For many employers and brokers, the Affordable Care Act can feel like a moving target. However, for small groups with fewer than 50 employees who are not mandated to provide health insurance, the options for small group health insurance are clearer.
In 2016, small groups have five main options for health insurance:
- Individual Health Insurance (with or without a defined contribution allowance)
- SHOP Marketplace
- Private Exchange
- Private Small Group Plan
1) Individual Health Insurance (with or without a defined contribution allowance)
The first option is a relatively simple approach, yet it achieves results: allow employees to purchase individual health insurance coverage, either through the public Marketplace or through a broker. Employees may select from any carrier and policy available, and eligible employees may access discounts on their premiums via the individual health insurance tax credits.
If the small group would like to contribute to employee’s premium and other medical expenses, they can do so through a health reimbursement arrangement (HRA). (This is still allowed as long as the employer goes about it the right way.)
Through these plans, allowances can be allocated by family status. For many small groups, this is the most cost-effective solution because the small group can contribute any amount, up to federally defined limits.
Brokers can be involved to facilitate the setup of the HRA (usually, via an online software provider), sell the individual policies to employees, and be a consultant for the small group. The ideal business for this solution is a small group that is priced out of group health insurance, not eligible for group health insurance, wants to start offering health benefits for the first time, or doesn’t have the administrative capacity to administer a group health insurance plan.
2) SHOP Marketplace
The SHOP Marketplaces are public state- or federally-run exchanges which sell small group health insurance policies. The SHOP Marketplace could be a good coverage option for employers with 50 or fewer employees if they can meet certain requirements. For example, in Massachusetts employers participating in the SHOP must contribute at least 50 percent of the premium amount, employers with 1-5 employees must have 100 percent of the employees enrolled, and employers with 6-50 employees must have at least 75 percent enrolled.
For eligible small groups, the SHOP Marketplace gives access to the small business tax credits which are generally only available through the SHOP. Brokers registered with the Marketplace can help small groups select and purchase the plan, just as brokers would with private small group plans.
3) Private Health Exchange
Like defined contribution, the term “private exchange” is one of the biggest buzzwords of the past few years. With a private exchange the small group gives employees a set contribution to use towards a menu of plan options. The plan options can be individual- or group-based. Private exchanges are a type of a defined contribution strategy.
Brokers can offer a private exchange option to small groups by working with a defined contribution or private exchange provider. Numerous entities ranging from startups to new divisions of leading insurance companies have been created to offer new private health exchanges and companies like Walgreens are adopting this approach.
Joining a co-op for health insurance is a more traditional approach for small groups. The idea is the co-op increases buying power and spreads the risk to a larger group. Each co-op is structured differently, and whether the co-op offers better insurance rates than the small group could get on the open market or SHOP depends on regional insurance underwriting laws and the co-op itself.
5) Private Small Group Plan
Purchasing a private small group plan is also still an option for small groups. Small groups may find more options and carriers to choose from on the private market as compared to the SHOP, where some states only have one or two plans to choose from.
The Future of Small Group Health Insurance?
Every day, I hear from small business owners and their brokers about the challenges of a traditional small group health insurance plan – with the primary challenge being cost. As such, it is not surprising to hear that only half (54 percent) of small and medium sized businesses do not offer traditional insurance today.
Which is why I’d argue that #1 (individual health insurance with defined contribution allowances) and #2 (private exchanges paired with individual health insurance) are the best health insurance options for small groups in 2016.
Last posted by Caitlin Bronson at zanebenefits.com