See how cost sharing works with small business health insurance plans.
Cost sharing on small business health insurance plans
Although the Affordable Care Act’s individual mandate was repealed for 2019, the employer mandate to offer group health coverage is still fully intact. Here’s a look at what the mandate requires of employers and how small businesses are handling the cost sharing.
The ACA employer mandate
The ACA employer mandate classifies employers according to how many full-time or full-time equivalent (FTE) employees they have.
When tabulating FTEs, the proportion of a 40-hour work week that a part-time employee works determines how they count toward an FTE employee. For example, an employee who works 10 hours per week would count as 0.25 FTEs. Seasonal employees are included, but seasonal workers who are employed for less than four months and 120 hours aren’t.
Per the ACA employer mandate:
- Businesses with over 50 FTEs are required to provide group health coverage and pay at least 60 percent of the premiums in their cost sharing solution. Additionally, the cost sharing may not make employees contribute over 9.86 percent of their household income toward premiums.
- Businesses with fewer than 50 FTEs aren’t required to provide group health coverage, but they can choose to do so and may qualify for a tax credit to help with cost sharing (see below).
There is no legal requirement to provide employees with access to group health coverage if your business is defined as a small business. Many businesses that are often classified as small, however, may fall into the ACA’s classification of 50-plus FTEs and need to offer coverage. In both cases, businesses are welcome to provide more coverage or pay a higher portion of employees’ premiums than the law requires.
Small businesses offer lower cost sharing assistance than large ones
The Henry J. Kaiser Family Foundation published a 2018 Employer Health Benefits Survey that showed many employers offer more cost sharing assistance than they’re required to. Small businesses, however, paid a significantly smaller portion of their employees’ premiums than large companies did for family plans.
Among cost sharing payments for single coverage, the survey found no difference between what small and large employers paid. On average, both paid 82 percent of their employees’ single coverage premiums at a per-employee cost of $5,655 annually.
When insuring employees and their families, large employers paid an average of 71 percent of family coverage premiums at a per-employee cost of $13,917 per year. Small employers only covered 62 percent of family coverage premiums on average, trimming their per-employee cost for this coverage to $11,618 annually. That’s a cost sharing reduction of $2,309, which would have a significant impact on both employers’ and employees’ bottom lines.
*For the purposes of the survey, small employers were defined as businesses which have 3 to 199 employees. This differs from the ACA’s cutoff, but it still shows that smaller employers are trying to mitigate their health insurance costs through cost sharing more than their larger counterparts.
Small employers have several group health coverage options
Small employers looking for affordable cost sharing solutions that comply with any ACA requirements they’re under and that are appreciated by employees have a few options available to them.
First, the most obvious option is to provide a traditional group health insurance plan that meets or exceeds ACA requirements. Employers who have fewer than 25 FTEs and purchase a qualifying plan through a SHOP-registered broker like eHealth may qualify for the Small Business Health Care Tax Credit. The tax credit can help greatly with cost sharing. Keep in mind that there are many restrictions to this tax credit, and you can only get it a few years in a row, so don’t limit yourself to qualified SHOP plans just because of the tax credit.
Second, you can combine a small business health insurance plan and a group coverage HRA as an effective cost sharing solution. These are usually paired with high-deductible group plans, which typically cost both employers and employees less in premiums, and they offer employees reimbursement for qualifying medical expenses.
Third, the qualified small employer health reimbursement arrangement (QSEHRA) became available in 2016. Under this arrangement, employees purchase their own health insurance plans and receive reimbursement (subject to a maximum) in the form of pre-tax income from their small employer.
Finally, the Department of Labor expanded association health plan (AHP) availability for small businesses in 2018. These plans let small businesses that share a commonality (e.g. industry, profession, region, etc.) to form an association and purchase group health insurance together (or they might be able to self-insure). Be sure you understand concerns about AHPs before joining one instead of purchasing a small business health insurance plan for yourself and your employees.
Find a small business health insurance cost sharing solution
For help finding a health insurance solution that suits your small business, talk with one of our specialists. We’re a registered broker offering SHOP plans, and our representatives are well-versed in the cost sharing options available for small business health insurance plans.