Are you stressed out or just plain confused by health insurance? Whether you’re newly self-employed or running a small business with employees, evaluating your health insurance options can be overwhelming. In this article, we break down whether you qualify for an individual or corporate policy, and how to evaluate which options are right for you in 2024.
Do I have to offer insurance?
As of this writing, as an individual not employed by a company with 50 or more employees, you may not be required to have health insurance.
While the federal government no longer has an individual mandate, California, Massachusetts, New Jersey, Rhode Island, Vermont, and the District of Colombia do. (Or you can pay an annual penalty.) If you live outside those six states, as an individual, you can go without coverage, or choose limited coverage plans based on your state’s insurance rules.
As a small business owner, if you have 49 or fewer US employees, you are not required to comply with the Affordable Care Act.
However, you might decide voluntarily to offer health insurance as a competitive hiring benefit, or because you believe it’s the right thing to do. If you are a regular user of the health system, you may also want insurance for yourself.
How do I know if I qualify for an individual or corporate plan?
You can offer a corporate insurance policy as long as you have one full-time (30 hours per week) W-2 employee who is not an immediate family member or your dependent.
If you only have yourself or members of your family working in the company, you will not qualify for a corporate policy.
What terms do I need to know before I get started?
American health insurance includes a full meal of both alphabet soup and word salad. Let’s cover some terms.
ACA: Affordable Care Act. Sometimes called “Obamacare,” this legislation became law in 2014 and established a new standard for individual insurance. The law established exchanges to shop for health plans, and eliminated consideration of pre-existing conditions, gender identity, and pregnancy status in setting prices and terms.
ALE: Applicable Large Employer. This is the HR term for companies with 50 or more employees. It is also used as a standard for determining how much of the cost of health insurance that these employers can pass on to their employees. While these requirements are unlikely to apply to you, ALE is a good reference if you’re concerned about competing for talent.
Co-pay: An amount you pay a provider directly for a service visit.
Co-insurance: An amount of the insurance company’s negotiated rate that you’ll pay out of pocket for medical services. Co-insurance is often related to hospital stays and major medical events.
Deductible: An amount you’ll need to pay beyond your premium before insurance covers the full cost of a service.
HMO: Health management organization. A closed system of healthcare providers that you must use in order to activate your insurance coverage.
Inflation Reduction Act: A 2022 law that extended ACA exchange subsidies through 2025, updated ALE plan affordability standards, and capped household premium costs for benchmark Marketplace plans.
MEC: Minimum Essential Coverage. A plan that meets the current minimum federal requirements for ACA compliance. Most states and pre-tax programs require employers to offer MEC-compliant plans.
Out-of-pocket maximum: The amount per year for an individual or family that, when reached, means you’ve paid the most you can pay for the year. Once you reach OOP maximum, you will only be billed for your monthly premiums, regardless of any ongoing medical needs.
PPO: Preferred provider organization. A network of providers who have agreed to a preferred pricing structure with an insurance company, and still pays something if you choose a non-network care provider.
Premium: The monthly payment to keep your insurance in force.
What plan types are available?
Plan pricing structures are categorized as high-deductible (HDHP), Bronze, Silver, Gold, and Platinum.
High-deductible plans often appeal to the self-employed because they have the lowest monthly premiums. Consider these risk factors before choosing a high-deductible plan. You must choose a high-deductible plan if you want to use a health savings account (HSA). Consider discussing these options with your financial or tax advisor.
Bronze has the next lowest monthly cost but has high deductibles, co-pays, and out-of-pocket maximums. Silver and Gold have lower deductibles and co-pays and may have larger provider networks.
Platinum is the most expensive option, but has no deductibles or co-pays.
You will also need to decide on what type of provider network you need. Plans can be limited network, HMO, or PPO.
Limited networks are often local plans with a small list of providers or a single hospital system. HMOs are closed networks of providers within a state or provider system. In both cases, your insurance will only pay for your services if you choose a provider from their list.
PPOs provide more flexibility with preferred benefits for in-network providers, as well as some coverage if you choose out-of-network providers. If you have employees in more than one state, you’ll be required to carry a PPO.
Individual Coverage
How do I get coverage as an individual?
If you’re a freelancer, solopreneur, or solo LLC / S-corp owner with no full-time W-2 employees, you will purchase insurance on the individual market.
