Getting Health Insurance for a Small Business Owner


Health insurance is one of the biggest challenges for small business owners.

It’s a problem for anyone who isn’t in a government or employer sponsored plan, but small businesses have special concerns.

For small businesses, health insurance is complicated by the fact that there may be employees.  Do you just get coverage for yourself, or do you extend that coverage to your employees?

The answer is different for different businesses, but there are ways to work through the process to get the best plan to cover your specific needs.

Use an independent insurance broker


Most people think working with an independent insurance agent will mean higher health insurance premiums, but that isn’t true.  Insurance brokers are paid a percentage of the premium collected by the insurance company—the premium therefore won’t be any different if you use a broker or not.  The broker advantage is really a freebie.

There are two reasons you should work with a broker:

Knowledge

Health insurance is complicated, and unless you’re a health insurance broker yourself, you need one working for you.  Not only does an independent agent know various plans, but he also knows the industry.  This comes about because the broker works with many different insurance companies, as opposed to working exclusively for one.  He can use that knowledge to move you into the right plan for your business.

You’ll change plans–frequently

Just like large employers who change health plans and health insurance companies just about every year, you’ll have to change in order to stay ahead of relentless price increases.  Since a broker isn’t tied to one insurance company, he’s free to move you into different plans with different companies as the need arises.

[Related: Check out our eHealthInsurance review and get yourself a quote.]

Are you covering just yourself, or do you need a group plan?

health insurance for a small business owner

Getting health insurance for a small business owner is yet another worry to add to your business.

If you’re just covering yourself and your family, you’ll be looking for a simple private insurance plan.  But if you have employees you will need a group plan, and that’s much more involved.

With an individual plan, the premium will be based on the health of you and your family.  But if you opt for group coverage, premiums will be based (and raised) on the health and claim experience of the entire group.  If you and your family are in good health, but you have one or more employees who aren’t, you may not want to go with group coverage.

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But group plans do have their advantages too.

If your business has group coverage, enrollment will be automatic—the insurance plan accepts members based on their employment with your business.  That means pre-existing conditions that might prevent you from getting private insurance will be accepted in a group plan.  If you or a member of your family has such a condition and can’t get a private plan, a group plan could be the way around this.

Because of administration costs and the absence of the exclusion for pre-existing conditions, group plans will be more expensive.  But sometimes they’re the difference between having health insurance and doing without.

Keeping the costs down

Health insurance is expensive but there are ways to make it less so.

Obviously you start by finding the insurance company that will provide the most comprehensive coverage at the lowest price, but that’s just the beginning.

You can always lower health insurance premiums by raising your co-payments, deductibles and co-insurance provisions (the percentage you pay after your deductible is met).  In fact, you can raise these until you reach the point where the plan becomes affordable.  Increases, particularly in deductibles and co-insurance can make a substantial difference in monthly premiums.

Plans with deductibles that are more than a few thousand dollars are often labeled “catastrophic” insurance because it only pays for medical catastrophes.  These plans don’t cover most ordinary medical expenses, but they do cover the kind that can send someone into financial distress, such as major surgeries or prolonged hospital stays.

If you do raise the deductible much beyond $1,000, consider adding an HSA to offset it.

Health Savings Accounts (HSA)

You may decide that you want to use a health savings account in combination with your health insurance plan.  HSA’s can allow you to save money on insurance premiums, because they’re used in conjunction with high deductible plans (catastrophic).

As discussed in the previous section, catastrophic health insurance costs less because the deductible is higher.  But you cover the higher deductible with an HSA.

The HSA has several advantages, some of which include:

  1. It allows you to accumulate money to cover the deductible on your health insurance
  2. The money you put into an HSA is tax deductible, so the government is effectively paying part of your deductible
  3. Any money not spent in the account remains in the account and can even earn interest tax-free, turning your HSA into an IRA.  Not only is this a good deal for you, but it can be attractive to employees too.

Finally

As you can see, health insurance plans for small businesses are complicated by all of the options.  If you want to set up a plan, start doing your research early and enlist the support of a health insurance broker when you do.

Do you own a small business?  What do you do for health insurance?

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Published or updated August 8, 2012.

Comments

  1. I have always been employed and if I ever end up being self employed I hope I can get insurance through my spouse at that point. Private health insurance sounds like a headache to keep up with but if you need it you need it. The broker idea seems great and I’ll have to keep that in mind should I ever need it!

  2. Lots of great information! One point I’d like to make is that in order to have a HSA, the insurance plan would have to be deemed compatible with High Deductible Health Plans (HDHP) based on IRS regulations. In searching for health plans, you are sure to come across plans with astronomical deductibles but many are not in fact compatible with HSAs.

  3. We work at a very small business. When we first started working there, we had to buy a family plan on the open market. It was ridiculously expensive for very poor coverage. Now, our employer offers a group plan through Blue Cross/Blue Shield. It is so much better. We use a high deductible plan with an HSA, and we feel like we’ve hit the lottery. If you can swing it, go with a reputable insurance company and an HSA. If you go with discount insurance providers to save money, you defenitely get what you pay for.

  4. Having managed insurance for a small non-for-profit, I can personally attest that a broker is the way to go. There is a lot of potential insurance you’ll want to consider buying; you want someone who specializes in all of them.

    The only other thing I’d add is to be a little cautious about the high deductible plans. They are definitely beneficial for younger employees, but less beneficial for older employees. My experience is that insurance companies aren’t yet on the ball with getting cost information to insureds. It’ll probably change as the plans grow and needs become more demanding.

  5. Jenna, Adaptu Community Manager says:

    Great tips. Think these can be applied to freelancers as well?

  6. I had to start a new plan a couple of months ago. I was really surprised at all the options but mostly at what the cost was for such a basic plan. The deductibles play a huge role in the overall price. I myself could not go with the high deductible low premium because I insure five in my family.

    The rates and the deductibles are ridiculous. for what you pay every month there seems to be very little benefit anymore. you pay a great deal in prescription deductibles every month now. Just another bill….

  7. Small businesses can also consider employee paid options. Groups as small as three or more benefit eligible employees qualify to offer supplemental coverage.

    Since the employees pay the premium, small businesses can offer benefits without having to fund any insurance premiums. Traditional group plans require employers to pay a portion of the cost.

    The supplmental plans pay first dollar benefits. So it’s a good way to address the large deductible challenges noted by other commentors.

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