By Molly Bond
Here is an overview of top health insurance options for small businesses, including the self-employed with no employees (other than yourself, a spouse, family member, or owner).
To see if any of these options is right for your business, consider talking to a licensed tax professional, benefits specialist, or health insurance agent or broker.
1) Health Reimbursement Arrangements (HRAs)
For 2020, there are six different HRAs.
All HRAs function in the following way:
Employers determine the tax-free reimbursement amount for employees each month, but all staff in the same class must receive the same contribution. Workers who are older or who have dependents may receive more.
Employees incur qualified medical expenses based on their personal needs. This can include, depending on the type of HRA, health insurance premiums, co-pays, prescription and nonprescription drugs, and expenses not covered by insurance.
Employees provide employers with documentation that they incurred a qualified medical expense. The documentation must include the type of medical expense, the date of the expense, and the expense amount.
Employers evaluate the documentation for the three necessary components, determine the expense is a qualified medical expense, and then approve the expense. (Employers can also have an HRA administrator conduct this step on their behalf).
Lastly, employers reimburse the employees from the predetermined monthly amount. Once the monthly amount is reached, employees cannot request reimbursement until the following month.
Below we list the top three types of HRAs for small businesses. See ABA’s guide to HRAs for a complete list of HRAs.
Qualified Small Employer HRA (QSEHRA)
The qualified small employer HRA (QSEHRA) is available to companies that have fewer than 50 full-time-equivalent employees and do not offer group health, dental, or vision insurance. All full-time employees are automatically eligible. Companies have the option of including part-time workers in the arrangement. However, part-time workers must be offered the same monthly amount as full-time workers. To use their designated QSEHRA amount, employees must have a minimum essential coverage health insurance plan (a plan that meets the Affordable Care Act’s requirements).
For 2020, the maximum monthly amount employers can offer is $437.50 ($5,250 yearly) per employee-only and $883.83 ($10,600 yearly) per employee plus family. These amounts can roll over year to year so long as the total reimbursements for the year do not exceed the maximum allowed by law.
For more information, see this decision guide for employers and this Q&A for employees.
Individual Coverage HRA (ICHRA)
The individual coverage HRA (ICHRA) is available to all companies regardless of size as long as the business has one employee who is not a self-employed owner or the spouse of a self-employed owner. Companies can offer different monthly amounts to employees based on employee classes; these different classes include full-time, part-time, seasonal, employee work locations, and employees who have not satisfied a waiting period. The ICHRA has no annual cap on the amount employers can offer. Unused amounts can roll over year to year.
Companies cannot offer the ICHRA if they also offer the QSEHRA or excepted benefit HRA. While companies can simultaneously offer a group health insurance policy, they cannot offer both the group policy and the ICHRA to the same employee class. To use their designated ICHRA amount, employees must have individual health insurance coverage, not group coverage.
For more information, see this information guide and decision guide for employers and this Q&A for employees.
Group Coverage HRA
The group coverage HRA, or integrated HRA, is available to all companies regardless of size that offer a group health insurance policy. The group health insurance policy is typically a high-deductible plan. Designed to lower out-of-pocket deductible costs for employees, the group coverage HRA is only available to employees who are covered by the company’s group health insurance policy. The group coverage HRA has no annual cap on the amount employers can offer. Companies can offer different amounts to different employees based on job-specific criteria. Unused amounts can roll over year to year.
2) Traditional Group Health Insurance, including SHOP
A group health insurance plan is available to eligible small companies by an insurance company. Employers offer a health insurance plan (possibly even a selection of plans) that offer minimum essential coverage to employees. To be eligible, employers generally have to employ between 1 and 50 employees (other than certain owners or their spouses). Small employers can typically enroll year-round and can purchase coverage through an insurance broker or the Small Business Health Options Program (SHOP) marketplace.
SHOP offers health and dental insurance coverage for small businesses and their employees. SHOP plans are offered through private insurance companies. Coverage must include essential health benefits and treatments for pre-existing conditions.
There is no employer contribution requirement for SHOP plans. However, eligible employers that contribute at least 50 percent of the cost of premiums for all full-time employees who enroll in SHOP coverage are eligible for the Small Business Health Care Tax Credit. In order to be eligible for the tax credit, you must have fewer than 25 full-time equivalent employees; your average employee salary must be $50,000 per year or less; you must pay at least 50 percent of your full-time employees’ premium costs; and you offer SHOP coverage to all of your full-time employees. The tax credit is structured so that the smaller the business, the bigger the credit.
Learn more about SHOP here and the Small Business Health Care Tax Credit here.
