Health benefits are some of the best things an employee can get in their job package. The same can’t always be said for their employers, though. Providing health coverage to everyone you employ, alongside their families in some cases, can quickly drain you out.
Yet, it seems that in 2020 everyone is adopting the provision of health benefits as a given in the work offer. This begs a critical question for startup owners: do they have to offer health insurance to their employees? Will they be penalized if they don’t? Here’s what you need to know about providing health insurance as a startup business:
Do You Have To Offer Health Insurance In 2020?
Well, yes and no.
Legally speaking, if you’re operating a business that has less than 50 active full-time employees, then you’re not required by the IRS to provide health insurance to your employees. You won’t be penalized if you don’t offer health benefits. However, now that we’re in 2020, you’ll find that you most probably have to provide it anyway.
Despite all the banners and the opportunities, encouraging new startups to join the entrepreneurial ecosystem, making it through the world of business is not an easy feat.
As if competing with large businesses in every aspect wasn’t hard enough, startups always struggle to find good talent. When you’re one of the best, the equation becomes: why join a startup with low compensation and limited benefits, when they can work for large companies and get the best offers? This leaves startups with one of two options to be able to acquire these talents: offer higher compensation or attract them with more benefits. This is where health insurance comes to play, as it’s one of the best benefits an employee can get.
Health Insurance Options You Can Provide
You’ll find out that there are many options when it comes to providing health insurance as a startup or a small business. Here are some of the options you have:
1. Group Insurance
Group insurance is the most traditional type of insurance known to both employers and employees alike. Senior employees on this plan can even postpone being enrolled in Medicare without any penalty. They can take their time to understand the different supplemental plans, as explained on this URL, and then choose according to their preferences. While there are many options in group insurance, PPO and HMO are the two most popular plans to choose from: the first costing more, but offering greater network coverage, while the second costing less but with limited network coverage.
2. Self-Funded Health Insurance
Group insurance can be really costly for an employer, that’s why many businesses opt for self-funded health insurance. Instead of paying premiums to insurance companies, self-funded insurance allows companies to pay for their employees’ health care costs as they arise out of the company’s own pocket. While this option is cost-effective for large companies, it can break the bank for startups if they’re faced with a high medical bill that they weren’t expecting.
3. Health Savings Account (HSA)
On the other hand, you can open an HSA for your employees; something just like a retirement account but for health benefits. You make monthly deposits into their account with the advantage of these payments being tax-free.
4. Qualified Small Employer Health Reimbursement Accounts (QSEHRAs)
QSEHRAs allow you to reimburse your employees for their individual healthcare expenditure. This will be based on a pre-set cap that you’ve determined and agreed to in your job agreement. It can include individual or family coverage, but the limits for 2020 have not yet been announced.
5. Individual Coverage Health Reimbursement Arrangements (ICHRAs)
This plan is quite similar to QSEHRA but with some key differences. Instead of the government setting the reimbursement limits, the employer is the one, who set the limits. This plan requires an unbiased coverage to all employees without any form of discrimination.
6. Informal Wage Increase
This is a workaround for health benefits that some small business owners opt for. Instead of offering health insurance, the employer issues a raise for the employees, noting that this raise is for healthcare coverage. This is not a very effective option, as neither is the raise tax-deductible nor will there be any guarantee that the employees used it for health care.
Providing health insurance can break the bank for many startups, but it doesn’t have to. It all comes down to figuring out the best option that pleases everyone – including your own budget. After speaking to your team and understanding their needs, you’ll be able to reach the best plan that offers the most-needed benefits for your employees while sticking to your budget.
Interesting related article: “What is Health Insurance?”