How to Administer Small Business Health Benefits
By: Christina Merhar (Zane Benefits) August 2015
As a small business owner or manager, you’re a jack-of-all trades. With so many demands on your time, managing health benefits cannot, and should not, be a full time job. That’s why when it comes to evaluating small business health benefit options, it is not just about the line item expense. Administration time is also an important factor to consider.
In this how-to guide, we’ll discuss administration options for small business health benefits and what these options mean to your healthcare and personnel budgets.
Small Business Health Benefits Administration
How a small business administers health benefits largely depends on the type of benefits offered. There are two main ways to approach health benefits administration.
1. Group Health Insurance Policy
Group health insurance is a type of policy purchased by an employer and offered to eligible employees of the company, and to eligible dependents of employees.
The premium cost is typically split between the employer and employee, and there is a minimum percentage rate the employer must contribute to the premiums.
Small businesses can purchase a group health insurance through a broker, online, or through the new ACA Small Business Health Options Program (SHOP) Marketplace.
The Cost of Group Health Insurance
In 2014, the average cost to cover a single employee with group health insurance was $502/month or $6,025/year. For family coverage, group health insurance cost $1,403/month or $16,834/year. These costs are generally split between the company and the employee.
How to Administer
With most small group health insurance policies, a fair amount of the administration is taken care of by the insurance company, broker, or organization the insurance is through (e.g. a trade organization). The small business, however, still has administrative functions to complete including:
– Selecting and purchasing the policy
– Employee education
– Employee enrollment and termination
– Health plan notices distribution
– Annual renewal
For many small businesses, managing a health insurance policy, as well as dealing with unpredictable annual rate increases, creates too much of an administrative burden. So, there is a second option for small businesses.
2. Individual Health Insurance Reimbursement
The second option for small businesses to offer and administer health benefits is with individual health insurance reimbursement.
With individual health insurance reimbursement (also called “premium reimbursement” or “defined contribution”), the business sets up a formal reimbursement plan to give employees a healthcare allowance. Employees select (or keep) the plan of their choice and are reimbursed by the business up to the amount available to them.
The Cost of Individual Health Insurance Reimbursement
With a reimbursement program, the business can set any amount to contribute to employees’ healthcare; there is no minimum or maximum amount.
The cost of individual health insurance will vary by employee. On average in 2014, individual health insurance cost $346/month or $4,152/year before premium tax credit discounts. In 2014, 87% received tax credits and paid, on average, only $82/month across all types of plans – or $984/year.
How to Administer
With individual health insurance reimbursement, the business simply manages the reimbursement plan and employees choose and manage their own health insurance. Administrative tasks the business needs to complete include:
– Setting up a formal reimbursement plan
– Employee education
– Employee enrollment and termination
– Health plan notices distribution
Conclusion
When considering health benefits administration time, the type of health benefits offered is an important consideration. With a group health insurance policy, the small business is more involved in the purchase and selection of the health insurance. As a result, administration time is higher. With individual health insurance reimbursement, the small business has less of an administrative burden. With the right healthcare reimbursement software, businesses can expect to spend five to 10 minutes a month administering health benefits.
