Insurance is one of the least exciting things about starting a business. Even though we’re biased as a small business that helps match people with the coverage they need, we understand that most business owners aren’t looking forward to figuring out what’s right for their business.
If you have any questions, give us a call at 858-703-6178. Use the table of contents below to jump to that section of the article.
- Group Health Insurance
- Group Dental Insurance
- Group Life Insurance
- Group Vision Insurance
- Group Disability Insurance
- Workers’ Compensation
- General Liability & Property Insurance
- Small Business 401(k) & Retirement Plans
- How Abrams Insurance Solutions Can Help
Group Health Insurance
Since 2016, the Affordable Care Act requires businesses of more than 50 full-time employees to offer health insurance. It also has provisions for when you provide health insurance coverage.
While that’s a straightforward rule on the surface, the complexity increases once you start accounting for health insurance types, tax breaks/assistance, and state regulations. Some states even allow “group of one” coverage. (More on that below.)
There are some general rules for meeting compliance requirements to keep in mind. If you offer coverage to any full-time employees, you must offer coverage to all full-time employees. The same rule applies to part-timers.
Most insurers will allow coverage for spouses and dependent children under these plans. Some states and some companies also count unmarried domestic partners as dependents.
Premiums and Cost Sharing
You can choose what percentage of premiums you cover for your team. Most employee retainment advice points out that the more premium you cover, the more likely you are to reduce turnover.
However, for small businesses, the cost can be a significant factor in the decision making. Whatever you pay toward premiums is entirely tax-deductible.
As a small business, you can get a tax credit if you pay at least half of the premiums for your group health insurance. This only applies to small companies with 25 or fewer full-time employees making less than $50,000 a year.
Components of Group Health Insurance
First, look at the premiums. Spreadsheets make this easy.
Then compare the deductibles, co-pays, and coinsurance amounts for each plan. Which gives your team the most value for your dollar? No sense paying for awful insurance, right?
Next, you’ll look at the plan type. Health Maintenance Organization (HMO) and Preferred Provider Organization (PPO) are the most common types you’ll see. There are also:
- Point of Service (POS)
- High Deductible Health Plans (HDHP)
- Fee-for-Service (FFS)
- Health Savings Account (HSA)
Health Maintenance Organization (HMO) – These provide network only service, excepting emergencies. The insurer will have a Primary Care Physician (PCP) for the majority of needs. The insured must go through their PCP for a referral before they’re able to see an in-network specialist. These are typically the plans with the lowest premiums.
Preferred Provider Organization (PPO) – These plans allow the insured to visit both in and out of network doctors. However, the percentage of the visit cost the insurer covers is lower for out of network providers. The advantage is the insured doesn’t need a referral from their PCP to see a specialist, saving time and gatekeeping frustration. The premiums on PPOs tend to be among the highest out of all of the plan types.
Point of Service (POS) – The insured can access both in and out of network services through a POS plan. However, they will most likely need a PCP’s referral for an out-of-network visit. It’s a good mix of dependability on a PCP for overall health and options for issues requiring a specialist. Like the plan is a mix of HMO and PPO, the premiums also fall between those two.
High Deductible Health Plans (HDHP) – These are modified versions of the HMO, PPO, or POS described above. They work like the selected style above, but have lower premiums with much higher deductibles. It would be smart to combine this strategy with a Health Savings Account (HSA).
Fee-For-Service (FFS) – These are the most flexible of all of the plan types. You can access any medical provider who will take your insurance, regardless of the network. The premiums are even higher than PPOs for the flexibility. The deductibles on the plan vary widely, but the out-of-pocket costs can cause sticker shock to the insured. FFS plans often work on a reimbursement basis, with the insured paying the charges upfront.
Health Savings Account (HSA) – This, combined with an HDHP, allows you to contribute pre-tax income to an account where you can invest and grow the money. You can use the account for anything medical related that isn’t covered by your health insurance. However, there are contribution limits up a certain age. Beyond age 65, you can use the money in the account for whatever you wish. Non-medical reasons will still incur income tax.
Guaranteed Issue Group Plans
All group health insurance plans are guaranteed issue. The insurer assesses the risk based on the group factors and charges premiums accordingly. But they cannot deny coverage. Even so, it’s wise to get comparison quotes from many companies.
“Group of One” Coverage
Some states allow “group of one” coverage for small businesses. However, in most cases, you will need an individual health insurance policy. It’s still worth looking into to see if your state does allow this type of group coverage to make it easy on yourself if and when you expand your business.
Group Coverage for Family Businesses
In most cases, you cannot get a group health insurance plan if your spouse is the only employee in your business. However, if you have other family members employed by your business, that changes the dynamics enough that many companies will offer you a group plan that also covers your spouse.
