The Best Health Insurance Options for Small Businesses with Under 20 Employees

We outline the pluses and minuses of current options, including a new one. (There is something for any budget.)

Ellen Decareau

Head of Marketing, Customers & Communications

Key takeaways

While businesses of all sizes face challenges in accessing affordable health insurance, for small businesses with under 20 employees, it feels near impossible.
Sales processes that take many weeks and high participation rates are extra challenges for businesses with small teams. Is it any wonder that more than 60% of SMBs with under 10 employees do not offer health benefits?
Fully insured health insurance plans have historically been the "go to" for small employers, and now level funded health plans. But a new pre-tax, fixed benefit option called ICHRA has emerged that small employers are flocking to.

Small businesses have it tough when it comes to finding affordable health insurance for their employees. For businesses with fewer than ten employees, it's nearly impossible. Let's count the ways:

Long-winded sales processes for traditional small group plans often take 30 or more hours over six weeks. Eek.
Challenging participation criteria, often requiring 70% or more employees to enroll is a high hurdle.
And, oh, the cost. Employee health insurance for small businesses has become an expensive venture with the average premium cost rising 25% in 10 years.

But how can you retain your current talent and recruit new ones, without health benefits?
It's not all doom and gloom. There are a few health plan options for smaller-sized small businesses to consider including fully Insured, level funded, fixed pre-tax benefit (also known as ICHRA), and association plans. Let's dig into the advantages and disadvantages of each.

The most traditional route: Fully insured group health plan

If you decide to offer traditional group health insurance, it's most likely a fully insured plan. That's because small businesses don't have the size or scale to offer a self-funded (which means the employer bears the risk.) Small businesses with under 20 employees will likely have to find a one-size-fits-all health plan for everyone. (In fact, a 2019 survey revealed that 76% of employers with under 200 employees only offered one health plan.)

Advantages of a fully insured group health plan

Less Risk: The insurance company bears the risk if the total claims exceed the premiums. This is a benefit for small businesses, where unexpected costs can have a much bigger impact.
Regulated Coverage: Fully insured health plans are subject to state laws and regulations. This means that they provide certain standard benefits, ensuring employees have access to basic healthcare.

Disadvantages of fully insured health plan

Higher Costs: Fully insured plans often have the highest premiums.
Less Flexibility: These plans are harder to customize. Small businesses often need to choose from the pre-designed plans offered by the insurer and one plan for all employees.
Stringent Participation Rates: Most plans require that at least 70% of employees enroll.
Unpredictable Premium Increases: If employees file many claims or there's an increase in the general cost of healthcare, the insurance company will increase premiums at the time of renewal.
Complicated Enrollment and Onboarding: Small business owners, especially very small ones, are often managing the paperwork themselves, which can take 30 or more hours over many weeks every year.

Companies

Health insurance is local, and not all carriers are available where your small business is located (or employees, if they are distributed in other states). The top 3 largest carriers across the U.S. include:

The step-sister of fully insured: Level funded health plan

Level funded health plans may present a more attractive alternative for small businesses with healthy workforces. With level funded plans, monthly premiums are based on a company's projected medical claims, offering potential savings if actual claims fall below this estimate.

Advantages of level funded plans for small businesses:

Cost Savings: If claims are lower than predicted, the business could see substantial savings.
Risk Management: These plans share risk between the business and the insurer, providing a degree of financial safety.

Disadvantages of level-funded plans for small businesses:

Potential High, Unpredictable Costs: If employee claims exceed the projected amount, premiums will jump.
Complicated Enrollment and Onboarding: Similar to enrollment for fully insured plans, the paperwork is a lot.
Stringest Participation Rates: Like fully insured plans, a 70% participation rate may be too high to achieve for some employers.
Underwriting Can Feel Weird: Requiring that employees provide their weight and height to get a quote may feel uncomfortable.

Companies

Nearly every major health insurance company is getting into the level funded game. Examples of companies offering level funded plans are:

The newest option: Fixed, pre-tax health benefit (ICHRA)

One of the newest and most flexible health insurance options for small businesses is the Individual Coverage Health Reimbursement Arrangement or ICHRA. This option allows employers to give pre-tax money to their employees to help cover premiums for a health plan the employee buys.

Advantages of ICHRA for small businesses:

Financial Flexibility and Stability: ICHRAs allow businesses to set their own budget.
Employee Choice: Employees can choose a health insurance plan that best meets their needs and preferences.
Customization: Employers can customize benefits per employee category.
No Participation Requirements: There is no minimum participation requirement for ICHRA.
Hassle-Free Enrollment: Reduces the administrative burden for businesses.

Disadvantages of ICHRA for small businesses:

Employee Confusion: Some employees may feel overwhelmed by the options.
Expectation Gap: Employees used to high-end health plans may not find the same options on the individual marketplace.

Companies

StretchDollar is one of the first to focus on small businesses with under 50 employees, a group that tends to have the most challenges when it comes to finding affordable, uncomplicated health insurance.

The "non-health insurance" route: Association plans

Association Health Plans (AHPs) are group health insurance plans that allow small businesses to band together to purchase coverage available to large employers.

Advantages of association plans:

Expanded Access: AHPs help small businesses obtain coverage where they might not have been able to before.
Increased Bargaining Power: Grouping together allows more negotiation leverage with insurance providers.
Customized Plans: AHPs often offer flexibility for businesses to customize plans.

Disadvantages of association plans:

Lack of Comprehensive Coverage: AHPs are not required to cover all essential health benefits, potentially leading to gaps in coverage.
Risk of Higher Premiums: Groups with higher health risks will result in higher premiums.
Limited State Oversight: AHPs may not be subject to the same level of state regulation.
Employee Dissatisfaction: Employees may face unexpected bills due to gaps in coverage.
General Risk: AHPs are not health insurance, which may not be well understood among employees.

Bottom line: Small businesses have more options

Small businesses have had a hard time finding reasonable small group health insurance for their employees. The good news is that there are more options than ever before. Before jumping into the process, consider your priorities and the pluses and minuses of each.

Interested in learning more about StretchDollar's ICHRA? Check out How it Works or get started here _.