Small Business Health Insurance Made Simple


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Want to offer health insurance to your employees but not sure where to start? Read our small business guide to health insurance.

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Small Business Health Insurance Made Simple

  1. 1. Options for Offering Health Insurance
  2. 2. This is the first in a series of articles, the purpose of which is to simplify your post Obamacare health insurance options. After reading this presentation you will have a solid understanding of the primary options for offering health benefits to your employees.
  3. 3. Most small business have absolutely no legal obligation to provide health insurance, since only businesses with the equivalent of 50 full-time employees need to offer health benefits. That being said, you may want to offer health insurance in order to attract and retain great employees. A Summary of Your 3 Broad Options For Offering Health Benefits
  4. 4. There are three main options that you should consider as you begin exploring your health insurance options: ! 1. Increase employee compensation – 
 Give your employees a raise so they can 
 purchase their own health insurance. 2. Offer a “cafeteria” plan - A special 
 account your employees can use to pay their health insurance premiums with pre tax income, and that you can make tax deductible contributions to. 3. Offer small group health insurance – How health insurance has typically been offered by employers.
  5. 5. The right recommendation is going to depend on the size of your company, the salary levels of your employees, and how many of them are not already getting their insurance through some other means (such as a spouse). What We Recommend
  6. 6. Because there is no one size fits all solution, we recommend taking the following steps to decide which option is best for your business:
  7. 7. To gauge interest in health insurance. Find out who is being covered by a spouse, who is purchasing their own insurance, and who is uninsured. Talk to your employees
  8. 8. Ask them whether an employee raise, a cafeteria plan, or a small group plan would be best for your unique situation. Get quotes for different plans, as well as a firm understanding of the tax implications for each option. Ask them how complicated each option will be to manage and administer. Talk to a health insurance professional.
  9. 9. We recommend speaking to Jonathan Pocius of Payroll Services LLC who was a source on this article and we found highly knowledgeable. He can be reached at 240-215-4438 or via his website at ! Here is a more detailed overview the ins and outs of each option: If you are looking for a good starting point
  10. 10. Offering health insurance can be extremely complicated, so one option is to completely avoid getting involved, and just give everyone a raise that they can use to buy their own plan. Increase Compensation
  11. 11. 1. Fixed costs: You are in complete control of compensation. 2. Tax deductible: Salaries are tax deductible as business expenses 3. Greater employee choice: Employees can shop around on the individual exchanges for the plan that best suits their needs. 4. Customizable incentives: You can offer different amounts to different employees, which helps you attract and retain valuable employees. Pros
  12. 12. 5. Cheaper plans and subsidies: In most cases, plans purchased through the individual marketplaces are cheaper than the equivalent costs when paid as part of a small group plan. 6. Ease of use: Letting your employees select and manage their own plans means one less thing for you to worry about. Pros
  13. 13. 1. No tax deductions for employees: Employee salaries are taxable, so they will pay tax on any additional compensation that you provide to help them purchase health insurance. 2. You Have To Pay Payroll taxes: Even though you can deduct salaries as a business expense, you will still be on the hook for the payroll taxes on the additional salary you are paying. 3. No control over employees’ use of funds: There is no way for you to compel your employees to use their extra income to buy health insurance. You can encourage them to buy insurance, but there is no way to guarantee that they won’t use it for a vacation instead. CONS
  14. 14. So they can buy their own health insurance allows your employees to shop around for the plan that works best for them, and saves you a huge administrative hassle. Increasing employee’s compensation
  15. 15. To help your employees pay for health insurance is that you give more money to the government this way. Because the extra money is being paid out as salary the business must pay payroll taxes on the money, and the employee pays their normal income taxes on the additional income. The downside of increasing compensation
  16. 16. Cafeteria plans can be a good way for small business owners to avoid paying additional payroll taxes, while also giving their employees the ability to buy insurance using pre-tax income. A Cafeteria Plan