Remember that if you offer health insurance to even one full-time employee, you must offer it to all of them.
What’s available to small, family businesses will vary between insurers. An agent can help you navigate this route if you decide that it’s right for your business.
Group-Integrated Health Reimbursement Arrangements (HRA)
This is another type of plan that integrates well with an HDHP. The business pays into the plan, which then reimburses employees for qualifying healthcare costs – usually up to their deductible limit on the HDHP.
It can also work as a transition between different group healthcare plans. For example, if you’re changing from a lower to higher-deductible policy, you might put in an HRA to cover the difference in the deductibles. That way, your employees aren’t upset with the change of healthcare because they have to pay more out of pocket.
There are subsections of the HRA like the Qualified Small Employer HRA (QSEHRA) and the Individual Coverage HRA (ICHRA).
Tax Implications of Group Health Insurance
The amount of money you pay toward your employees’ health insurance is tax-deductible. You can also deduct the contributions toward HSAs and HRAs.
For businesses with fewer than 25 full-time equivalent employees, you can also get a 50% credit on your health insurance costs. There are a few stipulations like the average pay being below $53,000 a year, and you must pay at least 50% of the plan premiums.
Group Dental Insurance
Dental insurance can be a key employee perk and, by extension, an excellent retainment tool. Most Americans get their dental insurance (if they have it) through their employer.
However, from an individual perspective, dental insurance doesn’t make good financial sense for many people. It covers some of the cost of going to the dentist, but less than most people desired for work beyond routine cleanings.
Providing a comprehensive dental plan can take the frustration out of dental visits for your team.
Types of Group Dental Insurance
Similar to health insurance, dental insurance falls into networks. And the flexibility of choosing care within or outside of your network affects the type of plan that makes sense for you.
Dental Health Maintenance Organization (Dental HMO) – an insurance style that offers the insured in-network care. Going outside the network is typically not covered.
Dental Preferred Provider Organization (Dental PPO) – Like the medical PPO, this insurance plan allows the insured to choose the dentist they wish to see. The insurance will cover a larger percentage of the cost of an in-network provider. It’s typically more expensive than HMO plans.
Dental Fee-For-Service (Dental FFS or Dental Indemnity Plan) – These plans let the insured pick any dentist they want, and the insurance will pay a pre-determined percent of the cost. This type of policy generally requires more out of pocket payments. Some providers even work on a reimbursement option.
Components of Group Dental Insurance to Consider
Cost to you is the obvious consideration as the business entity. You can choose to cover all, part, or none of the group plan for your company.
Many dental insurance policies have lengthy waiting periods before care is available, although waiting periods are mostly limited to individual plans. This prevents someone from getting coverage, going to their dental appointment, then canceling the plan after the bill is paid.
Deductibles & Co-Pays
Your employees will undoubtedly be looking at the co-pay and deductibles for their dental plan regardless of how much of the premiums you cover. Like regular health insurance, the higher the deductible/co-pay, the lower the premiums typically are.
Unlike regular health insurance, most dental insurance plans have yearly maximums that they’ll cover. These can be shockingly low if you have a team member who needs significant work performed.
What Your Employees Want
Various demographics will want different types of plans. For example, if you hire younger people at lower pay brackets, they will likely be more concerned about the co-pay than younger people who are earning enough to worry less about covering part of occasional care. Likewise, if you’re employing an older population with more health problems or middle-aged adults worrying about their child’s dental health.
Dental Insurance Categories
Dental insurance providers lump dental work into three categories:
The standard for plans covers 100 – 80 – 50 percent. Preventative care such as cleaning or check-ups are entirely covered, occasionally with the co-pay. Basic care, such as fillings, is covered at 80%, and major work like root canals are 50% covered by the insurance.
Voluntary Dental Insurance Plans
Some companies offer group coverage that employees can pay for if they want it. It combines the benefits (lower premiums) of group insurance with the cost savings to the business of having the employees who want it pay for it.
You can set this up to automatically deduct the amount from their paycheck.
Direct Reimbursement Plans
A final option is a direct reimbursement. You’ll need an HR person to administer this plan since it’ll involve your employee submitting paperwork. The employee will pay the cost of dental care at the time. Then they’ll provide the receipt to your HR representative for reimbursement.
This works better for people with better dental health who don’t mind paying out of pocket up front.
Group Life Insurance
Group life insurance is a common benefit offered to employees. These are typically small plans with conditional coverage set based on employer conditions, such as three months of employment before offering benefits.
