<img src="//bat.bing.com/action/0?ti=5067266&amp;Ver=2" height="0" width="0" style="display:none; visibility: hidden;">

We've updated one of our most popular materials. See what's new in our guide to MERPs.

Small Business Health Insurance Options

Health Insurance Options Best Suited for Small Businesses

Many small businesses feel confused and overwhelmed by health insurance options. Under the Affordable Health_insurance_small_businessesCare Act, small businesses (with fewer than 50 employees) are not mandated to offer traditional health insurance coverage, but there is still great value in offering employees access to quality health insurance.

Small businesses have five main options for health insurance:

  • Individual Health Insurance (with or without premium reimbursement)

  • SHOP Marketplace

  • Private Exchange

  • Co-operative

  • Private Small Group Plan

1. Individual Health Insurance (with or without premium reimbursement)

The first option is a relatively simple approach, yet it achieves results: direct employees to the Health Insurance Marketplace in your state to purchase an individual or family health plan. Eligible employees can access discounts on their premiums via the premium tax credits. Or, employees can purchase an individual health plan “off” the Marketplace, through a broker or online.

If the small business would like to contribute to employee's health insurance expenses, they can use a premium reimbursement arrangement to reimburse employees for the unsubsidized portion of their premium. Premium reimbursement allowances can be given evenly to all employees, or provided based on job criteria (e.g. $300/month to managers and $200/month to entry-level).

For many small businesses, this is the most cost-effective health insurance solution because:

  • The business can contribute any amount to the healthcare allowances, and

  • Individual health insurance costs, on average, 20% - 60% less than small group plans.

This option is ideal for businesses who have been priced out of group health insurance, want to offer health benefits for the first time, or who do not want the administrative hassle of a group health insurance plan.

2. SHOP Marketplace

The small business SHOP Marketplaces are new state- or federally-run exchanges for small businesses. Small group health plans are available on the SHOP Marketplaces for small employers with 50 or fewer employees, however there are eligibility requirements. For example, in Massachusetts employers participating in the SHOP must contribute at least 50% of the premium amount, employers with 1-5 employees must have 100% of the employees enrolled, and employers with 6-50 employees must have at least 75% enrolled.

For eligible small businesses, the SHOP Marketplace gives access to the small business tax credits, which since 2014 are only available through the SHOP.

3. Private Health Exchange

With a private exchange, the small business 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 “defined contribution” strategy.

4. Co-Op

Joining a co-op for health insurance is another option for small businesses, and a more traditional one. The co-op exists to increase buying power and spread the risk among a larger group. Each co-op is structured differently, so the co-op may offer better insurance rates than a group policy or a SHOP plan depending on regional insurance underwriting laws and the co-op itself.

5. Private Small Group Plan

Purchasing a traditional private small group health insurance plan is also an option for small businesses. Small businesses 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 Business Health Insurance?

As many business owners know firsthand, traditional group health insurance is largely broken - it’s too expensive and it no longer works or employers and employees. The lack of portability, rising costs, and existing alternatives are all contributing to the mass abandonment of traditional group health insurance. Individual health insurance with premium reimbursement or private exchanges paired with individual health insurance are the future of small business health insurance -- and are the best options for all small businesses.

How to Navigate Health Insurance