Is 2023 the year you’ll take the plunge and offer a corporate health insurance policy?
Companies with 49 or fewer US employees are not required to offer health insurance benefits. However, if you plan to hire knowledge workers, they expect you to have it. And you may need it for yourself or your family.
Although one of the first tips below is NOT TO RUSH THIS PROCESS, here’s a quick take on this lengthy post:
- Although not required for fewer than 50 W-2 employees, health benefits help you compete for talent
- As an individual, treat health insurance as part of your owner’s compensation and try your exchange first for subsidies
- As a corporate provider, evaluate your budget and willingness to provide HR support
- Ask whether non-exchange plans are ACA-compliant or meet the Minimum Acceptable Coverage (MEC) standard
- Allow lots of time. Set your strategy by mid-October, communicate with employees by October 31, and complete open enrollment by December 7
- If you have more questions, join our monthly live Ask Me Anything (AMA) session with Jill James, exclusively available to our list subscribers. Submit your questions in advance and talk with other self-funded small business owners in the chat. Sign up to receive our next invite.
A couple of terms to know upfront:
ACA: Affordable Care Act. Often called “Obamacare,” the legislation that created minimum plan requirements (like covering pregnancy and preventative care) and a national exchange for access.
ALE: Applicable Large Employer. The HR term for companies with 50 or more employees. If you see “ALE required,” it’s not a requirement for you, but a standard you may consider for competitiveness and employee affordability.
Inflation Reduction Act: A new law passed in August 2022 that caps your out of pocket cost for drugs, premiums, and total healthcare costs annually based on a percentage of your household income. Also extended ACA subsidies through 2025 and set an updated plan affordability standard for ALEs.
MEC: Minimum Essential Coverage. A plan that meets the current minimum federal requirements for ACA compliance. Most states require employers to offer MEC plans.
With those terms in mind, let’s dive in.
If you’re an individual, freelancer, solopreneur, solo S-corp owner…you’ll be buying health insurance for yourself. Also true if you’re a family business of only immediate relatives.
If you’re trying to cover yourself or your immediate family and have no W-2 employees, your options are to buy from an exchange or purchase a plan directly from an insurance company or broker.
Overall, keep in mind that your company can pay your health insurance premiums — including your spouse and kids up to age 27 if you’re the primary on the policy — as a tax-deductible expense. Simply set up the recurring payment to your company bank account or credit card.
More positive news: you are more likely than ever as an entrepreneur to qualify for premium subsidy. And even if you don’t, the Inflation Reduction Act has set annual maximums for your personal and dependent healthcare costs.
With that in mind, I recommend you try an exchange first.
Exchanges: Marketplaces for ACA-compliant plans that will also do the work of assessing whether you qualify for your state’s Medicare plan or a premium tax subsidy. You’ll use Healthcare.gov or your state’s exchange. You’ll need to know your expected adjusted gross income (AGI) and other expected income sources to calculate your subsidy eligibility.
How it works: Exchanges offer ACA-compliant medical, dental, and vision programs. Your base premium includes well child visits, annual preventative exams, pregnancy, and access to national emergency care. Providers cannot ask whether you have pre-existing conditions or differentiate premiums based on your gender. Cost is based solely on your age.
Plan levels are coded by metals. Bronze has the lowest monthly cost but has high deductibles, co-pays, and out of pocket maximums. Silver and Gold have lower deductibles and co-pays, and Platinum is old school “Cadillac” coverage with no deductibles or co-pays.
Healthcare.gov’s open enrollment runs November 1 – January 15. State-specific exchanges may have shorter or longer enrollment windows. Make sure you know your marketplace and deadlines.
Direct market: Many insurance companies will work with you directly on individual coverage. Brokers can survey the marketplace and provide direct purchase options.
How it works: Visit the website of the specific insurance company you want to use. Look for “individual and family” coverage options.
If you’re working with an insurance broker, provide your preferred parameters and carriers. Brokers are typically paid by the company where you place your insurance.