Type and Benefits Offered
Most companies offer term insurance as part of their group plan. It’s easier to administer and the least expensive type of life insurance. Some employers will provide whole life as an employee benefit, but they have extra administrative complications when an employee leaves and additional stipulations about using the cash value portion.
Death benefits of $50,000 or less are not considered taxable by the IRS. Anything over $50,000 will require the employee to pay taxes.
The majority of policies offer $20,000, $50,000, or a multiplier of the annual salary.
You can offer different life benefits to different groups of employees. For example, you might offer your executives twice their annual salary while offering everyone else a $20,000 death benefit. You could even provide whole life or universal life to your executives and keep the rest of your employees on term.
The decision tends to rest on balancing the employee benefits budget with the need for retention. The last choice on coverage is whether you want the life insurance to terminate or convert to an individual policy upon the employee leaving the company.
Advantages of Group Life
Offering group life insurance to employees enables people to get life insurance who wouldn’t otherwise be able to qualify. Several factors can disqualify someone from individual coverage. More commonly, coverage might be available to someone with health concerns, but the cost becomes prohibitively expensive.
Some plans allow you to offer your employees a group plan, but they can also add more coverage or riders to suit their needs.
The ability to purchase additional gives your employees the option to build sturdier financial foundations for their families. Other benefits, like portability, allow them to keep that savings with them if they decide to move on.
Some companies will require medical questions for add-on coverage, but not medical exams.
Taxes for Your Business and Your Team
The cost of any group life insurance policy up to $50,000 in death benefits does not add any taxes to your employees’ burdens. It also is not something you can write off as a business expense – unless you’re an S-Corp.
The premiums on any group life insurance policy over $50,000 in benefits become taxable to the employee, even if it’s entirely employer-paid.
Group Vision Insurance
Vision insurance often works more like a discount plan than, say, health insurance. Most major eye problems and diseases fall under the purview of group health insurance.
What Vision Insurance Covers
Plans vary widely. Most will cover routine eye exams from in-network optometrists and ophthalmologists. The coverage toward glasses and contacts varies based on the type of policy.
A few companies offer more comprehensive vision coverage that helps cover eye surgery – like LASIK – and diseases.
Types of Group Vision Insurance
These fall into two categories: fixed dollar and fixed discount. Fixed dollar (sometimes called optional coverage) will put a set dollar amount toward eye exams or vision correction. Your employee will have to cover anything beyond that amount.
Fixed discount or ancillary vision coverage covers a set percentage of eye exams and vision correction. Most companies have a 30% coverage. They’ll cover 30% of qualifying services, glasses, or contact lenses. Then, your employee will have to pay the other 70%.
Benefits of Group Vision versus Individual Vision Insurance
Many companies providing individual coverage for vision care impose waiting periods and may not cover pre-existing conditions. Vision insurance does not fall under the ACA’s regulation of offering insurance regardless of pre-existing conditions.
Group Disability Insurance
Disability insurance protects the ability to earn income. Depending on the definition in the contract, if one of your covered employees is unable to do their job, then the insurance company will pay them a portion of their monthly wages for a set period.
This is where weighing the pros and cons of a group plan gets tricky. If you (as the employer) pay for the disability premiums, then the benefits become taxable – and significantly reduced. If the employee pays the premiums with their after-tax dollars, then they won’t owe any taxes on their benefits if they trigger a claim.
Since the maximum benefits available tend to be around 60% of the employee’s income, up to a max of $10,000 (occasionally $15,000) a month, paying taxes on that can make a rough situation even worse. However, paying taxes on some income is still better than no income at all.
Group Short Term vs. Group Long Term
Short term disability insurance pays benefits for up to two years, after a waiting period of 0 to 14 days. This covers accidents or quick recovery illnesses.
Long term disability (despite sounding less helpful to the average person) offers monthly payments for anywhere from 5 years to age 67, after a waiting period of 90 to 180 days. This type of disability insurance will cover someone who is out of work due to something like cancer or an injury needing a lengthy recovery. This type of disability is more common, with 25% of adults meeting the qualifying requirements at some time during their working years.
Short term, because of the shorter waiting period, is also more expensive than long term.
Benefits and Definitions of Disability
The contracts on disability insurance are more complicated than life insurance. Everything hinges on the definition of disability: any occupation, modified own occupation, own occupation.
- Any occupation – insured cannot do any job, regardless of current occupation
- Modified own occupation – current role
- Own occupation – current job, specialty-specific
For example, a doctor would be interested in the difference between modified and own occupation. If they are a brain surgeon and develop a hand tremor, they could still be a general practitioner even if they can no longer do surgery. But for most people, modified own occupation is sufficient.