3) Self-Funded Health Insurance
With self-funded health insurance, businesses assume the financial risk for providing health benefits. Instead of paying a fixed premium to an insurance company, a business pays for employees’ out-of-pocket claims. Businesses can establish a trust fund that both the employer and employee contribute to in order to pay the claims. Additionally, businesses can include a “stop-loss policy” which limits risk for the employer.
Employers have the option of administering claims in-house or using a third party administrator (TPA) to manage and process claims.
Self-funded health insurance can help businesses save money on health insurance as a result of decreased administrative costs. The Self-Insurance Educational Foundation estimates 10 percent to 25 percent in cost savings in non-claims expenses for self-funded plans compared to group health insurance.
However, there are risks to self-funded health insurance plans. Employees’ claims are unpredictable, and small employers with limited financial resources risk being unable to pay for these claims as they arise.
For more information, see the advantages and disadvantages of self-funded health plans and this FAQ for employers.
4) The Individual Marketplace
If you are self-employed with no employees, you generally cannot qualify for group coverage such as SHOP. Instead, those who run their own business, are self-employed with no employees, and/or work as freelancers or consultants can purchase health coverage through the Marketplace for individuals and families. All Marketplace plans cover the same essential health benefits and do not exclude treatment due to pre-existing conditions. Unless you have a qualifying life event, you can only enroll in coverage during the annual Open Enrollment Period.
When you fill out an application in the Marketplace, you will determine if you qualify for a premium tax credit and additional savings based on your income and household size. Further, you will determine if you are eligible for free or low-cost coverage through your state’s Medicaid and CHIP programs based on your income and household size, among other factors.
For more information, see this FAQ for the self-employed.
5) Supplemental Policies
Businesses may also consider supplemental policies to offer employees. Policies with companies like AFLAC can help cover out-of-pocket expenses related to cancer, hospitalization, critical illness, accidents, short-term disability, dental, vision, and life at minimal cost to employees who opt in and at no cost to employers. Many group plans, for a small additional fee, offer employee support through a 24/7 helpline for health issues and legal, financial, substance abuse, elder abuse, and referral service assistance.
There are also many mental health resources for stores to either promote or offer to employees, including:
Therapy for Black Girls: An online space dedicated to encouraging the mental wellness of Black women and girls.
Melanin & Mental Health: A resource connecting individuals with culturally competent clinicians committed to serving the mental health needs of Black and Latinx/Hispanic communities.
BEAM Black Emotional and Mental Health Collective: A collective of advocates, yoga teachers, artists, therapists, lawyers, religious leaders, teachers, psychologists and activists committed to the emotional/mental health and healing of Black communities.
Depressed While Black: An online community and charitable initiative providing personal care items to psychiatric hospital patients.
Mental health warmlines: Unlike a hotline for those in immediate crisis, “warmlines” provide early intervention with emotional support that can prevent a crisis. Google warmlines to find some in your area, or check this link.
Call 1-800-273-TALK (8255) to reach a 24-hour crisis center.
Call 1-800-985-5990 or text TalkWithUs to 66746 to reach the 24-hour Disaster Distress Helpline sponsored by the Department of Health and Human Services’ Substance Abuse and Mental Health Services Administration. This helpline is dedicated to providing immediate crisis counseling for people who are experiencing emotional distress related to any natural or human-caused disaster. This toll-free, multilingual, and confidential crisis support service is available free to all residents in the U.S. and its territories.
Text 741741 from anywhere in the U.S. to text with a trained crisis counselor. The Crisis Text Line trains volunteers to support people in crisis through text messaging. (See this video explanation of the Crisis Text Line.)
LGBT National Help Center: A help center that offers hotlines, including specific ones for youth and seniors.
BetterHelp: A platform recommended by the American Psychological Association that specializes in online therapy for non-severe mental health issues. BetterHelp offers a HIPAA-compliant therapy service that partners with the American Medical Student Association, Mental Health America, and the International Society for Mental Health Online. Prices range from $40 to $70 per week (billed monthly) for unlimited messaging as well as weekly live sessions (chat, phone, or video) if you prefer.
Talkspace: A subscription therapy service that lets you send a therapist text messages, audio messages, and picture and video messages in a private, text-based chat room. Current plans that are available for one-on-one private chat range from $65 to $99 per week. Talkspace is currently promoting this special offer: Get $65 off with code APPLY65
NoStigmas: A peer-to-peer, community-within-community support network built by and for those whose lives are affected by mental illness and suicide. NoStigmas works to eliminate the stigmas surrounding mental health while supporting the creation of peer support mental health communities everywhere.