Health Insurance FAQs: 7 Things SMB Clients Want to Know

Quick look: Employers and workers consistently rank health insurance as their most important benefit. However, 44% of small businesses don’t offer their employees coverage, allowing brokers to answer their health insurance FAQs and provide access to more affordable comprehensive plans through their PEO partners.

Chances are, attracting and retaining the right talent is a top priority for many of your small business clients. And with employer-covered healthcare being the most desired employee benefit, small- and medium-sized businesses’ (SMBs’) success relies on offering coverage.

According to the National Federation of Independent Business, 44% of small employers don’t provide health insurance to their staff, mainly due to cost. And that’s not to say they don’t value it—the U.S. Chamber of Commerce reports that 88% of employers rank health-related benefits as “very important” or “extremely important.” This creates an opportunity for brokers to educate clients on their options and offer high-quality, competitively priced coverage through a professional employer organization (PEO) partnership.

Here are seven of the most common health insurance frequently asked questions (FAQs) from SMB employers and how a PEO can enable brokers to help clients build an engaged, productive, and healthy workforce.

1. Are small businesses required to provide health insurance?

According to the Affordable Care Act (ACA) employer mandate, employers with 50 or more full-time and full-time equivalent employees (FTEs) must offer insurance to employees and their children (up to age 26).

Businesses that fail to comply with the mandate face penalties whose amounts depend on the number of employees, whether coverage is considered “affordable,” and whether any employee elects to get coverage from an ACA public exchange. To be considered “affordable,” health insurance must cost no more than 9.12% of an employee’s annual income.

As of 2023, the penalty for failing to offer health insurance to at least 95% of full-time employees is $2,880 per full-time worker, excluding the first 30 employees. Further, the penalty for offering coverage that isn’t affordable or doesn’t provide minimum value is $4,320 per full-time employee who obtains a premium tax credit in the marketplace.

2. What types of health insurance plans are available?

There are several types of insurance plans on the market, including but not limited to:

• Health maintenance organization (HMO): Allows plan participants to receive medical services from an approved network of providers and doesn’t typically cover out-of-network care unless it’s an emergency. HMOs typically provide comprehensive coverage, and while PCP and specialist visits may require a co-pay, there may be no co-insurance or deductible for in-hospital care.
• Preferred provider organization (PPO): Out-of-network visits are allowed, but in-network visits are most inexpensive. PPOs may be more costly than other plans but offer more flexibility as patients don’t have to choose a primary care provider and may not need referrals to see out-of-network specialists.
• Point-of-service (POS): A combination of HMO and PPO, a POS plan allows participants to choose an in-network primary care provider and go out of network for care that may require referrals. Patients are also responsible for most out-of-network costs unless their primary care provider refers them to another doctor.
• Exclusive provider organization (EPO): EPOs only cover in-network providers except for emergency services. However, plan participants don’t have to choose a primary care provider or need referrals to see specialists.

Each plan type has different pricing and pros and cons, and it’s important to note that not all carriers offer each plan in all markets.

Additionally, any plan type can be a high-deductible health plan (HDHP), which may include access to a health savings account (HSA). HSAs boast a triple tax advantage:

• Accountholders can contribute money on a pre-tax basis,
• the balance grows tax-free over time,
• and all withdrawals are tax-free if used for qualified medical expenses.

Further, many HSA plans allow employees to invest their contributions in mutual funds, providing potential for greater long-term growth.

2. What’s the average cost of health insurance for small business?

There is no one set price for health insurance. Its cost depends on factors like:

• How many employees the client has
• What type of coverage is offered (HMO, PPO, HDHP/HSA-compatible, etc.)
• The ages of those to be covered
• Whether coverage is available for employees only, employees and their children, or employees and their families (including spouses and children)
• If specific doctors and hospitals must be covered

According to the Kaiser Family Foundation 2022 Employer Health Benefits Survey, since 2017, the average premiums for single and family coverage have risen 18% and 20%, respectively.  This cost increase is expected to continue, as Willis Towers Watson estimates that healthcare insurance prices will rise approximately 6% per employee in 2024. As premiums continue to soar, it’s an optimal time for SMBs to rely on their PEO brokers to gain access to large-group insurance rates.