  17. 17. 1. Fixed costs: You are in complete control of how much you contribute to your employees cafeteria plan 2. Tax Advantaged: Contributions are tax deductible as business expenses and exempt from payroll taxes. 3. Employees use pre-tax income: Employees are not taxed on any contributions that they make to their cafeteria plan. 4. Greater employee choice: Employees can shop around for the plan that best suits their needs. 5. Customizable incentives: You can offer different amounts to different employees. 6. Cheaper plans: In most cases, individual plans are cheaper than small group plans. Pros
  18. 18. 1. Complexity: Setting up and administering
 a cafeteria plan is complicated, and the rules
 and regulations can be difficult to understand. 2. No subsidies: Employees are not eligible for government subsidies when purchasing through a cafeteria plan. CONS
  19. 19. That allows employees to set up health spending accounts that allow employees to contribute a certain amount of their income to a designated account before taxes are calculated. Employees can then use this account to pay for insurance premiums and other medical expenses. A cafeteria plan is a form of “Section 125” plan
  20. 20. 1. They are tricky to setup and administer. 2. Individuals cannot use cafeteria plans to purchase
 health insurance that is part of the affordable care
 exchanges, and are therefore not eligible for government subsidies. ! There is also a lot of confusion, even among insurance professionals, as to whether or not Obamacare allows cafeteria plans to be used when purchasing off exchange health insurance plans. There are two primary downsides to using cafeteria plans as part of your business:
  21. 21. When people think about health insurance, they are most likely thinking about an employer-provided group plan. Group Health Insurance Plans
  22. 22. Pros Easy for employees to understand: Most people are already familiar with the concept of employer- based health insurance, and view it as the most important job related benefit. Offering a group plan will almost certainly increase your appeal as an employer.
  23. 23. Pros Tax benefits: The money you spend on providing health insurance counts as a business expense, which means it is tax deductible. Employees are also able to pay for their share of health insurance premiums out of their pre-tax income, which decreases their overall tax obligation.
  24. 24. ProsTax credits: If you purchase your group plan through one of the Obamacare exchanges, you may qualify for a tax credit worth up to 50% of your contribution towards your employees’ premium costs. While this sounds enticing, unfortunately the requirements to receive the tax credit generally make providing group health insurance too expensive for the average small business, even with the tax credit.
  25. 25. Share the premium payment: Offering a group plan doesn’t necessarily mean that you need to pay the whole cost of the premium. Employers typically pay 50-80% of the premium cost, but small business can generally make smaller contributions and defer the rest to the employee. Depending on your particular circumstances you may end up paying anywhere from 0% to 100% of the premium cost. Pros
  26. 26. CONS Cost: Providing group health insurance can be expensive. In 2012, the average cost to all employers was $4,226 per employee. In addition to this, employees paid an additional $1,118 on average (See this report for state averages).
  27. 27. CONS Changing prices: Health insurance premiums often change from year to year depending on the costs of medical procedures, physician pay, prescription drugs, and administration. The complex calculations underlying health insurance premium makes it difficult to fully anticipate changes and budget accordingly.
  28. 28. CONS Minimum requirements: In order to qualify for most group plans, you have to give all your full-time employees the option of enrolling, and at least 70% need to actually opt in. The exact requirements will vary depending on the insurance company and plan, but group plans generally give you less flexibility than simply increasing compensation, which you can do on a case-by-case basis.
  29. 29. CONS Administrative hassle: In order to qualify for most group plans, you have to give all your full-time employees the option of enrolling, and at least 70% need to actually opt in. The exact requirements will vary depending on the insurance company and plan, but group plans generally give you less flexibility than simply increasing compensation, which you can do on a case-by-case basis.
  30. 30. we also recommend That you only shop for a small group plan with an experienced health insurance professional. Using a broker won’t cost you more than shopping on your own, and they will be able to explain to you the benefits and options of various plans.
  31. 31. When you talk to an advisor Ask about traditional small group plans, the Obamacare SHOP plans, and getting group coverage through a Professional Employer Organization (PEO). They will be able to give you exact quotes, and help you understand the costs and tax implications of each option.
  32. 32. That you seek professional advice in order to find the best solution for your business. Trying to navigate the post Obamacare health insurance marketplace on your own is simply not worth the time, hassle, or risk. we strongly recommend
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