A Simple Small Business Health Insurance Solution

Here's a simple solution for small businesses looking for health insurance starting January 1, 2014. It involves 3 easy steps and all parties win (especially the employee).

A Simple Small Business Health Insurance Solution for 2014

Step 1 - Terminate your group health insurance plan.

Step 2 - Give employees monthly "health care" allowances to spend on health insurance (whether this be tax-free via an HRA-like arrangement or a taxable stipend).

Step 3 - Allow employees to purchase health insurance in the health insurance marketplaces and receive tax credits that cap their health insurance costs as percent of income.

You can work with your insurance broker to compare the employer and employee costs of this Simple Small Business Health Insurance Solution to the cost of providing Traditional Group Health Insurance.

Read on for an overview of the key benefits for employees and employers.

How Does This Solution Benefit Employees?

With this simple solution, employees win. Here are the four primary benefits to employees:

1. Choice

Employees will be able to choose the health insurance plan that best fits their families' needs, including choices between multiple health insurance companies and plan designs.

2. Portability

Employees' individual health insurance is not tied to employment, meaning they will be able to take their health insurance with them when they switch jobs.

3. Guaranteed Renewability

Employees' individual health insurance policies are guaranteed renewable, meaning they cannot be terminated by the insurance company unless an employee stops paying the premium.

4. Savings

Employees reduce their health care costs by 50% or more. Most employees will have access to tax credits through the health insurance marketplace. If an employee is eligible for a tax credit, their cost of health insurance will be capped at 2% - 9.5% of their household income if their household income is less than 400% above the federal poverty line (that’s $94,200 per year for a family of 4 in 2013).

How Does This Solution Benefit Employers?

With this simple concept, employers win. Here are the four primary benefits to employers:

1. Recruiting & Retention

This solution allows employers to recruit and retain employees. In addition to the health care allowance, employees will also receive the benefits of an individual health insurance policy (Choice, Portability, Guaranteed Renewability and Savings).

2. Fixed Cost

The health care allowance puts employers in full control of their "health care" cost.

3. Reduced Administration

Employers get out of the health insurance business, so they can focus on their own business.

4. Savings

Employers reduce their health care costs by 50% or more.

Can I Still Work With My Health Insurance Broker?

Absolutely. If you and your health insurance broker decide this concept is a better fit for 1) your business and 2) your employees, you can maintain a relationship with the broker. 

In this new relationship, the broker would provide a service that helps each individual employee "navigate" the individual health insurance market.  That way, when you hire a new employee you can refer them to the health insurance broker for assistance.

Note: This should not be taken as legal or tax advice.