How to Offer Health Insurance to Your Employees

How to offer health insurance benefits to employees

Take these steps to enroll in group health insurance (a commonly used term for employer-sponsored health insurance) and then implement it.

1. Know your minimum contribution and participation requirements.

Many group health insurers mandate that participating employers cover at least 50 percent of their employees’ insurance premiums. This is known as a minimum contribution requirement. For example, if you’re sponsoring a plan for which the premium per insured person is $300, your minimum required contribution is $150 per employee. It’s never a bad thing, however, to pay the full 100 percent.

Your insurer will likely also mandate that at least a certain number of your employees enroll in the health insurance you offer. This is known as a minimum participation requirement and it typically follows state legislation. Often, the minimum participation threshold is 70 percent, so if your team comprises 20 people, at least 14 of them (20 X 0.7 = 14) must enroll.

You might start to see why these requirements might cause some hesitation. With 14 employees who want to enroll for a plan with a $300 premium, you’ll pay at least 14 X $150 = $2,100 per month. Additionally, without 14 employees who want to enroll, you might not be able to offer insurance at all. However, during the annual small group special enrollment period, these requirements are waived. Typically, this period lasts from mid-November to mid-December.

2. Hire a health insurance broker.

Many experts suggest hiring a health insurance broker upon determining that you qualify for and can afford a group health insurance plan. Brokers know all the ins and outs of the health insurance marketplace and regulatory compliance and they’ll learn all about your company’s needs too. 

For example, suppose you run a San Francisco tech company with 25 employees. You might not realize that, in San Francisco, all employers with 20, not 50, employees must offer health insurance ― but your broker will. They’ll also use everything you tell them to find potential plans that check all your boxes while ensuring you meet contribution and participation requirements. Once you’ve chosen a plan, your broker will assist you with enrollment as well.

Notably, there’s no legal requirement to work with a broker. That said, doing so is all but certain to reduce administrative headaches and save you hours of invaluable time. After all, brokers are state-licensed ― they certifiably know their stuff. 

The best broker for your business will have great communication skills and a track record of success with businesses of your size. They also don’t charge you for their services. Instead, insurers pay brokers via commissions based on the plans the brokers sell. However, your plan’s potentially high premiums may reflect insurers’ broker payment costs.

3. Consider alternatives to brokers.

The average small business will fare best working with a broker to obtain group health insurance, but other options exist. For starters, you can directly contact insurance companies to discuss coverage. The best human resources outsourcing services and best professional employer organization service providers can also set up coverage with leading insurers on your behalf. 

There’s also the option to explore the Affordable Care Act (ACA) group insurance marketplace or pursue a self-funded group health plan. The reason brokers are the most trusted option is that they offer robust expertise, handle tedious tasks, provide great recommendations and oversee legal compliance. Their all-in-one, cost-free approach is a uniquely powerful solution for most small businesses.

4. Add supplemental insurance and health benefits.

Optionally, you can expand upon your health insurance with dental and vision plans, as well as flexible spending accounts (FSAs), health savings accounts (HSAs) and health reimbursement arrangements (HRAs). These extra inclusions are best to roll in early during your registration process, but you can incorporate them at any time. 

Your broker can guide you through dental and vision insurance setup while private companies offer HRAs, HSAs and FSAs. You may also want to speak with your broker about setting up Consolidated Omnibus Budget Reconciliation Act (COBRA) insurance to temporarily cover employees who leave your company.

5. Sort out employee eligibility.

Whether you enroll in group health insurance via a broker or another route, any plan you obtain will come with employee eligibility criteria. Typically, all full-time employees are eligible for coverage. Some insurers may also allow you to offer insurance to part-time employees or, in exceedingly rare cases, independent contractors. 

Your insurer will set eligibility criteria based on the number of hours a potential enrollee works. This distinction is important ― you must offer the same insurance to all team members who work the same number of hours. All your full-timers must receive the same coverage and all your part-timers must as well. However, you can cover full-timers and part-timers differently.

6. Decide when to start covering employees

Once you’re all set up with group health insurance, it’s standard practice to start covering your current participating employees as soon as possible. Typically, that’s the first day of the next calendar month.

Covering new hires works differently since you have the option to postpone the start of their coverage until at most 90 days of employment. This isn’t to say you should dangle insurance in front of new hires as a reward for great performance. Instead, this rule exists solely to give you time to prepare for the additional insurance costs that come with a new hire.

7. Obtain written documentation of employees declining your coverage.

There’s no legal requirement that any employee enroll in their employer’s healthcare plan. Instead, your employees have the right to decline coverage provided they submit a signed waiver of coverage form to you.

