This is the health care season, with open enrollment for individuals seeking coverage for 2019 through a government Marketplace running from November 1, 2018, through December 15, 2018. (Medicare open enrollment runs from October 15, 2018, through December 7, 2018). But obtaining health coverage through an employer is a highly desired employee benefit, and having it may mean the difference for an employee accepting a position and/or staying on the job. Only 47% of firms with 3 to 9 employees offer health coverage as an employee benefit, according to the Kaiser Family Foundation (KFF) 2018 Health Benefits Survey In this tight job market, small employers are struggling to compete for talent against large companies (virtually all of which offer health coverage).
Why is the matter of health care coverage so acute for small employers?
What can be done about it?
The problem for small employers is simply a matter of dollars and sense. Many small businesses find health care just too pricey. According to the KFF survey:
- Annual family premiums for employer-sponsored health insurance rose 5% to average $19,616 this year (extending a 7-year run of moderate increases), with workers contributing on average $5,547 toward this coverage
- Annual premiums for single coverage increased 3% to $6,896, with workers contributing on average $1,186 toward this coverage.
Unfortunately, there is no single answer for addressing the problem. Here is a list of various ways to handle the high cost of coverage:
- Use high deductible health plans (HDHPs) and couple them with health savings accounts (HSAs). You can choose to pay for some or all of these costs and deduct what you pay for or merely arrange these plans and let employees pay for them. What constitutes an HDHP and what are the maximum contribution amounts for 2019 are listed by the IRS.
- Be a smart shopper. As with any purchase, you can shop around for the best but least costly product that fits your needs. But watch for Affordable Care Act requirements imposed on employers.
- Increase the employees’ share of premiums. You can ask employees to pay a greater share of the premiums for group coverage. But don’t exceed the “going rate”; if possible check what your competitors are doing so employees won’t be tempted to jump ship.
- Look into Association Health Plans (AHPs). A final DOL rule allows trade and professional groups to offer coverage to their members with more favorable premiums than small businesses could otherwise obtain on their own.
- Use Health Reimbursement Arrangements (HRAs). Small employers can use qualified small employer health reimbursement arrangements (QSEHRAs) to reimburse employees a fixed dollar amount of their personally-obtained health insurance. The IRS has guidance on QSEHRAs. And employees of any size can also use HRAs, which are employer-funded plans used to reimburse employees for health costs. Proposed regulations allow HRAs to be used in conjunction with nongroup health insurance (i.e., coverage that employees obtain on the individual market). These proposed regulations would allow an employee’s eligibility for the premium tax credit to be disregarded in maintaining the HRA.
- SHOP around. If you have 50 or fewer employees, you may be able to buy coverage through a government Marketplace: Small Employer Health Options Program (SHOP) (this may not be an option in all locations). Doing so may entitle you to take a special tax credit, but considerable restrictions on eligibility may mean little or no tax break for you.
Given the ever-tightening job market, for small businesses it’s not a matter of whether to offer health coverage, but how to do it.