businesses like you and how to manage your benefits administration.

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Advantages of offering healthcare benefits

Small businesses need good employees to thrive, and that’s no secret. But attracting and retaining top talent can be a lot of work, especially because today’s job market is ultra-competitive and job seekers are on the hunt for companies that align with their values and meet all their expectations.

One of those expectations is the availability of healthcare benefits, particularly because the cost of medical care in the US is so high. In fact, US healthcare spending reached a whopping $4.5 trillion in 2022, averaging $13,493 per person. That is a huge financial burden on the average working American. 

But in comes your company with your attractive healthcare benefits packages, and potential employees’ ears will perk up. And not only is employer-provided healthcare attractive because of the financial savings, but it shows current and potential employees that you value them and their commitment to your company. 

Too many employees in today’s workforce are dissatisfied with their current employer and you don’t want to be part of that statistic. Offering appealing healthcare benefits helps improve overall employee satisfaction, boosts productivity, and builds a strong foundation of loyalty between you and your team.

And if that’s not enough of a draw, you can also receive potential tax benefits for providing health insurance to employees. The money you spend on health insurance premiums is considered a tax-deductible business expense by the IRS, which lowers how much you pay for taxes. You might also qualify for the Small Business Health Care Tax Credit if you have less than 25 employees, which could cut your cost of health insurance by up to 50%.

Understanding healthcare plan options

Now we’ll dig into the specifics and discuss what options are available to you. Let’s start with group health insurance plans.

  • Health Maintenance Organization (HMO) — Employees with HMO coverage pay for health services in monthly premiums and get access to a designated network of providers and medical facilities. This limited network means HMO plans are often more affordable than other types, but it also means that employees receiving care out of network will have to pay in full.
  • Preferred Provider Organization (PPO) — PPO coverage is similar to an HMO plan, but it offers more flexibility in that employees can see providers outside of their network without paying the whole bill. They will likely have higher co-pays and service costs with out-of-network care, but they have more freedom to choose their provider and location.
  • High-Deductible Health Plan (HDHP) — This type of coverage is set up to have lower premiums with higher deductibles. Employees will have to pay much more out-of-pocket before coverage kicks in, but monthly premiums stay low which is a bonus for team members who use minimal medical services.
  • Point of Service (POS) — POS plans combine some elements of PPO and HMO health insurance, and fall somewhere in between on the cost scale. When employees need medical care, they can decide whether or not to stay in the network, and costs all depend on that particular instance of service.

On the other side of employer health plans live self-funded plans with the help of third-party administrators (TPAs). The responsibility of a TPA is to function as a support center for self-insured plans that would normally be included under a fully-insured plan, such as processing medical and pharmacy claims and other administrative services.

Across all these types of plans, most typically have three cost-sharing structures: deductibles, copayments, and coinsurance. Here’s what you need to know about them:

  • A deductible is the amount that an employee must pay before the insurance starts paying its portion of covered services.
  • A copayment is a fixed amount that employees must pay toward the cost of a medical service or item and the rest is then covered by the insurance plan. This is typical with pharmacy prescriptions.
  • Coinsurance is the fixed percentage of an employee’s share of the allowed amount of health care service costs. They must pay the coinsurance and any deductibles they owe. If they have reached their deductible, they only pay the coinsurance percentage (e.g., 20%).

To keep up with compliance and small business regulations, your plan must meet employer requirements under the Affordable Care Act (ACA). As a small business with less than 50 employees, you must withhold and report an additional 0.9% of employee wages over $200,000, report the value of health insurance coverage on each employee’s W-2, and file an annual return reporting certain employee information if you are self-insured. It also requires you as a provider to report coverage information with the IRS and give a statement to individuals.

Small businesses like you can also enroll in the Small Business Health Options Program (SHOP) to help purchase insurance. You can either enroll through an insurance company or with the help of a SHOP-registered agent or broker. Going through SHOP allows you to control your coverage and how much you pay toward employee premiums as well as being able to start coverage any time of the year. Sounds like a pretty sweet deal!

It’s also important to stay on top of government regulations like HIPAA and COBRA. You’re probably familiar with HIPAA—personally identifiable information managed by healthcare insurance companies must be protected from fraud and theft. As a small business owner, you’re limited to the medical information you can access, but you might be able to see summary information to help make informed decisions about your insurance provider.

COBRA, on the other hand, is a continuation of health coverage for a certain amount of time following a loss of benefits, whether that’s because of job loss, reduction in hours, job transitions, and other similar events. Your employees can elect for COBRA and you as an employer must provide notice of end of coverage scenarios.

Building a comprehensive benefits package

Here’s where you decide what options to include in your healthcare coverage, like medical, dental, and vision, and how those decisions will impact your employees and their families. Plus, you’ll want to consider the types of retirement plans you will offer (401(k), SEP IRA, and SIMPLE IRA) to best benefit your team members’ long-term financial success. You can also include supplemental benefits like life insurance, disability, and flexible spending accounts.

After you’ve clearly identified what you want to include in your healthcare plan, the most important part is clearly communicating the benefits to your employees and establishing enrollment and management processes. Lucky for you, there are great built-in messaging tools employers can use to keep communication open and seamless.

Now that you’ve got what you need to put a perfect healthcare plan into place for your team, consider using an automated tool like Homebase to help with benefits administration, controlling costs, and meeting compliance requirements. Get started today!

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