The benefit amount in the contract gets based on the W-2 income. It does not include bonuses, commission, incentives, etc. It usually covers about 60% of your employee’s salary, although it can be significantly less for well-compensated roles.
Group vs. Individual Disability Insurance
Individual plans offer advantages like portability, specific adjustments, and non-taxable benefits. Group plans can be paid for by the employer and are often cheaper than individual plans.
If you are looking at providing disability insurance coverage for your team, you might consider setting up a multi-life discount for individual plans. That way, your team can get all of the advantages of individual plans with a hefty discount – particularly if you go through a company that has general neutral multi-life policies. That can save your female employees up to 40%.
For multi-life policies, you only need three team members to apply. Insurers tend not to issue group policies unless you’re covering 10+ people.
All states require some level of insurance to cover your employees’ medical care if they’re injured on the job. This can extend to disability payments as well if they need extra time at home to recover.
Because regulations vary widely by state, the best place to start learning what your business needs to provide is the Workers’ Compensation page on the Department of Labor website.
General Liability & Property Insurance
Also called General Liability Business Insurance or Business Liability Insurance, this protects you in the event of property damage, medical payments, and personal & advertising injury. It covers both the cost of any incurred liability and your legal defenses.
- Property damage – covers you if you damage someone else’s property. It could be the place of business that you’re renting. It could be a customer’s real property or a customer’s item
- Medical Payments – covers any injury on your property, regardless of fault. The classic trope of someone slipping on a wet floor and suing a restaurant
- Personal & Advertising Injury – covers you for accidental copyright infringement in your marketing, plus suits for slander and libel
Premiums for small businesses tend to run anywhere from $350 to $2,000+ a year. Like most insurance, if you need more comprehensive coverage and your risk is higher, you’ll pay more. Actuaries will calculate your premiums based on: business type, years of experience, location, size, building condition, and claims history.
Small Business 401(k) & Retirement Plans
Small business owners have several options for retirement plans – either for themselves as a sole proprietor or as a business with under 100 employees. Offering a retirement plan is a great way to attract and retain quality employees. It’s also a wise investment in your future.
If you’re a small business, you may want to consider a safe harbor 401(k) before diving into the traditional 401(k)s offered by larger corporations.
These are more flexible. However, they must also pass the IRS non-discrimination tests each year. The 2020 maximum contribution is 19,500 with catch up contributions of $26,000 for anyone over 50 years old.
Most financial advisors to small businesses recommend a payroll of at least half a million dollars before setting up a traditional 401(k).
Safe Harbor 401(k)
The IRS requires that 401(k) plans pass their non-discrimination tests every year. They aim to ensure that all employees are taking advantage of their 401(k), not just executives or well-compensated employees.
The Safe Harbor 401(k) skips the non-discrimination tests. That way, an accounting mistake can’t put you in the position of owing terrifying amounts in back taxes to the IRS. It avoids the test by having an equal amount of every employee’s compensation matched or contributed to their accounts.
- Basic – You match 100% of contributions, up to 3%. Then you match 50% of the next 2% of compensation
- Enhanced – You match 100% of the contribution up to 4%
- Non-elective – You contribute 3% of compensation to all eligible employees
This IRA is designed for self-employed people or companies with a handful of employees. You can contribute either $57,000 annually or 25% of compensation/net self-employed earnings – whichever is less. It does not have catch up contributions built-in.
The big regulation here is you must contribute an equal percentage of salary for every eligible employee. That includes yourself.
Retirement distributions count as taxable income. You can also deduct your contributions or 25% of net self-employment earnings – again, whichever is less.
The nice part of a SEP-IRA is there is relatively little administration that goes into it compared to other small business retirement plans.
SIMPLE IRA stands for Savings Incentive Match Plan for Employees IRA. It’s the lightweight version of a 401(k) for companies with less than 100 employees. It is much easier than a 401(k) to set up for your team, and often cheaper. However, SIMPLE IRAs require the employer to contribute to their employees’ retirement accounts.
SIMPLE IRAs have lower contribution limits than a 401(k). The 2020 limits are $13,500. Any money an employee wishes to contribute toward their account gets automatically deducted from their paycheck. This reduces their current tax burden, and they will pay income tax on distributions. You, as the employer, will also get a tax deduction on contributions toward the accounts.
How Abrams Insurance Solutions Can Help
We’re a small group of independent agents looking to make insurance as simple as possible. Whether it’s navigating life insurance with a pre-existing medical conditions or looking into group insurance for your business, we aim to assist in creating a stable financial foundation.
To receive a customized proposal, please call us at 858-703-6178 or email firstname.lastname@example.org.