What is Small Business Health Insurance?

Small business health insurance is best defined as health coverage paid by a business of 50 employees or less to cover the healthcare costs of its employees. The most popular category of small business health insurance is small group coverage, and the fastest growing category of small business health insurance is large group coverage through associations. All major categories of small business health insurance require employees to pay some of their own healthcare costs along with their employer. This article reviews small business health insurance in 2021.

Small Group Coverage

About half of all small businesses offer small group health insurance to their employees. Small businesses offering small group coverage pay a fixed premium for the policy and generally pass on a portion of the premium cost to employees. Employees are also responsible for copays and deductibles associated with the healthcare services they actually use. The health insurance companies with largest market share of small group coverage are UnitedHealthcare, Aetna, Anthem Blue Cross, Humana, and Kaiser Permanente. Small businesses typically purchase coverage through an insurance broker, and low income businesses may be able to purchase a plan at a lower cost through a government Small Business Health Options (SHOP) marketplace. Traditional small group health insurance is chosen by most small businesses because it’s relatively easy to obtain and most employees are already familiar with how it works. However, premiums are significantly more expensive than over forms of comparable coverage.

Large Group Coverage Through Associations

A frequently asked question from small businesses owners is whether they can join together for health insurance? This is a very good question because, as established by the National Conference of State Legislatures, small businesses pay 8 percent to 18 percent more than large firms for the same health insurance benefits! The reason for this inequity is that large corporations insure their employees through the high quality ERISA health plan market, which covers 136 million Americans nationwide. The instrument used by small businesses to access the same coverage purchased by large corporations are association health plans (AHP). AHPs allow small businesses, including self-employed workers, to band together by geography or industry to obtain healthcare coverage as if they were a single large employer. AHPs are lower cost than small group coverage because they have stronger negotiating power with insurers and healthcare providers due to their larger risk pools and greater economies of scale.

Individual Coverage Health Reimbursement Arrangement (ICHRA)

The individual coverage Health Reimbursement Arrangement (ICHRA) is an savings account-based health plan that allows employers to provide defined non-taxed reimbursements to employees for qualified medical expenses, including monthly premiums and out-of-pocket costs (like copayments and deductibles). Employees must be enrolled in individual (non-group) health insurance coverage, such as a plan purchased on HealthCare.gov, to use the funds. This new coverage option was established through a rule issued by the Trump administration in 2019, and consumer advocates warn that switching to the individual market for coverage from traditional small or large group health plan will leave employees with a more cumbersome enrollment process and more expensive coverage.

Ministry Plans for Small Businesses

Some small businesses are choosing to provide healthcare benefits to employees through healthcare sharingministries (HCSM). HCSMs are non-insurance entities in which members share a common set of ethical or religious beliefs and divide medical expenses among them in accordance with those beliefs. Most healthcare sharing ministries are oriented toward practicing Christians, and the largest HCSMs are Christian Healthcare Ministries (founded in 1981), Medi-Share (founded 1993), and Liberty HealthShare (founded in 1995). Although U.S. Patient Protection and Affordable Care Act (ACA) enacted in 2010 explicitly allows for non-profit HCSMs, some state regulators are currently scrutinizing HCSMs because they are not legally bound to cover their members’ healthcare claims.

Short Term Health Plans for Small Businesses

Short-term, limited-duration insurance (STM) is a type of health insurance in the individual market that is primarily designed to fill gaps in coverage that may occur when an individual is transitioning from one health plan to another plan. STMs are available in most states and are frequently used by small business employees when transitioning between jobs. They can also be used to cover an insurance gap for a new employee where health benefits have a waiting period.

In summary, small business health insurance is defined as health coverage paid by a business of 50 employees or less to cover the healthcare costs of its employees. The most established forms of small business health insurance in 2021 are traditional small group coverage and large group coverage accessed through association health plans.