Note that direct purchase plans may not meet MEC. If it matters to you, ask. If you’re not planning to get pregnant or are a cis man and don’t have pre-existing conditions — and I’m talking you’ve never had a sinus infection — you can roll the dice and save some money.
The US no longer has an individual mandate, but six states have state-level mandates. If you live outside those six states, you can go without coverage, or choose emergency-only or limited coverage low-cost plans based on your state’s insurance rules.
If you’re offering corporate benefits, first consider some design questions.
Do you qualify?
The first question is whether you’ll qualify for a group policy, which is what we think of as “corporate” insurance. To qualify for a corporate medical insurance policy, you must have at least one W-2 employee who is not a member of your family. (Some PEOs and plans have higher requirements, but that’s the legal one.)
If all of your employees are family members, each person over age 27 will need to get their own policy from an exchange or directly from an insurance company.
Dental policies typically require at least five participants.
Is it affordable?
If you offer a corporate health plan, the ACA requirement is that you pay 50% or more of the employee’s premium for the lowest priced plan you offer.
Participation: If you don’t get enough employees to sign up, you won’t be able to take this plan for yourself, either. So consider how much the people who work for you can afford to pay.
ALE competitiveness: If you want to hire talent away from larger companies, you may want to step up your subsidies. ALEs must meet an affordability standard for 2023 that does not exceed 9.12% of the lowest paid employee’s gross pay or the federal poverty standard. For 2023, that’s $103.09 per month. Many also offer spousal and dependent subsidies. You can only change your tax-free coverage amounts once per year.
Can my remote employees use this plan?
Operating in more than one state with remote employees? Me too. Most small group corporate plans haven’t caught up. They’re designed for your home operating state, with everyone else “out of network” or “PPO network” for their care.
Ask your broker or carrier how employees outside your home state will access plans and medical providers. A strong provider in your home state – say, Kaiser in California or Oxford in New Jersey – may not exist in other places. Does the plan have a national network of providers? How will your remote employees access care? If you truly need a national plan, consider using a PEO (more below).
How much support do I want to provide?
If you provide the insurance, your team will consider you, the owner and CEO, as the HR department and plan administration expert. Do you want to talk to them about their medical choices? About whether their kid really needs braces? About the co-pay for mental health or substance abuse counseling? About coverage for that out of state abortion? I don’t say this to be political – these are real questions I’ve gotten as the “HR department” for my clients.
If highly personal conversations are not your cup of tea, you might want to consider a reimbursement or outsourced solution.
How do I make this a big win with my team?
This is going to feel like a huge step for you. Don’t let it turn into an inadvertent black eye by not clearly communicating what you’re offering in a timely way.
If you’re new to offering corporate benefits, you can add them at any time of year. But, I implore you, please be respectful of the time, tax, and financial impacts on your employees. When you add benefits off-cycle, you can really mess your team up financially by resetting their annual out of pockets and deductibles. Something that you expected to be a big win might turn into an angry all-hands pretty darn fast.
Also, please plan your offerings by late October. If you will be offering any amount of healthcare support, clearly tell your employees by October 31. It’s a huge pain to re-enter your family income information when you find out you’re getting a subsidy, change the plan you want, or un-enroll from an exchange or individual plan. They do not give the first month’s premium back, which may be thousands of dollars.
Get yourself organized, call an all-hands, and walk through your 2023 benefits in one meeting.
Corporate insurance options
You have three ways to offer small business corporate benefits: QSEHRA, company-sponsored plan, or PEO.
QSEHRA: If you’re not quite ready to provide a full slate of corporate insurance programs, a Health Reimbursement Account (HRA) is a great option. The most common is called a QSEHRA (pronounced cue-SARAH), for Qualified Small Employer Health Reimbursement Account.
A QSEHRA is an IRS-approved program in which you reimburse your employees for plans and expenses of their choice, tax-free to both sides.
