Guide to Health Insurance for Startups

Insurance of any kind is a valuable safeguard for startups and small businesses to protect the company and its employees. While choosing to provide health insurance for employees isn’t always required, it can help maintain a healthy workforce and even result in tax credits for your business. 

Setting up health insurance plans for your startup can be a chore, but it doesn’t have to be. This guide walks you through why you should consider offering healthcare for your startup team, what you need to consider before choosing group health insurance, and how to set up group health plans for your startup.

There are several reasons startups should offer health insurance benefits to their employees. From government requirements to an increased candidate pool, these are the potential advantages of a comprehensive health insurance plan for startup employees. 

Compliance 

Your startup may be required by the state (or federally) to provide health benefits to your employees. This requirement varies state by state, with some requiring it if your startup has over a certain number of employees or if your employees are working full-time. Be sure to check state and federal requirements for providing employee healthcare. 

Tax Credits 

You may even be eligible for a tax credit through the Small Business Health Options Program (SHOP) Exchange, which was established through the Affordable Care Act. With SHOP, your business may qualify for tax credits of up to 50% of your plan's premiums just by offering a small business health insurance plan through this service. 

Increase Candidate Pool 

By offering attractive benefits for employees, you are likely able to recruit and retain top talent. With many competitors likely offering health, dental, and vision coverage for their employees, offering similar to more attractive benefits for employees may help your startup compete in the hiring arena. 

Increase Productivity 

If an employee is sick or overwhelmed by the cost of medical care, they are likely going to be less productive. Offering health insurance alleviates this stressor, helping employees heal from sickness sooner and decrease medical-related stress, making it easier to focus on their role. 

Long-Term Benefit 

Finally, offering robust health benefits to your employees has long-term benefits such as a positive company culture and higher retention rates.

Before you dive into looking for health insurance plans for your startup, there are a few things to clarify that will make your search quicker and easier, as well as ensure you're choosing health coverage that fits the needs of your startup and its employees. 

Location

Some healthcare plans are location-specific, meaning they can only be used in one state or region. If your staff resides in various locations, you need to be sure to find an insurance plan that offers coverage in all areas you’re planning to extend benefits to. 

Cost 

While it is possible to only pay a percentage of the premium for your employee’s healthcare, it will still cost your startup money to establish group health insurance. Review your budget and determine the amount you’re able to pay for healthcare benefits; this will help you more easily navigate choosing your health plan as well. 

Type of Coverage

Lastly, you need to be clear on the type of coverage you plan to offer employees. This primarily means choosing to offer additional health benefits such as dental and vision coverage as well as the health plan.

This also involves determining how many package or plan options you want to offer employees. If you are a small, early-stage startup, you typically only need to offer one plan. However, if you have a large team, it may be helpful to offer a few different plan options for your employees.

Once you have an idea of the type of health insurance plans you're looking for, as well as your budget, you can start setting up health insurance for your startup. First, you need to choose an insurance broker to act as a liaison between you and insurance companies, then select a group health insurance plan.

Your insurance broker is the liaison between the health insurance company and your startup. Finding a great insurance broker for a business can eliminate headaches, ensure you’re getting the right plan for your startup, and troubleshoot issues that may arise along the way. 

It is important to note that you are not required to utilize an insurance broker. You can opt to connect with an insurance agent directly to select your policy if you know the health insurance company you want to select a plan from. 

Insurance Broker vs. Insurance Agent 

An insurance agent represents the insurance company, or several, and provides information about the health insurance policies available from that company specifically.

A broker, alternatively, represents whoever is seeking health insurance. This means they can shop around for the best group health plans from a variety of insurance companies as they don’t represent one in particular. 

Utilizing a broker provides you with your own representative, who is an insurance expert even after you’ve selected a plan. However, they are compensated a commission fee that is a percentage of the policy premium, so you will need to keep that in mind.

Whether you are choosing to hire an insurance broker or work directly with health insurance companies through an agent, you will need to select a health care plan. There are several types of health insurance plans for small businesses and startups to choose from. 

Preferred Provider Organization (PPO) Plans

The most common type of small business health insurance is a PPO plan. This plan allows members to seek care from in-network and out-network healthcare providers, with the health plan covering a higher amount of care received through in-network facilities. 

The biggest benefit of this health plan is the range of care available to members, from primary care to specialists to outpatient surgeries. The drawback is that members are required to pay a copay for both in-network and out-network care. 

Health Maintenance Organization (HMO) Plans 

An HMO plan leverages a network of physicians to provide primary care services as well as referrals to specialists as needed. 

A positive of the HMO health plan is that they are often lower-cost than other small business health insurance options and can provide continued care that promotes more consistent, personalized care. However, these plans can also be limiting if members have difficulty finding practitioners in the HMO network. 

HSA-Qualified Plans 

Health savings accounts (HSA) are bank accounts that allow members to save pre-tax income for future medical expenses. An HSA-qualified plan is a type of PPO plan that is used exclusively with HSA accounts.

This plan offers several tax benefits, including saving pre-tax income for medical expenses and paying for medical expenses with the money saved. The downside, however, is these plans typically also require high deductibles. 

Indemnity Plans 

Indemnity plans allow plan members to seek care at any medical facility they want for medical incidents. The plan will cover a percentage of the medical charges, however, employees will be responsible for paying some upfront expenses and applying for reimbursement from the insurance company directly. 

This health insurance plan has some benefits, including flexibility and cash payments for qualifying events, however, it isn’t ideal for employees with preexisting conditions or anyone wanting more standardized health coverage.