Health insurance is one of the main deciding factors when attracting talent. Historically, small business has been at a severe disadvantage. Is it changing? Yes, but as our story about Gerri will show, the devil is in the details.
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Gerri owns a successful cleaning service. She has been growing her business over the last couple of years. As she has grown, her headcount has risen, and now, she was rapidly approaching the magic number of 50. Once an employer hits 50 employees, that employer must comply with the Affordable Care Act (ACA), also known as Obamacare. She knew she needed to do something, but what?
The Alphabet Soup of Health Insurance
In order to talk about what Gerri decided to do, we need to take a detour through alphabet soup that is the U.S. Employer-based healthcare system. If you think Universal Healthcare is a new idea, think again. Its origins date back to the 1930s, almost 100 years ago.
If you want to skip over the history and options, you may. They are there for reference.
Brief History of Employer-Based Healthcare
Employer-based healthcare arose due to the worker shortage caused by World War II. It was a means to attract workers and remains this way until today. In the 1960s, Medicare and Medicaid were instituted. This created the four-tiered system we have today: the poor, the aged, the employed, and the uninsured. With the demise of manufacturing, the share of the uninsured rose and coverage of the employed worsened. This accelerated until the passage of the Affordable Care Act of 2010.
ACA (Affordable Care Act)
This federal law instituted the employer mandate. It requires companies with at least 50 or more full-time and full-time equivalent employees (ALEs) to provide affordable health coverage or pay a penalty. Much of the other elements were never enacted, and the remainder has been significantly weakened. Leaving us the morass of suboptimal options we have today
A Brief Summary of Options
If you have less than 20 employees, your options are limited. Group coverage is usually too expensive. You are likely better off with reimbursing employees, who carry their own coverage. There are two programs available to you. QSEHRA (Qualified Small Employer Health Reimbursement Accounts) and the new ICHRAs (Individual Coverage Health Reimbursement Accounts). Both allow you to reimburse employees for their personal health insurance premiums up to set limits. QSEHRA has maximum limits set by the government while ICHRA is set by the employer.
With more employees, more options are available. There are the classic group plans. As much in healthcare these past 4 years, uncertain reigns. Aside from the group plan, the remaining options are uncertain and in legal limbo.
Depending on the route you take, there are several options for reimbursement. First, there is EBHRA (Excepted Benefit Health Reimbursement Accounts). These are employer-funded plans used to supplement coverage. EBHRAs can be used by employees to pay for co-pays, deductibles, and other non-covered items. Second, there are HSAs (Health Savings Accounts), which allow tax-free contributions that can be used for qualified medical expenses. Lastly, there is ICHRAs, as discussed above. All have limits, and each varies. They can be used in combination although ICHRAs and EBHRAs are somewhat redundant.
Back to Gerri and Her Healthcare Benefits
Sorry for the detour, but it was necessary to understand what she chose to do and why. Gerri did want to deal with the uncertainty around the non-ACA compliant plans although the price was steep. The only viable plan was a high-deductible plan. She wasn’t thrilled with it. Therefore, she decided to institute both HSAs for employees to help offset the costs and EBHRA to supplement the policy. Even so, the cost high, and it created a drag on her profitability. Gerri needed to rethink her business model to see how she could drive more profit to offset these costs, which ranged in the hundreds of thousands