What Are The Best Healthcare Options For Your Business? For Now, There Are Four
(This post originally appeared on Inc.)
You’re a business owner. You have a lot on your mind. And the new healthcare law is looming. This is not politics. It’s practical. Whether you agree with the legislation or not, you’ve got to figure out the best options for your business. Actually, your options aren’t that difficult.
I realize there’s been a lot of noise about the Affordable Care Act over the past few weeks and months. Tax forms went out in error. A major penalty on employers was pushed back. Enrollment deadlines have been changed. New rules about coveragekick into affect next year. Congress is threatening repeals of all or parts of the bill. Another Supreme Court case could put the law in jeopardy.
But this is noise. You have a business to run. And employees to deal with. My firm serves about 600 active clients, mostly small and medium sized businesses, and I speak to many other business owners throughout the year. These are smart people. And, heavy drinking aside, many have thought their healthcare options through… at least for the short term. I’ve unscientifically polled them on their healthcare plans so that I can learn what they’re doing. And I’ve learned this: For at least the next two years (that’s 2015 and 2016) there are really only four good options when it comes to healthcare.
Option 1: Don’t worry about it.
You can do this if you have less than 50 full time equivalent people in your company as of January 1, 2016. Do that calculation now. Remember that there is a difference between full time people (those working 30 hours a week or 130 hours a month) and “equivalents” (those part timers where you have to add up their hours separately and divide by 2080). If you have more than 50 together then you must provide affordable coverage for your full timers next year. But if not, then don’t worry about it. Provide coverage. Don’t provide coverage. Do whatever you think is best for your business. The government (at least for now) won’t be much involved other than some reporting and a potential tax credit you can earn if you buy your insurance from the healthcare exchanges.
Option 2: Drop all coverage.
If your company has more than 50 people on January 1, 2016 then you must provide coverage for your full time people. Otherwise, you have to pay a penalty of $2,000 per year per employee (and you get to exclude the first 30 employees from the calculation). The average cost of healthcare is $4,000-$5,000 per year, so some make a very valid argument that dropping coverage and paying the penalty is cheaper. Besides costing less, the other benefit is that you can wipe your hands clean of the whole healthcare headache. The downside is that historically employer health insurance has been a benefit for American employees. By not offering it, you may be damaging your company’s ability to recruit and bring on good people–because why should I work for you when I can work for your competitor across town who also happens to have health insurance? Still, dropping coverage is certainly an option.
Option 3: Drop… but compensate.
Here you get rid of your insurance altogether, but you make it up in cash. This is similar to Option 2, except instead of letting employees fend for themselves you increase their paychecks by an amount similar to what you were paying for their health insurance before. This is not a formal Health Reimbursement Account. In fact, there’s nothing formal about it at all. It’s just more compensation. It’s taxable to the employee, so beware of that. But you can give what you want and discriminate as you please, because this is not a qualified plan. Do the math–you may find that paying the penalty (particularly after excluding the first 30 people) and then increasing salaries so that employees can get health insurance makes more sense for your business. Those employees may prefer to pocket the cash or find a better option on their healthcare exchange. I know quite a few businesses that are taking this route in 2015 and 2016, because it’s the most flexible.
Option 4: Go Bronze.
This is the most popular option I’ve seen. In this case you offer all the new Obamacare plans (Bronze, Silver, Gold, etc) but only contribute enough for the high deductible, lower cost Bronze plan to make it “affordable” for all employees under the law (check with your benefits advisor on this calculation). You combine this with a Health Savings Account plan so that employees can put away money pre-tax to help them pay for their out of pocket expenses (HSAs are becoming much more popular under Obamacare. A great summary of their benefits can be found here). In addition, ask your benefits person to seek out those employees who may be making less than $46,000 per year and see if they might be able to get a more affordable deal on the healthcare exchange with subsidies then what you’re offering (that’ll help reduce your costs too).
Keep in mind that things will change in the next few years, and we should all be keeping a close eye on the rise of private exchanges, which are becoming more and more popular with corporate America but haven’t yet trickled down to the SMB world.
But for now, just know this: The Affordable Care Act is the law, and it’s unlikely to significantly change. (I don’t believe the Supreme Court ruling will impact it.) If you have more than 50 people, then you will be affected, particularly this coming January. And, whether you support President Obama or not, whether you lean to the left or to the right, it doesn’t matter: You need to figure out your plan for your business. And for now, I only see four options.