4. What part of a plan is most important to employees?

There is no one-size-fits-all solution to health insurance plan options. Your clients’ staff have their own preferences, medical needs, and budgets. For example, some rarely visit the doctor and value a lower premium, while others may regularly see specialists and seek higher coverage.

By leveraging their PEO partners, brokers can offer clients various competitively priced plan options that suit their organization’s unique needs.

5. Are employees required to sign up for coverage?

No, workers are not required to sign up for their employer’s health coverage. However, if employees have COBRA coverage, they may be ineligible to maintain it if new coverage is available.  

Similarly, if a worker is married or covered by a spouse’s plan, their coverage could be subject to cancellation based on the spouse’s employer’s plan rules.

6. Do I need to report on the health insurance I offer?

Clients should be aware that according to Section 6056 of the ACA, applicable large employers (ALEs) are required to report to the IRS whether they offered health coverage to their employees and further details about that coverage. ALEs must also provide their workers with copies of the information by January 31 of the calendar year following the year for which the return must be filed. The IRS may grant extensions of up to 30 days with good cause.

According to IRS.gov, “An ALE may be a single entity or may consist of a group of related entities (such as parent and subsidiary entities or other related/affiliated entities). This group of related entities is referred to as an Aggregated ALE Group. In either case, these reporting requirements apply to each separate entity, and each separate entity is referred to as an applicable large employer member (ALE Member). For more information about the treatment of related entities see Who is Required to Report and the definition section in the instructions for Form 1094-C, Transmittal of Employer-Provided Health Insurance Offer and Coverage Information Returns, and Form 1095-C, Employer-Provided Health Insurance Offer and Coverage.”

7. How do I offer health insurance to my employees?

Medical coverage is highly desirable, and many SMB employers may wonder how best to offer it to their workforce.

Four methods to obtain health insurance for employees include:

• Through a broker: Gaining health insurance through a PEO with the help of a broker makes the most sense for many SMB employers. Through PEO partnerships, brokers can provide many plan options at large-group pricing and assistance with compliance, payroll, recruiting, and other human resources (HR) services.
• Through health insurance companies: Employers may obtain plans directly from some carriers. However, some insurance companies only work through brokers, and all research, paperwork, and compliance tasks fall on the business when it goes direct.
• Through a private health exchange: Also known as purchasing alliances or associations, these groups include multiple small businesses that can buy health insurance as a group to decrease costs. Private health exchanges can enable SMBs to offer more plans, but they won’t benefit from a wide selection and tax credits that come from using the Small Business Health Options Program (SHOP).
• Through SHOP: This federal health insurance exchange database allows businesses to compare plans within their state and potentially receive healthcare tax credits. However, similar to when employers purchase coverage through carriers and private health exchanges, administration, management, and compliance must be handled in-house.

Partner up and provide the best

Clients turn to their brokers to help them navigate the complex, ever-changing health insurance landscape. And while coverage may be received through multiple channels, leveraging a PEO partner to provide plans offers unparalleled advantages.

Unlike when SMB employers seek health insurance through exchange networks or carriers directly, their administrative and compliance tasks are minimal when accessing plans through their broker’s PEO. For example, in addition to offering a variety of benefit plans at more affordable large-group rates, a PEO like ExtensisHR helps clients understand regulatory provisions (i.e., COBRA, ERISA, and ACA) in plain language, explains how laws may affect them, and manages time-consuming tasks on their behalf.

Beyond benefits administration and management, PEOs also specialize in various HR solutions, including payroll and tax services, recruiting, risk and compliance, training and development, and more. And some PEOs, like ExtensisHR, adopt a broker-centric philosophy in which their priority is helping you grow your book of business.

Ready to explore how ExtensisHR can equip you with the benefits and HR solutions your SMB clients need to compete in today’s competitive market? Contact our experts today.