The Top 3 Health Insurance Options for Small Businesses with One Employee - Capstone Brokerage

By: Amy Pennza, Zane Benefits, April 2018

There are many advantages to running your own business: being your own boss, setting and achieving lifelong goals, doing what you love. This is probably why more than 27 million Americans have decided to become entrepreneurs. But as exciting as it can be to start your own small business, you’ll also face many challenges.

If you run a small business with one employee, you might think you can’t afford health insurance. Happily, this doesn’t have to be the case. Whether you plan to stay solo or you’d like to grow, you have several options for small business health insurance.

1. Group health insurance

Most people think group health insurance is for big companies with dozens or even hundreds of employees. In reality, businesses with one employee can still qualify for a group plan depending on how their state defines “group.”

If the business has both an owner and an employee (making a group of two), insurers in all states are required to issue a group policy. However, if the business has just one employee who is also the owner (a group of one), some states don’t require insurers to issue a policy.

Just because a business of one qualifies for group health insurance, however, doesn’t mean this is the best small business health insurance option. On the plus side, group health insurance is familiar to most people. They believe they know how it works and they understand what to expect. This kind of familiarity can be reassuring.

On the downside, group health insurance is more expensive than other types of small business health insurance. And when you’re running a small business, cost is a major factor when choosing what benefits to offer. In addition to high annual premiums, small businesses pay more for administrative costs.

For businesses owners who plan to hire more people, the prospect of high turnover can also add extra costs. Because group health plans are one-size-fits-all, employees who are unhappy with their coverage may seek greener pastures.

2. Informal stipend

Instead of buying small business health insurance, some companies offer an informal stipend or wage increase, thinking that employees will put the bump in pay toward health expenses. The problem with this approach, however, is that the money is taxable to both the company and the employee. Also, the business can’t be sure the employee uses the money for health insurance.

Additionally, employees don’t consider a wage increase a health benefit. When you consider that 69 percent of job seekers say they might take one job offer over another if it meant getting better benefits, it’s easy to see why informal stipends fall short of formal benefits.

3. Personalized health benefits

So we already know that group health plans are too expensive, too complex, and too one-size-fits-all. And informal stipends don’t really count as a health benefit. So what’s a small business to do? Fortunately, there is a third type of small business health insurance option: personalized health benefits.

With personalized health benefits, companies give their employees a monthly benefit allowance to use for health expenses. There are a couple of reimbursement plans that do this. Depending on the size of the business and whether it intends to grow, the one-person stand-alone HRA or the qualified small employer health reimbursement arrangement (QSEHRA) could work.

For businesses with only one employee, the one-person stand-alone HRA could be a good fit. As the name states, this type of HRA is only available for one participant.

If your business plans to bring more people on board, the QSEHRA is a better fit. Unlike the one-person stand-alone HRA, the QSEHRA is available to companies with up to 49 employees. The company sets an allowance, and employees submit their medical expenses for reimbursement. To get the income tax advantages offered by the QSEHRA, employees must have minimum essential coverage (MEC).

Personalized health benefits make it easy for entrepreneurs and small business owners to budget for medical expenses. Now that you know which small business health insurance options are available, you can make an informed decision about which type of plan best fits your goals.

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