How it works: You choose the reimbursement amount, anywhere from $1 to the current maximum of $440 per month for an individual or $880 per month for families. (Maximums can change annually in October.) You also choose whether the reimbursement is insurance only, or includes eligible medical expenses.
Your employees choose their own insurance plans from an exchange, direct from the carrier, or their previous employer’s COBRA and make the monthly payments. They provide your QSEHRA administrator with their receipts, so you never see any details of their healthcare choices. The administrator provides you with a monthly reimbursement summary that you add to your payroll system. You only pay out for the actual expenses your employees submit.
You pay the administrator a fee, typically $50-$100 per month plus a small amount per enrolled employee. They provide you and your employees the documentation needed annually to recognize these costs as pre-tax expenses.
Any beneficial owner (over 2%) cannot participate in a QSEHRA. But you can still pay your own healthcare premiums through the company – see above in the Individual section.
Full disclosure: I use a QSEHRA for my team. They can choose coverage relative to their state, get their premium subsidies, and use the extra funds for whatever medical expenses they want. We use Take Command Health as our administrator.
If a QSEHRA intrigues you, learn more here.
Company-sponsored plan: Through an exchange, direct buy, or insurance broker, you can choose an ACA-compliant plan for yourself and your team. Check out sample SHOP plans from Healthcare.gov .
How it works: While the legal standard is one W-2 employee, some carriers or plans may require more participants. You must pay at least 50% of the employee’s base premium, typically $300-$400 per month, based on their age. However, you can pay more for them and/or their dependents at your discretion. Depending on your industry or local market, you may need to cover more costs or provide a higher tier of plan to be competitive. (See above on affordability.)
As with the individual market, ACA-compliant plans have metal names. Bronze has the lowest monthly cost but has high deductibles, co-pays, and out of pocket maximums. Silver and Gold have lower deductibles and co-pays, and Platinum is old school “Cadillac” coverage with no deductibles or co-pays.
Many small companies work with Gusto as their integrated payroll and insurance broker. If you’re working with a broker or insurance company, you may be able to add enhancements like behavioral health or coverage for fertility treatments. They may also allow a buy-up at the employee’s discretion to a higher tier plan from the same insurance provider. For example, if your base plan is Silver, the employee may be able to opt into a Gold plan.
Note that if you qualify with one W-2 employee and that person subsequently takes another job, you get to keep the corporate plan for the rest of the calendar year.
PEO: PEO stands for “professional employer organization.” It’s basically a company that can act as your HR department and bundle small groups together for insurance buying power. Most offer national health plans from one or more major carriers.
If you want to offer multiple plans or compete with the Fortune 500 (and get their scale discounts), a PEO is typically the best option. Their packages may include perks like concierge medical, no-cost telemedicine, and fertility treatment coverage. Note, PEOs are NOT required to offer ACA-compliant plans or pricing. If you have a heavily female workforce, you may pay a lot more for a PEO.
How it works: A PEO acts as a “co-employer” with some rights over your management policies and procedures. To access PEO health insurance, you’ll need to sign up for their payroll and compliance services and pay a substantial monthly fee per employee, in addition to at least 50% of base level health insurance premiums.
If you’d like to start your benefits on January 1, 2022, you should choose a PEO as soon as possible in October so you can get your account set up in time for open enrollment before December 7. Two PEOs to consider are JustWorks and Insperity. Learn more.
In conclusion: you have more questions
Health benefits are one of the most confusing, expensive, and complex things you will do as an American business owner. Until you can step back from your role as medical insurance provider in favor of a public option (register to vote!), we’re here to help you align your benefits to your culture, strategic growth plan, and budget.
And if you’re from outside the US, bless your heart for reading this far. Yes, this is how we do health insurance in America, and you will too if you decide to employ people here.
If you have more questions, join our monthly live Ask Me Anything (AMA) session with Jill James, exclusively available to our list subscribers. Submit your questions in advance and talk with other self-funded small business owners in the chat. Sign up to receive our next invite.