Your options are:
- Buy a plan from a state or federal exchange / marketplace
- Purchase a plan directly from an insurance company or through a health insurance broker
As an entrepreneur, you are more likely than ever to qualify for a federal premium subsidy. Subsidies are based on your family size and household income, up to 400% of the federal poverty line.
With that in mind, I recommend you try an exchange first.
Healthcare Exchanges
Exchanges are marketplaces of ACA-compliant medical, dental, and vision plans. Your base medical premium includes annual preventative exams, pregnancy care, well child visits and children’s dental, and access to national emergency care. Providers cannot ask whether you have pre-existing conditions or differentiate premiums based on your gender. Cost is based solely on your age.
You’ll use Healthcare.gov or your state’s exchange. Before you start, you’ll need to know your expected 2024 adjusted gross income (AGI) and other income sources for your household. Your expected income will be used to pre-qualify you for a premium subsidy or even your state’s Medicaid plan.
Once you know your subsidy status, you’ll see a variety of plan selections. Compare coverage, providers, premiums, and additional out-of-pocket cost levels to help you choose the right plan for you. 2024 out-of-pocket maximum for Marketplace plans is $9,450 for an individual and $18,900 for a family.
Healthcare.gov’s 2024 open enrollment runs November 1 – January 15. (You’ll need to enroll by December 15 to start on January 1.) State-specific exchanges may have shorter or longer enrollment windows. Make sure you know your marketplace and deadlines.
Direct Market
If you don’t like your exchange options, you can try the direct market. Many insurance companies offer plans directly to individuals. Brokers can survey the marketplace and provide direct purchase options. Because direct plans can deviate from ACA requirements, you may save money.
Visit the website of the specific insurance company you want to use. Look for “individual and family” coverage options.
If you’re working with an insurance broker, give them your preferred parameters and carriers. Brokers are paid by the company where you place your insurance. Your premiums will be the same whether you do the work or the broker does, so if this is overwhelming, engage a qualified health insurance broker.
Remember, direct purchase plans may not be MEC- or ACA-compliant. If it matters to you, ask. If you’re not planning to get pregnant or are a cis man and don’t have pre-existing conditions — as in, you’ve never even had a sinus infection — you can roll the dice and save some money.
Pre-tax payment
If you’re self-employed, your company can pay your health insurance premiums — including those for your spouse and kids up to age 26 if you’re the primary on the policy — as a tax-deductible expense. Simply set up the recurring payment to your company bank account or credit card.
Corporate Coverage
Corporate insurance policies for January 1 are available from November 1 annually through brokers and insurance companies. Your corporate policy discovery will start with a series of plan design questions.
Do I qualify?
The first question is whether you’ll qualify for a group policy. For medical insurance, you must have at least one full-time W-2 employee who is not a member of your family. (Some PEOs and plans have higher requirements, but that’s the legal threshold.)
If all of your employees are family members, each person 27 or older will need an individual policy.
Corporate dental policies typically require at least three participants.
Can I make it affordable?
As a corporate plan sponsor, the ACA requires you to pay 50% or more of the employee’s premium for the lowest priced plan you offer. Two more considerations are participation and competitiveness.
Participation: If you don’t get enough employees to sign up, you won’t be able to take this plan for yourself, either. So consider whether your team can afford to pay 50% of the premium for the plan you want to offer.
ALE competitiveness: If you want to hire talent away from larger companies, you may want to pay more than 50%. ALEs must meet an affordability standard that does not exceed 8.39% of the lowest paid employee’s gross pay. For 2024, that’s $101.93 per month. Many ALEs also offer spousal and dependent subsidies. Once you set your coverage amounts in your plan, they are locked for the year.
Is my remote team covered?
Do you have employees across the US? Most small group plans haven’t caught up. They’re designed for your home operating state, with everyone else “out of network” or “PPO network” for their care.
Ask your broker or carrier how employees outside your home state will access plans and medical providers. A strong provider in your home state – such as Kaiser in California or Oxford in New Jersey – may not exist in other places. Does the plan have a national network of providers? How will your remote employees access care? If you need a truly national plan, consider using a PEO (more below).
How much support do I want to provide?
If you provide the insurance, your team will consider you, the owner and CEO, as the HR department and plan administration expert. Do you want to talk to them about their medical choices? About whether their kid needs braces? About the co-pay for mental health or substance abuse counseling? About coverage for that out-of-state abortion? These are real questions I’ve gotten as the “HR department” for my clients.
If highly personal conversations are not your cup of tea, consider sticking to qualified reimbursement or an outsourced solution.