Obtaining this form is important ― only with it submitted will your insurer exclude the employee from your total employee count. With a coverage-waiving team member as part of your total employee count but not enrolled in insurance, it’s harder to meet your minimum participation requirements. 

For example, with 13 out of 20 employees enrolled, you don’t reach 70 percent participation. However, let’s say two employees waive coverage, bringing your total employee count for insurance purposes to 18. With 13 out of 18 employees enrolled, you reach 72 percent participation and meet the minimum requirement.

8. Communicate when formal enrollment begins.

When you set up group health insurance, your company gets its own open enrollment period. During this time, your team members can sign up for insurance or modify their existing coverage. Although this period typically spans November to January, it may differ based on when you officially obtain your group coverage plan. Once this period passes, you can officially say that you’ve successfully offered your employees health insurance.

Types of health insurance plans

When searching for an employee health insurance plan, employers have several options. For starters, employers can opt to offer a fully insured health plan or a self-funded health plan. Fully insured health plans refer to coverage provided by an insurance company on behalf of the employer. These plans are regulated by the states. Self-funded plans grant employers more control over the precise design of the insurance coverage and are governed by the federal Employee Retirement Income Security Act (ERISA) of 1974.

What types of fully insured health plans are on the market? Understanding the answer to this question is the first step in deciding whether this type of plan or a self-funded plan is right for your business and employees. There are several types of fully insured health plans from which employers can choose.

Managed care plans

Managed care plans include health maintenance organization (HMO), preferred provider organization (PPO), exclusive provider organization (EPO) and point of service (POS). Each plan varies in terms of costs and services.

HMO health insurance options cover medical services at an in-network provider. The restrictive nature of an HMO plan keeps insurance premiums and co-pays down, said Matthew Gardner, district sales manager at HealthMarkets.

PPO plans are far more flexible, Gardner said, but come with higher premiums and co-pays. Sometimes employees might be required to pay out-of-network costs upfront and then file a claim with the insurance company to get reimbursed.

EPO plans provide health insurance coverage that only extends to providers within the plan’s network. Except in an emergency, EPOs only cover the costs of in-network providers, meaning the covered employee would be responsible for the full cost of services incurred from an out-of-network healthcare provider.

Finally, POS plans are a hybrid of HMOs and PPOs. With a POS health insurance plan, employees must first visit a primary care physician. Then, they may obtain a referral for medical services at an out-of-network provider to ensure coverage. However, in a POS plan, employees can use out-of-doctor medical services ― they’ll just be responsible for most or all of the cost.

Indemnity fee for service

Fee-for-service plans, or indemnity health insurance, are highly flexible health insurance policies that permit members to visit any healthcare provider of their choosing for whichever medical services they need. The flexibility of these plans comes with high out-of-pocket costs, Gardner said.

High-deductible health insurance plans

Finally, high-deductible health insurance coverage demands a high annual deductible, which members must meet before becoming eligible for insurer-covered medical payments. However, due to the high annual deductible, members of a high-deductible plan enjoy much lower monthly premiums than those with other types of health insurance coverage.

These plans often include HSAs. HSAs are tax-advantaged medical savings accounts for employees enrolled in a high-deductible health plan. The funds saved in these accounts are not subject to federal income tax and roll over each year if they are not spent, accumulating over time.

Choosing an employer-sponsored health insurance plan

Selecting the right coverage involves a great deal of research on the part of the employer. Balancing cost with the need to find coverage that meets employee needs is key, as well as ensuring that the plans you choose bring your business into compliance with all applicable state and federal laws and regulations, such as the ACA, ERISA and the COBRA.

“There are a variety of factors that go into choosing a plan for employees, including how many employees you have, the ages of those employees, their status and many more,” Gardner said, adding that part-time employees, full-time employees and managerial staff will all differ. “When it comes down to choosing a plan, it is very dependent on the budget you have available for health insurance.”

In addition to budget, employers have to understand the details of the health insurance coverage they’re choosing, including covered medical services, in-network healthcare providers, insurance premiums, co-pays and more.

“The factors an employer should consider when choosing a health plan include the ability to receive information on what is driving the employer’s costs, the ability to implement cost-saving strategies and a long-term strategy for managing the plans’ costs,” said Mike Schroeder, president of Roundstone Insurance. “Other factors influencing the health plan choice include hospital and physician services that are available, plans that encourage the employees to engage with the purchase of their health care and plans that promote a healthy lifestyle.”

According to Misty Guinn, global benefits accounts leader at McAfee, employers should consider the following:

• Company data from previous open enrollment periods including benefit plan elections, employee demographics and healthcare claims data
• Gaps in primary coverage that could be filled by supplemental insurance
• The age and lifestyle circumstances of your employees

“[Health insurance selection] depends on an individual’s personal situation, so what is comprehensive for one employee may not be comprehensive for another,” Guinn said. “For example, if a millennial employee is enrolled in a PPO plan, but they’re generally healthy, they may be spending unnecessary dollars on premiums and deductibles when they may be better suited for an HDHP plan and be investing those funds into a health savings account (HSA).”

