2015 Entrepreneur’s Guide to Employee Health Coverage

Q: “What does your small business do about employee health insurance?”

I surveyed twenty businesses with fewer than twenty-five employees because we’re trying to figure out what to do at HeatSpring. The U.S. health insurance market is in the throes of some big changes and it’s hard to determine what information is most relevant to small companies like ours. Please note that I’m not a health insurance expert. I’m as clueless as you are. My opinions are my own, and I’d love to hear your comments if you think I’ve gotten something wrong here.

The full article is below, but if you want to download the PDF version, click here.

Lesson One: SHOP is Off to a Slow Start

One of the goals of the Affordable Care Act was making it easier and more affordable for small businesses to provide health coverage to employees. Two exchanges were established: one for individuals, and one for companies (SHOP). Getting individuals who don’t have access to a company plan covered was a much more urgent goal, and you can see this in the numbers. The Kaiser Foundation put out several articles about why enrollment is low in SHOP. Here’s one of those articles.

The primary mechanism for encouraging small business owners to pay for health insurance is the small business health care tax credit. This is a really helpful explanation of this program. If you have fewer than 25 employees and the average FTE salary is less than $50,000, you can get tax credits up to 50% of what you paid in insurance premiums. If you use the calculator, you find that it’s a sliding scale, so only companies with really low paid employees get that 50%. My conclusion: these tax credits are actually very small. Lots of people are calling for these tax credits to be increased to encourage more employer participation.

Since every state operates completely independently, all insurance providers, including SHOP are terrible for distributed teams (like ours). Health insurance is sold on a state-by-state basis, so offering a company plan means buying in each state where you have an employee.

Lesson Two: Individual Coverage is Best Option for Low to Mid Income Earners

If you’re purely looking to get the cheapest, best care for your employees who make less than $80,000 (more accurately, $46,68 for individuals and $95,400 for families), your best deal is on the individual exchanges. Here’s the calculator I used to arrive at this conclusion, and an article that explains the numbers. This assumes:

1. Their compensation takes into account that they’re paying. You can’t just stop buying health insurance for somebody and not pay them more.
2. They are diligent in their documentation and filing of taxes. This only pencils out if you make sure you get the individual tax deductions you’re owed. Here’s a good resource on that.

For companies that have average salaries above that $80k range, this logic doesn’t apply. You’re not getting business tax credits for providing coverage, nor do your folks qualify for individual subsidies.

Lesson Three: Companies Love Their Brokers

Employee health insurance decisions aren’t made in a vacuum. This is also a complicated decision because it touches on company values, recruiting, HR, diversity. Basically everything that a company does.

It’s hard to stop offering coverage if you always have. Lots of small companies started offering it before the ACA made it possible for anyone to buy subsidized coverage on the individual marketplace. I personally experienced how terrible it was to buy individual coverage in Michigan (my wife was denied coverage for having a pre-existing condition called ‘pregnancy’ when we moved from MA).

Companies that are amping up to grow in a big way see health coverage is an important box to check when recruiting talent. Not offering it limits your pool of potential applicants.

Thirteen of the twenty companies surveyed pay for some portion of employee health insurance. Here are some great tidbits from these folks:

• Five recommended Zenefits. Apparently they have great customer service and it’s free (they make money as a broker). Based on what I heard, if I could buy stock in Zenefits, I would.
• Six raved about their broker. They all mentioned their broker by name, like they were a member of the family. The old-school approach is alive and well.
• Nobody used SHOP. I didn’t hear anyone besides me considering it.

Biggest headaches for these folks:

• Premiums are going up 15% or so this year and they’re having to make hard decisions about what to do. Taking away benefits you’ve provided in the past creates bad vibes all around.
• Having to pick one plan for all of their employees, which means nobody gets the plan they want. Many states are offering ‘Employee Choice’ in 2015, which allows the employer to set a ‘standard’ plan and pay against that, but employees can use that money to buy any plan at the same level. Michigan is not making this possible in 2015.
• One approach to managing costs is to shift into high-deductible plans with a Health Savings Account. I love that employers and employees can fund it with pre-tax dollars, so there’s less risk of missing deductions. I don’t love that you still need to be meticulous in your documentation but if you’re an organized person this is probably no big deal.

What We’re Doing

We’re all going to find coverage through the individual exchanges this year. Here’s why:

• We still qualify for subsidized individual coverage, and these subsidies are much larger than current incentives for employers. This option is too good to pass up.
• We’re geographically distributed, which makes buying insurance complicated and eliminates the benefits of buying as a group.
• We aren’t trying to hire tons of people in 2015 and we don’t have a legacy promise to uphold. The existing team made the decision collectively and the books are open.

The landscape changes every day, so it’s important to have this conversation every year. My answer to this question may be completely different next year. Every company has different dynamics and I’m certainly not saying this needs to be your company’s approach.

If you have questions, comments, or think I’ve gotten something horribly wrong, please put it in the comments or send me a note at bhayden@heatspring.com.

Thanks to everybody who participated in the survey, and good luck with your employee health coverage decisions in 2015!

BONUS SECTION: Sample Comments and Commentary:

“Oh you’ve hit a nerve! The US health care system sucks. And it sucks even more when you’re the business guy who has to spend his valuable time on the subject.”

“I’m looking at a service – TriNet, which provides health insurance and HR solutions. My take on them is that they can provide much better health insurance coverage for a better rate, but you’ll pay for the HR and payroll services. Also, they can provide other benefit options equivalent to fortune 500 options. I’ve been reviewing them for a few weeks and I think it tends to make sense at about 5-7 employees when everyone’s on full benefits and payroll. The other major benefit is when hiring people they provide real HR structure and preparedness for situations like employee termination issues.”

“We are currently working through this right now.  I can give you the name of the agent we are working with. He’s been great.”

“We have a BC/BS PPO currently. The company pays for 75% of the employees’ health benefits. We are looking to change to a company called Liberty Health that would offer us better rates.”

“We’re basically going to a high-deductible plan, which tons of businesses are doing right now. It helps the business keep costs down (or at least in line with historical numbers), but is obviously not great for the employees as they’re out of pocket more. In our case, the company is “bridging the gap” by funding the deductible into an HSA because it’s part of our culture and comp plans. However, most businesses don’t do that and the employee ends up taking it on the chin a bit…unless they’re young, don’t have a family, and/or don’t really use doctors except for emergency, in which case they could be better off because the monthly contribution is cheaper.”

“I don’t think there is a no brainer about health insurance.  Health care reform is re-writing all the wisdom in this area.  I know that they look at small employers as under 50 employees.”

“Honestly, we never offered it because we were always so small and strapped for cash, however we are looking to possibly implement some sort of insurance around March or April of 2015. I had also looked into it in the past, but everything worth while was so expensive.”

“I really enjoy using Zenefits and would definitely recommend them, and they are free!  You can easily get free insurance quotes from them as well – http://www.zenefits.com/benefits-administration. Their reps are fantastic and knowledgeable. On a side note, I used to work in healthcare policy and may be able to help you find health care resources for small companies – there are some good things happening with health insurance in Michigan.”