About Health Insurance for Small Business Owners

by Chirantan Basu

Small-business owners must compete with bigger competitors for customers as well as for qualified employees. Companies that offer comprehensive and affordable health insurance can attract and retain talented employees, especially those with young families. Small businesses, which usually do not have the cash flow or buying power of their bigger competitors, have had to pay higher insurance premiums than larger companies pay for comparable coverage. The 2010 healthcare reforms addressed these and related issues in an effort to make healthcare accessible and affordable for individuals and small-business owners.

Basics

Under the reforms, by 2014, small businesses with at least 50 full-time equivalent employees must provide basic and affordable health insurance coverage for employees who work at least 30 hours on average per week. The full-time equivalent calculation converts the hours worked by part-time employees into their full-time equivalent. Some businesses may face penalties if they do not provide the required coverage. Sole proprietors are treated as individuals under the 2010 health care reforms, which means they must also buy health insurance coverage.

Cost

Small businesses do not have the bargaining power of large businesses when it comes to negotiating with health insurance providers. They also face high administrative costs because they cannot spread these costs over thousands of employees. The 2010 reforms tried to address some of these cost issues and provide more bargaining power to small businesses. Starting in 2014, small businesses may pool their buying power and reduce administrative costs by purchasing insurance from state-administered healthcare exchanges. In addition, qualified small businesses may get tax credits -- starting at 35 percent and increasing to 50 percent by 2014 -- to offset the costs of health insurance premiums. Small businesses may also get financial help for providing health insurance coverage to certain retirees.

Choice

Small businesses have limited resources, which usually means limited choices when it comes to providing health insurance coverage. The 2010 reforms tried to address this issue through the establishment of healthcare exchanges. Starting in 2014, these exchanges will operate small business health options programs, or SHOPs, that will allow small-business employers to offer their employees more choice in healthcare insurance coverage. These SHOPs will provide comparative information on the benefits, premiums and quality of plans offered by several different health insurance providers. Employers that choose to participate in SHOPs would be able to decide how much to contribute toward their employees' health insurance plans. They would also be able to make single monthly payments via a SHOP rather than making payments to multiple plans. This would reduce administrative costs while providing employees choice and flexibility. Small-business owners may also compare health insurance plans at the "Find Insurance Options" section of the website HealthCare.gov.

Continuity

Continuity of health insurance coverage provides peace and security of mind for employees. The 1986 Consolidated Omnibus Budget Reconciliation Act, or COBRA, requires businesses to provide terminated and laid-off employees the opportunity to continue health coverage at group rates temporarily. The 2010 reforms extended these protections. For example, starting in 2014, health insurance providers may not raise rates on small businesses based on the number of sick employees, which should make it easier for small businesses to afford health insurance coverage for their employees.

Considerations

Small businesses can save on healthcare costs by investing in wellness programs, such as seminars on nutrition and stress management. Preventive measures, such as screening for chronic illnesses, can also reduce long-term healthcare costs. As of the date of this publication, the 2010 healthcare reforms are the subject of political debate and litigation, which could mean continuing uncertainty for small-business owners.

About the Author

Based in Ottawa, Canada, Chirantan Basu has been writing since 1995. His work has appeared in various publications and he has performed financial editing at a Wall Street firm. Basu holds a Bachelor of Engineering from Memorial University of Newfoundland, a Master of Business Administration from the University of Ottawa and holds the Canadian Investment Manager designation from the Canadian Securities Institute.

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