The ICHRA (Individual Coverage Health Reimbursement Arrangement) is a new insurance model for company healthcare. Employers offer tax-free stipends that employees can use to purchase their own individual health insurance plans, leading to greater choice for employees and fixed costs for employers.For Brokers & Advisors
Congrats! You have just started a business. Free to pursue your dreams, you bravely venture into a new world...one without health benefits. Or perhaps you have COBRA from a previous employer or an individual health plan.
Either way, you probably know that businesses usually offer health benefits to their employees and you'll have to do the same if you want to attract and retain talent! This guide provides an introduction to health benefit options and will help you get started quickly so you can get back to focusing on growing your business.
There is an important distinction to keep in mind: whether you are legally 'self-employed' or an 'employer'. For all of our options you must be an employer — this means you have at least one employee who reports income on a W-2 at the end of the year (this can even be you!).
Some business owners, when just starting out, are not paying themselves a salary. In this scenario, they would be considered 'self-employed' and would be unable to take advantage of the employer health benefits outlined below. To qualify, reach out to a payroll service like Rippling, ADP, Paychex, or Gusto — they will help you get set up as an 'employer'.
Quick tip: If you will be earning a very low salary for the entire year, you could qualify for government-subsidized insurance rates on the individual marketplace. Check out Healthcare.gov for more info, but be warned that this only works if your salary stays at the same low rate all year. If not, you could be hit with tax penalties at year-end.
You have a few major choices as a new employer: salary adjustments, small group health plan, PEO, or HRA. For each one we will cover how it works, pros, cons, and how to get started.
This option is pretty simple — employees buy their own individual plans and you give them a little extra to cover their insurance premiums. You can work out what the exact amount should be with each employee individually or just add a flat amount to everyone's salary.
This is the traditional route. As an employer you work with a broker to pick one or more health plans that will be made available to your employees. Your employees choose one of these plans and are covered for the year. Laws and insurance company policies usually require you to cover 50% or more of employee monthly premiums.
Most small businesses work through a broker to evaluate and choose plans. You can go to carriers directly, but we don't recommend this unless you have experience with insurance and know exactly which plans you want. Payroll providers like ADP, Zenefits, and others have their own brokerage services you can use.
PEOs are an outsourced HR and payroll department for your business. This means you pay them to manage payroll, benefits, compliance, and other HR-centric employer responsibilities. Working with a PEO is a big decision that impacts more than just health benefits, so make sure you read up on PEOs before going down this path.
There are many PEOs out there: small regional firms, large firms like TriNet, and tech-forward startups like Justworks. Because these companies do more than just health benefits, they will walk you through a setup process that includes legal documents, compliance, payroll, taxes, and benefits.
HRAs are the new kids on the block, enabled by regulations passed this summer. They are quite simple: you choose how much money you want to give your employees every month for health care, and your employees use that money to pay for insurance premiums or health expenses — in this fashion HRAs are similar to salary adjustments. Like group health plans and PEOs, HRA contributions are tax free for everyone. HRAs enable you to get all the tax benefits without picking a one-size-fits-all plan for your employees or taking on additional administrative burden. Because of this, we at Savvy think HRAs are a great option for small employers.
If an HRA sounds interesting, you can learn more and reach out!
We hope this was a useful introduction to your health care options as a startup or new employer! If you want to learn more about how to evaluate different health plans, check out our guide.