Do insurance companies have to sell health insurance to my small business?
With few exceptions, small businesses (two to 50 employees) cannot be refused health insurance coverage in Virginia. This is called guaranteed issue. In addition, an insurance company cannot cancel the policy because someone in your group gets sick. This is called guaranteed renewability. However, the insurer can rate-up, or increase, premiums, which is the amount the plan costs per month. This site helps you explore lower-cost options.
Important Facts to Know
Insurers can require that a minimum percentage of eligible workers participate in a group health plan.
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Employers can use such factors as full-time (greater than 30 hours per week) versus part-time to determine which employees are eligible for coverage.
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Eligibility cannot be based on the health status of employees or dependents. Non-discrimination rules prevent an employer from requiring sick employees or dependents to pay more for coverage because they are sick.
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Insurers may require employers to pay a minimum share of employees’ premiums.
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Insurers can refuse to renew coverage for non-payment of premiums or when an insured party commits fraud.
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What are my options
if I'm self-employed?
In most states, the laws governing health insurance sold to self-employed individuals are different from those for small businesses. In 2003, federal tax law began allowing self-employed individuals to deduct the full cost of health insurance from their adjusted gross income. Federal law does not require all insurance companies to sell coverage to self-employed individuals, and does not require guaranteed issue or guaranteed renewability.
What are the tax advantages to me and my employees if I purchase health insurance for my company?
Tax advantages considerably reduce the cost of health insurance. Say that your firm employs eight people, with seven dependents total. Everyone participates in the insurance plan, and the total yearly premium is $48,000.
Without tax advantages: Employer’s cost for premium = $33,600 per year
With tax advantages:
Employer’s cost for premium = $33,600 – 40% = $20,278
(assuming the firm is in the 27 percent tax bracket)
Savings in income tax per year = $9,072
Additional savings in FICA and state taxes = $4,250
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The employer is taxed on the difference between revenue and expenses. Because health insurance premiums are an expense, the profit is less, resulting in income, FICA, and state tax savings. Employees can deduct premium costs from their pre-tax wages, resulting in tax savings to them.
What are the tax advantages to an individual who purchases health insurance in the individual market?
If you’re self-employed and purchase self-only or family coverage, you receive the same types of tax advantages as a small business owner:
- federal income tax savings at your income bracket
- 15.3% FICA tax savings (because you must pay the employer’s and the employee’s share)
- state income tax savings at your state income tax bracket
What types of insurance plans are available to my company?
The two most common are:
- PPOs (preferred provider organizations)
- HMOs (health maintenance organizations)
Are there any alternatives to traditional insurance available to my small business?
Yes. HSAs (health savings accounts) and HRAs (health reimbursement arrangements) are two alternatives to traditional insurance coverage. They let employers or employees set aside pre-tax income to pay for medical expenses. These funding options are typically combined with a higher-deductible and lower-premium health insurance policy. Participants can use account funds to pay the deductible and additional, allowable medical expenses. More information on these options is available in the section, Alternatives.
How much does health insurance cost?
The cost varies widely depending on the type, size, and location of your business. It also depends on the features of the plan you select. The health status of employees and dependents may affect the group’s premium when you buy or renew coverage.
The main price consideration is the monthly premium, which is the amount shared by the employer and the employees. Insurers set premiums annually and may alter these rates based on inflation of medical expenses, the number of employees and dependents covered, and changes in coverage benefits or the portion of cost employees must pay. Employees typically elect to pay their share of the premium through pre-tax payroll deductions. That discounts the employee’s premium and makes health coverage more affordable.
Insurers may consider health status in determining a firm’s premium. This process is known as medical underwriting. A firm’s premium could increase, sometimes substantially, when one or more workers or dependents have a pre-existing medical condition. Non-discrimination rules prohibit excluding employees or dependents with high-risk health factors from participating in the plan, as long as they meet participation eligibility requirements. More information is available in the section, Beyond Perfect Health.
What is provider choice?
Provider choice refers to the degree to which you can choose among doctors and other health care providers located in your geographic area.
Typically traditional health maintenance organizations (HMOs) have
restricted provider networks and require a referral to see a specialist.
POS HMO plans allow patients to go outside of the provider network. An
open access plan HMO or Point
Of Service (POS) plan
allows a patient to self-refer to a specialist. Preferred provider organizations
(PPOs) allow the broadest access to providers, both by having larger
networks and allowing access to out-of-network providers.
What is the relationship between premiums, employee cost sharing and provider choice?
In general, plans with lower monthly premiums require higher employee out-of-pocket expenses. Conversely, plans with higher monthly premiums require lower employee out-of-pocket expenses. This chart shows the relationships under different plan types.
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Part 1: Insurance Basics