Updated for 2024
Running a small business comes with countless decisions, and navigating health insurance options can feel overwhelming, but it doesn’t have to be.
Whether you’re considering offering health insurance for the first time or looking to improve your current benefits package, understanding these 5 essential facts about health insurance can help you make informed decisions for your business and employees. From tax advantages to recruitment benefits, here’s what you need to know about health insurance in today’s business landscape.
Health Insurance Facts: What Every Small Business Owner Should Know
1. Employee Benefits Offer Tax Advantages to You and Your Employees
You are most likely familiar with the fact that you can claim a business deduction for the wages you pay employees. However, you may not be aware that other benefits can also be deducted, like health insurance.
Plan contributions you make on behalf of employees for health insurance, life insurance, and pension plans are usually deductible. (Check with your accountant and tax advisor.) Beyond that, you may be able to get better personal health insurance through a group plan at a lower cost than an Individual & Family Plan (IFP).
You can also offer employees a Premium Only Plan (POP) that reduces your company’s payroll taxes, lowers your workers’ compensation premiums, and increases your employees’ income.
Because your employees’ share of eligible insurance premiums is paid with pre-tax dollars, and they have lower FICA, federal, and state tax deductions on their paychecks, employees have more take-home pay – which makes them happier and, often, more productive.
If your business employs fewer than 25 full-time equivalent employees, and you contribute at least 50 percent of the premium cost for health insurance for each employee, you may be eligible for a Small Business Health Care Tax Credit. You can learn more on the HealthCare.gov website.
2. The ACA Is Still the Law
While we don’t know what will happen with the approaching election, or how a Congress will feel about eliminating or updating the Affordable Care Act (ACA) in 2025, right now it is still the law. The federal employer mandate continues for Applicable Large Employers (ALEs). That’s a business with 50 or more full-time or full-time equivalent employees. The ACA requires ALEs to offer “affordable” health insurance that provides minimum value to 95% of full-time employees and their dependents, including children through age 25. Businesses that do not offer qualified coverage are subject to potential penalties, as outlined in this 2024 infographic developed by KFF (formerly the Kaiser Family Foundation).
For smaller employers (with fewer than 50 full-time/full-time equivalent employees), there’s no requirement to provide employees with health insurance. However, many smaller employers choose to offer coverage for the reasons discussed below.
3. Employee Benefits Are a Recruitment Tool
Health insurance is among the most-requested employee benefits according to multiple surveys by Glassdoor and the Society for Human Resource Management (SHRM) as well as insurers. Employers of all sizes recognize the recruiting value of health insurance. They also know that it helps them retain current employees.
SHRM research in 2024 found most employers (97%) offer some kind of health plan to employees. A majority (82%) offer Preferred Provider Organization (PPO) plans. Sixty-three percent offer high deductible health plans (HDHPs) paired with a Health Savings Account (HSA), health reimbursement arrangement (HRA), or Flexible Spending Account (FSA).
Eighty-eight percent of employees consider health benefits to be “very important” or “extremely important.”
In 2024, according to KFF, most insured workers shared the cost of health insurance with their employer. Those working at small firms, on average, contribute a slightly lower percentage of the premium for single coverage than workers at larger firms; 14% as compared to 16%.
Insured employees at smaller firms contribute a much higher percentage of the premium for family coverage than workers at larger firms; 33% as compared to 23%. Contribution amounts vary based on plan type (PPO/HMO/HDHP) and region of the country.
For a detailed summary of the premium contributions by employees and employers, read the full report on the KFF website.
4. Health Insurance Is Appreciated by Employees and Returns a Good ROI
According to a 2024 report published by AHIP, a health insurance trade group, more than 180 million Americans get their health coverage through their jobs. Employer-provided coverage delivers affordable access to care and peace-of-mind. An Avalere Health study found that employers with 100 or more workers saw a 47% return on investment (ROI) for offering health coverage in 2022. That ROI is expected to jump to 52% by 2026, according to estimates from Avalere.
5. You Can Offer Employee Benefits and Control Costs
Cost of health insurance and other employee benefits is a primary concern for most employers. However, there is a way to offer employees the health insurance they want, while controlling your benefits budget. It’s called Defined Contribution.
With Defined Contribution, you can select a Fixed Percentage or a Fixed Dollar Amount toward the cost of coverage for all of your employees. If you choose a Fixed Percentage, you can choose from 50% to 100% of the cost of a specific health plan or benefit. If you choose a Fixed Dollar Amount, you select what amount you want to contribute to your employees’ health insurance premium.
If an employee selects a health plan that costs more than you contribute, the employee simply pays the difference. Employees have the freedom to choose the health plan that’s right for them, and you’re still able to lock-in your benefits budget. At renewal, you can adjust your contribution or continue the same contribution for another 12 months.
Get Expert Guidance From a Health Insurance Broker
An employee benefits agent can help you research your options and find the right health plan to fit your employees’ needs and your budget. If you do not have an agent, you can connect with one in your area by going here.
