If you’re a small business owner considering offering employee health benefits for the first time, congratulations! This is a significant milestone that not only supports your team’s well-being but also strengthens your company’s ability to attract and retain top talent. While it may seem like a complex undertaking, breaking it down into manageable steps can make the process much easier.
This beginner’s guide will walk you through why health benefits matter, outline the three main options available, and provide practical advice for getting started.
Why Offering Health Benefits Matters
Small businesses with fewer than 50 employees aren’t legally required to provide health insurance. However, making this investment can deliver significant benefits.
Providing health benefits shows employees that you value their well-being, which improves job satisfaction and boosts loyalty. It’s also a competitive advantage—job hunters often prioritize health benefits when evaluating job offers. For growing businesses focused on building a strong, motivated team, offering health benefits is a win-win.
The Three Main Approaches to Offering Health Benefits
When it comes to providing health insurance, there are three primary approaches to consider:
1. Stipend/ICHRA (Individual Coverage Health Reimbursement Arrangement)
This option allows you to give employees a fixed amount of money to purchase their own health insurance. It can be done either on a tax-free basis through an ICHRA or as a taxable stipend.
How it Works:
- Employees choose their own health insurance plans based on their individual needs.
- Employers reimburse employees for premiums or medical costs up to a predetermined amount.
Benefits:
- Provides flexibility for employees to select personalized coverage.
- Gives employers control over costs by setting a fixed reimbursement amount.
Considerations:
- Taxable stipends are simpler to administer but lack tax advantages.
- This option works best in areas with strong individual health insurance markets.
Best For: Small businesses looking for simplicity and cost control, especially teams with diverse health insurance needs.
2. Group Health Insurance Plans
Offering a group health plan involves working with a broker or benefits platform to set up a policy that employees can join. These plans are managed and provided directly by your business.
How it Works:
- Employers partner with an insurance broker or provider to organize the plan.
- Employees enroll in the pre-selected group plan.
Benefits:
- Familiar and widely trusted by employees.
- Provides tax-free benefits for both employers and employees.
Considerations:
- Higher premiums and fewer plan options might be a downside.
- Providing group plans may require more administrative effort during setup.
Best For:
Startups and growing small businesses with larger teams who are interested in offering traditional, trusted health coverage.
3. Partnering with a Professional Employer Organization (PEO)
A PEO goes beyond health benefits by handling other aspects like payroll, HR, and compliance. With a PEO, you can access large-group health insurance plans at competitive rates.
How it Works:
- The PEO essentially co-employs your employees, taking over HR and benefits management.
- Businesses gain access to more robust benefit packages through the PEO’s group buying power.
Benefits:
- Competitive rates for health benefits.
- Streamlined HR, payroll, and compliance under a single umbrella.
Considerations:
- PEOs may have higher fixed costs compared to other options.
- Some limitations on medical carrier flexibility may exist.
Best For:
Businesses looking for an all-in-one HR and payroll solution, especially those with multi-state or operations setting up in the U.S.
Practical Tips to Get Started
Taking the first steps toward offering health benefits can feel daunting, but it’s manageable with careful planning. Here are actionable tips to simplify the process for your small business:
1. Assess Your Business Needs
Before choosing a health benefits plan, evaluate your team size, growth plans, and budget. Small teams may benefit from stipends or ICHRAs, while larger teams might find group plans or PEOs more relevant.
2. Know Your Budget
Decide how much you’re willing to invest in health benefits. Stipends offer cost predictability, while group plans and PEOs may require more financial commitment. Knowing what you can afford will narrow down your options.
3. Understand Employee Preferences
Talk to your employees to learn about their insurance needs. Personalized plans through stipends or ICHRAs may work better for diverse teams, whereas some employees may prefer the familiarity of a group plan.
4. Work with a Professional
Leverage the expertise of brokers, like PairPEO, to guide you through the process. They can offer valuable insights into compliance, plan selection, and administration.
5. Prioritize Scalability
If you anticipate your business growing, select a health benefit option that allows for flexibility. Stipends or PEOs are particularly good for adapting to changing team sizes.
The Long-Term Benefits of Offering Health Coverage
Providing health benefits may seem like a significant expense upfront, but the long-term payoffs make it worthwhile. Employees who feel valued are more likely to stay with your business, helping you retain top talent and reduce turnover costs. Additionally, offering benefits can create a positive company culture where employees feel supported and motivated to perform their best.
Offering health benefits for the first time is a big step for any small business, but it’s one that can deliver significant rewards, from increased employee loyalty to long-term business success. A PEO broker like PairPEO can make this process easier by helping you find the right solution tailored to your budget and team’s needs.
View our infographic on offering health benefits for the first time for a quick overview.