How do I make this a big win with my team?
If you’re new to offering corporate benefits, you can add them at any time of year. But please be respectful of the time, tax, and financial impacts on your employees. When you add benefits outside of an annual calendar cycle, you can really mess your team up financially by resetting their annual deductibles. Something that you expected to be a big win might turn into an angry all-hands pretty darn fast.
Also, please plan your offerings by November 1. If you will be offering any amount of healthcare support, clearly tell your employees by October 31. It’s a huge pain to roll back or change an exchange plan. Many companies will not return the first month’s premium, which could cost your employee thousands of dollars.
Now that I know I’m qualified, what are my options?
You have three ways to offer small business corporate benefits: QSEHRA, company-sponsored plan, or PEO.
QSEHRA
If plan design and underwriting feel like too much, or your employees all want different things, a Health Reimbursement Account (HRA) can be a great option. The most common is called a QSEHRA (pronounced cue-SARAH), for Qualified Small Employer Health Reimbursement Account.
A QSEHRA is an IRS-approved program in which you reimburse your employees for plans and expenses of their choice, tax-free to both sides.
How it works: You choose the reimbursement amount, anywhere from $1 to the current maximum of $487.50 per month for an individual or $983.33 per month for families. (Maximums change annually in October.) You also choose whether the reimbursement is insurance only, or if it includes qualified healthcare expenses.
Your employees choose individual plans and provide proof of MEC-compliant insurance to the QSEHRA administrator. The administrator manages the reimbursement amounts and sends you a monthly summary to add back to payroll. Your team will provide your QSEHRA administrator with their receipts, so you never see any details of their healthcare choices. You only pay out for the actual expenses your employees submit.
You pay the administrator a fee (typically $50-$100 per month) plus a small amount per enrolled employee. They provide you and your employees the documentation needed annually to recognize these costs as pre-tax expenses.
As a beneficial owner (over 2%), you cannot participate in a QSEHRA. But you can still pay your own healthcare premiums pre-tax through the company. See above in the individual section.
We use Take Command Health as our administrator. If a QSEHRA intrigues you, learn more here.
Company-sponsored plan
Through an exchange, direct buy, or insurance broker, you can choose an ACA-compliant plan for yourself and your team. Check out sample SHOP plans from Healthcare.gov.
How it works: While the legal standard is one W-2 employee, some carriers or plans may require more participants. You must pay at least 50% of the employee’s base premium, based on their age. At your discretion, you can pay up to 100% of the premium for your employees and their dependents. Depending on your industry or local market, you may need to cover more costs or provide a higher tier of plan to be competitive. (See above on affordability.)
Corporate plans typically offer more services at a lower cost than the individual market. Many include mental health and alternative practitioners like acupuncturists and chiropractors. You may also be able to add coverage for fertility treatments.
Note that if you qualify with one W-2 employee and that person subsequently takes another job, you get to keep the corporate plan for the rest of the calendar year.
Professional Employer Organization (PEO)
A PEO is a specialized HR company that can bundle many small businesses together for insurance buying power. Most offer national health plans from one or more major carriers. If you want to offer multiple plans or compete with the Fortune 500 (and get their scale discounts), a PEO will often be your best access option.
PEO packages may include perks like concierge medical, no-cost telemedicine, and coverage of fertility treatments. Please note that PEOs are NOT required to follow ACA-compliant underwriting. If you have a heavily female workforce of reproductive age, you may pay a lot more for a PEO.
How it works: A PEO acts as a “co-employer” with some rights over your management policies and procedures. To access PEO health insurance, you’ll need to sign up for their payroll and compliance services. You’ll be charged a monthly fee per employee, in addition to at least 50% of your employees’ base level health insurance premiums.
If you’d like to start your benefits on January 1, 2024, you should choose a PEO as soon as possible for open enrollment before December 7. Two PEOs to consider are JustWorks and Insperity. Learn more.
In conclusion: why is this so hard?
Health benefits are one of the most confusing, expensive, and complex things you will do as an American small business owner. Until you can step back from your role as medical insurance provider in favor of a public option (register to vote!), we’re here to help you align your benefits to your culture, strategic growth plan, and budget.
And if you’re from outside the US, bless your heart for your curiosity. Yes, this is how we do health insurance in America, and you will too if you decide to employ people here.
We know this is hard. We take live questions in our monthly Ask Me Anything (AMA) sessions with Jill James. Access is exclusively for our list subscribers. Sign up to receive our next invite.
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