It is a topic few small business owners want to discuss — health insurance for their employees. It’s complicated, costly, complex and few options exist.
“Health insurance for small businesses is a nightmare. There are not a lot of good, affordable options,” says Mike Dietz, president of MIB Health Insurance in Appleton. “Health insurance is expensive because health care is expensive.”
But small business owners do have options, whether it is a traditional small group plan or two new products — the Individual Coverage Health Reimbursement Account (ICHRA) and the Qualified Small Employer Health Reimbursement Agreement (QSEHRA). ICHRA and QSEHRA were created in 2020 and allow businesses to offer insurance to their employees but not be caught in the middle with selecting the insurance policy.
“ICHRAs allow employees to choose what they are looking for — which providers they want and what kind of plan,” says Jennifer Walkowiak, vice president of business development for Common Ground Healthcare Cooperative. “Rates for small businesses continue to rise, and this is one way they can get around that.”
ICHRAs and QSEHRAs are based on a similar philosophy: An employer provides funds to its employees that they can then use to purchase their own insurance policies. Employees can then choose a plan, decide what doctors they want in their plan, if they want a low premium/high deductible plan or a high premium/low deductible plan and more, says Tom Madden, a partner at iPlanRx in Green Bay.
“Employers have to satisfy the needs of a wide variety of employees, which increases costs,” he says. “For example, in Brown County, an employer may need a plan covering Bellin, Aurora and Prevea doctors. But an individual buying a plan who prefers Prevea can buy a plan that covers only them. It makes a lot of sense.”
Making their own decisions
ICHRAs and QSEHRAs put employees in the drivers’ seat, allowing them to become consumers and decide what they want, Walkowiak says.
“For businesses, it’s a lower cost than offering fully insured offerings. Small businesses save money, and [it] takes HR or small business owners out of managing health benefits,” she says, adding that beginning in 2025 Common Ground will no longer offer traditional health plans to businesses but rather focus fully on ICHRAs.
But just because a business has reached a certain size does not mean an employer needs to offer health insurance, says Dustin McClone, president and CEO of McClone in Menasha.
“When clients come to me and say they want to offer health insurance, I dig a little deeper to find out the reasoning. Some employers think they should offer health insurance to help attract and retain employees, but that might not be the case,” he says. “It’s an individual decision for each business, and we work with them to explore all the options.”
For interested employers, here’s how ICHRAs and QSEHRAs work: An employer may decide to give a worker $500 each month toward their health premium. The employee then uses that to purchase a plan that best fits their needs. If the plan chosen costs more than $500, the employee pays the difference. If it costs less, the remainder can be placed in a Health Savings Account.
“Employers can work with an insurance agency to determine the right amount they should offer employees each month and help put together a list of plans employees can choose from,” Walkowiak says.
Madden says employees may be surprised and a little confused about choosing their own insurance offering, but once they’ve done it, they often don’t want to go back to having someone else select their plan.
“We make it easy for them to understand. It’s an Amazon-like experience where they can search for doctors, covered prescriptions or whatever else they may be looking for in a plan,” he says. “As questions develop, our team is there to answer them.”
Walkowiak says ICHRAs place more responsibility on employees since they need to pick their own plans, but “they aren’t forced to take a plan with doctors they don’t like. With group plans, small businesses can have limited choices. This way, there are more choices, and the costs are lower.”
If an employer decides to offer an ICHRA, it is essential that the employees get support in making their decisions, McClone says. “About 50% of the population doesn’t understand what a deductible is. Putting them in charge of choosing a health plan could be a challenge. They definitely need guidance along the way. Some may not be ready to make these kinds of decisions.”
Madden says ICHRAs have another benefit — not all family members need to be on the same plan. For example, if someone in the family has a chronic disease, such as diabetes, he could be on a high premium/low deductible plan while the rest of the family is on a low premium/high deductible plan.
“I don’t see the popularity of ICHRAs slowing down. Employers want to offer the best plans and this is one way to do that,” Madden says.
For employers thinking about offering insurance to their employees, an ICHRA could be “a way to dip your toe in” before moving on to offering a group health plan, McClone says. And while some in the industry expect ICHRAs to replace group health plans altogether, he says, “I don’t buy that. I think there will always be group health plans. For most companies, they serve an important purpose.”
Finding the right fit
Dietz says a QSEHRA is a tax benefit approved by the Internal Revenue Service to provide a health care benefit and tax savings for small businesses and their employees. It is available only for employers with fewer than 50 workers.
“A QSEHRA helps companies save money,” he says. “The relationship between health insurance and taxes can be difficult to understand, leading employees and employers to often overpay for health insurance. That’s where we come in. We work with them to find the best option to fit their needs while helping them save on their taxes.”
Employees can also find out if they qualify for a subsidy based on their wages to purchase a plan on the health care marketplace, Dietz says. If that’s the case, they may save even more.
In today’s tight job market, employers are rightly concerned about attracting and retaining workers, but McClone says not offering health insurance may not scare qualified employees away.
“You need to look at your workforce. If you’re a small shop — 10 to 15 people — talk with your employers and find out just how many would actually use insurance if you offer it,” he says, adding some employees may still be on their parents’ insurance or have a spouse who carries insurance. “You may find there’s only one or two who may be interested. In that case, it’s not cost effective.”
When clients approach him about offering health insurance to help attract and retain employees, McClone offers other options, including the company’s HR outsourcing services.
“For small businesses, it helps to build an HR structure and grow from there,” he says.
While McClone does not deny some employees may leave a business that does not offer health insurance, he says a lot more will leave a job due to poor leadership or environment.
“We will definitely help customers who want to offer health insurance to their workforce, but we want to make sure they’re doing it for the right reasons,” he says.
