Health Insurance Too Confusing? Help for Small Businesses

From new rules to rolling deadlines, here’s a clear breakdown of health insurance essentials.

The new era of health insurance in the United States promises to extend coverage to millions of Americans. But when it comes to deciding how to navigate the new world, small-business owners have a long menu of options.

In fact, the list is so long, it could be described as overwhelming.

Owners of small businesses can: purchase insurance coverage for their workers through a broker; they can offer plans directly through an insurance company; they can make insurance available to employees through a private exchange; or they can give a raise to all employees, with the directive that it can be used to buy insurance.

Employers realize they face a complex decision in the new health insurance landscape, and one that's critical to their workers' well-being. But few feel they're ready to jump in, according to a November survey by The Guardian Life Insurance Company of America. Among employers, 61 percent said that “preparing for a post-healthcare reform era” is a highly important objective. However, only 40 percent felt they were prepared to meet the objective, Guardian said.

The Guardian survey revealed that 60 percent of employers believe they need help managing the Affordable Care Act (ACA) terrain.

Thankfully, there are plenty of advisers ready to help small-business owners get a handle on the situation.

Most Small Businesses Don't Face Deadlines

Opinions may vary on whether it's a good thing or a bad thing to have so many possibilities. But small businesses can count on one reassuring aspect: under the terms of the Affordable Care Act, they are allowed to begin offering insurance coverage to their employees at any point throughout the year.

“Small employers are not required to offer any coverage, so they don't have deadlines,” says Nicholas Moriello, chief executive of Health Insurance Associates, an insurance agency in Newark, Del., that specializes in health-care benefits. “They can buy coverage year-round.”

There was a Dec. 15 deadline for some coverage options, but it applied to a very limited number of groups. Individuals who wanted to purchase a plan without going through an employer had to do so by Dec. 15. Also, small businesses that wanted to establish a group health plan to start on Jan. 1 also had to choose by Dec. 15.

Otherwise, there are rolling deadlines throughout the year for small businesses to select plans and a starting date. After an employer confirms its choice, employees are given a 10-day open enrollment period.

With all that in mind, health-care professionals and consumer advocates say that any time is a good time for a small business to give its employees the ability to obtain insurance. At a minimum, it's a great carrot to use in the competition to recruit workers, says Clark Howard, who hosts a nationally syndicated consumer-advice radio program and has written several best-selling books.

“Employers can choose to provide health-care benefits to attract a strong talent pool,” Howard says.

SHOP for Plans

One popular option for small businesses is to offer insurance plans through a state-run marketplace; links to qualifying plans are available at the website for SHOP, an acronym for the Small Business Health Options Program. Employers must meet certain conditions to qualify, such as having no more than 50 full-time employees.

The single best reason to choose the SHOP option is the tax credit, says Kismet Toksu, president of EBenefits at the University of Pittsburgh Medical Center's Insurance Services Division. In fact, many employers don't realize the value that SHOP provides and they overlook the option when considering health plans.

The tax breaks and tax credits offered through SHOP are intended to “help workers who make less than $50,000 in average annual wages,” Toksu says.

The tax credit offered to small-business owners through participation in a SHOP-qualified plan can be worth up to 50 percent of premium costs, according to the New Mexico Health Insurance Exchange.

Private Exchanges

Another option, similar to state-run marketplaces, is private exchanges, run by companies like Aon Hewitt, Mercer and Towers Watson's Liazon subsidiary. The private exchange industry has been growing at a rapid pace, with small-business owners enjoying the cost stability that private exchanges offer, according the Kaiser Family Foundation, which issued a comprehensive study of the private exchange market in September 2014.

Small businesses can also contract directly with an insurance company to offer health plans. It's the method traditionally used by many employers to offer health insurance, Moriello says.

“That's the historic way to do it,” he says.

In this format, the company selects the plan options for employees and it's then up to each employee to choose a plan. If an employer decides to charge employees a portion of the cost, the employer can set up a Section 125 plan, or a “cafeteria plan,” to allow employees to deduct expenses from their paychecks on a pretax basis.

Employer Contributions

Two other courses of action that small business can choose are similar, but have important distinctions. One is the so-called “defined contribution” plan, which resembles a 401(k) retirement plan. In this option, an employer makes a flat contribution to employees, who can use it toward their insurance. Costs above that contribution are the responsibility of the employees.

Then there's the option to give everyone a raise. Perhaps not surprisingly, this option has become very popular among some companies, Moriello says.

“You give a salary adjustment in lieu of insurance,” he says. “Then let the employees shop on their own.”

The pros include the fact that some health plans that individuals can buy on their own are less expensive than employer-offered plans. Additionally, the salary increase option can help workers who fall on hard times; if a worker's income drops below 400 percent of the federal poverty level, the worker can receive tax credits toward his or her insurance.

But there are significant drawbacks to simply giving everyone a raise, Moriello says. A salary increase is taxable income, so workers will get hit with higher income taxes. Also, if a business carries workers' compensation insurance, the raises would be counted as an increase in payroll, meaning the employer’s costs for workers' compensation will rise.

Do Your Homework

No matter which option a small-business owner chooses, Deborah Clark, district sales manager for Kaiser Permanente in Burbank, Calif., stresses that company decision-makers be diligent in making preparations and following through.

For one, it's essential to do your homework before diving in to the Affordable Care Act world, Clark says. That can include attending one of the U.S. Small Business Administration's webinars on health insurance, or reviewing content on Kaiser’s health-care reform website or the Labor Department website.

Human resources decision-makers at small businesses also should make certain that their lawyers, accountants or insurance brokers truly understand how the ACA works, Clark says. These advisers can help small-business owners make certain they are matched with the correct type of plan, based on the size of their businesses.

There are more steps that must be taken in order to avoid penalties for noncompliance, Clark says. Employers must provide employees with a Summary of Benefits and Coverage within a specific time frame, for example. Additional rules accompany ACA compliance, she says.

New Rules for 2016

Small businesses that are somewhat larger also may get hit by new rules that take effect in 2016, says Michael Eiselstein, director of insured products and exchanges at BlueCross BlueShield of Tennessee Inc.

The new Applicable Large Employers (ALE) category requires businesses with more than 50 full-time employees to file detailed reports with the IRS on the type of level of health insurance they offer workers, he says.

“For employers who fall in the [ALE] category, it’s essential that they evaluate their health insurance offerings to ensure they meet the minimal requirements to avoid an employer shared responsibility payment,” Eiselstein says.

The 'Do Nothing' Option

Even with the overwhelming number of options available to small-business owners, there is still one route they can take that could be the easiest of all: the “do nothing” option, Moriello says.

It may sound counterintuitive, but in some cases, it may be the best course of action, he says.

“Don't offer insurance, don't offer a raise, don't sign up for an exchange,” he says. “If you have less than 50 employees, you're not subject to the penalty.”

But for those small-business owners who do want to offer health insurance, they should contact brokers or insurance carriers for help. Because it's hard to do it on your own, says Ray Marra, senior vice president of group products at Guardian.

“We’re seeing greater adoption of private exchanges and self-funded medical plans paired with stop-loss insurance, so employers can deliver the workplace benefits their employees rely on while addressing the challenges they are facing,” Marra says.