“However,” she added, “someone who selected an HDHP [high-deductible health plan] due to the lower premiums may open themselves up for financial risk to meet a high deductible in the event that something happens and medical care is needed. It’s key that employers offer a variety of choices and guide employees into their best-fit plans. The most comprehensive plans are ones that offer voluntary solutions, such as accident or critical illness options, to supplement the individual’s medical plan and provide a financial safety net.”

Employer requirements for offering health insurance benefits

Beyond offering appropriate plans based on the needs of the workforce, employers must keep in mind all applicable laws and regulations. Health insurance is a highly regulated space subject to a wide array of state and federal laws. It’s critical that employers understand their obligations under all laws and regulations that apply to them, which vary depending on company size and location. 

“There are a handful of regulatory requirements you should keep in mind, depending on how many employees you have,” Gardner said. “ERISA, COBRA and HIPAA [the Health Insurance Portability and Accountability Act] are three employers should be aware of. Additionally, there are state regulatory requirements to be aware of that can impact your business.”

The ACA

One of the hallmarks of the ACA is that it requires employers that have 50 or more full-time employees to provide health insurance coverage. The law also established state and federal health insurance exchanges where employers and individuals could purchase health insurance coverage. Employers are also required to adhere to specific reporting options under the ACA.

ERISA

The federal ERISA governs self-funded retirement and health insurance plans to ensure certain standards of employee protection are met.

“When self-funding their employee health plan, employers must become aware of and adhere to ERISA’s rules on protecting employee contributions,” Schroeder said.

The primary requirements employers face under ERISA include an obligation to provide employees with details regarding plan features and funding, as well as setting minimum standards for participation, vesting, benefit accrual and funding. The U.S. Department of Labor (DOL) maintains a guide on employer obligations under ERISA for general reference.

COBRA

Federal COBRA legislation provides workers and their families the opportunity to extend their group health benefits for a limited period in the event they lose their coverage. Generally, COBRA requires employers with 20 or more full-time employees to extend continuation coverage to employees in certain instances where insurance coverage would otherwise end.

Under COBRA, employers and plans are required to provide employees notice of when they might be eligible for continuation coverage. 

HIPAA

Federal HIPAA regulations govern the sharing of sensitive health information and protects it from unauthorized release. In the case of employer-employee relationships, HIPAA governs what information a health insurance provider can share with employers about a covered employee. HIPAA protects medical and health plan records from improper disclosure to protect the privacy of employees.

Educating employees about health insurance benefits

With so many types of plans, health insurance can be a complex topic. Employees often don’t know what type of coverage to choose or what it entails once they select it. Many employees won’t be aware of what their health insurance plan covers at all until they’re at the hospital or doctor’s office. To help ease the pain of the process, employers should offer education and training opportunities around the healthcare plans they make available.

One of the best ways to educate your employees about their health insurance coverage options is to host an open enrollment meeting, which is led by a health insurance broker or plan provider. These meetings explain plan benefits and details to employees during open enrollment periods when they will be selecting their coverage options for the next year.

Ongoing education is important as well, Gardner said, because health insurance benefits can be confusing. Education is also important when it comes to keeping employees healthy, which ultimately drives down costs. Providing employees with opportunities for fitness and nutrition education, as well as stress management services, could help employers’ health insurance costs.

“Most employees have no idea what their coverage entails until they are at the hospital being treated for something. I think ongoing education is key to ensure your employees the details of their plan and help manage their expectations of the benefits available,” Gardner said. “Additionally, I’m finding that many employers are taking it to the next level by educating and encouraging health and wellness in general for their employees. By helping them stay healthy, you can help reduce premiums.”

While selecting employee benefits, especially employer-sponsored health insurance, can be incredibly difficult, doing it correctly can have positive impacts on your business. A strong employee benefits package can increase morale, employee retention and recruitment success. Although employee benefits represent significant expenses, employees who are well taken care of are more productive and loyal, which ultimately makes your company stronger. When it comes to employee health insurance, it’s critical not to cut corners but to choose a plan that marries both cost-effectiveness with comprehensive coverage.

Ensuring great insurance

Although health insurance may seem challenging to find and offer, much of the work ultimately falls to third parties. Plus, when you follow the steps in this guide to choose and implement the right plan, your journey gets easier. When it comes to providing team health insurance, the effort is well worth the reward ― and that effort is often minimal.

Max Freedman contributed to this article. Source interviews were conducted for a previous version of this article.