If you run a small or growing business, deciding how to offer health benefits for your team can be daunting. With so many options available, it’s challenging to know which approach will align with your business goals while keeping your employees happy. Whether you’re stepping into health benefits for the first time or reevaluating your current plan, understanding key options is essential.
This blog is designed to help you make sense of the three main approaches to offering health benefits—Stipends/ICHRAs, Group Plans, and PEOs. We’ll explore the pros and cons of each and guide you through the decision-making process.
Why Health Benefits Matter for Your Business
Providing health benefits isn’t just about complying with regulations—it’s a strategic move for any business. Employees rank health insurance as one of the most valued workplace benefits. Offering health coverage shows your team that you care about their well-being, which boosts morale and loyalty.
For businesses with fewer than 50 employees, offering benefits isn’t legally required, but it can be a significant differentiator when attracting and retaining top talent. By investing in health benefits, you’re investing in the people who make your business thrive.
Comparing the Three Approaches
There isn’t a one-size-fits-all solution for health benefits. The right option depends on your company’s size, budget, and priorities. Below, we’ll examine each option with an overview of how it works, its advantages, and what businesses need to consider.
1. Stipend/ICHRA (Individual Coverage Health Reimbursement Arrangement)
The Stipend/ICHRA option involves reimbursing employees for their health expenses, allowing them to choose their own insurance plans. Employers can either provide these stipends post-tax or offer tax-free reimbursement through an ICHRA.
How It Works
- Employers set a fixed dollar amount for reimbursement. Employees use this money to purchase individual insurance plans or pay for health-related costs.
- With an ICHRA, reimbursements are tax-free, provided they meet specific IRS regulations.
Pros
- Cost Control: You decide the reimbursement amount, maintaining control over your budget.
- Flexibility for Employees: Employees can pick plans suited to their personal needs, boosting satisfaction.
- Ease of Entry: For small businesses unfamiliar with benefit programs, this is an accessible starting point.
Cons
- Limited Plan Coverage: This option relies heavily on the availability and quality of individual plans in your area.
- Taxable Option: If choosing a stipend over an ICHRA, the funds provided are taxable for both employer and employee.
- Employee Burden: This approach places the responsibility on employees to select their own plans, which can be challenging for those who lack experience or knowledge about evaluating the best options for their needs.
Best For
Smaller businesses or startups aiming for simplicity, cost predictability, and minimal administrative work. If you have a diverse team with varying health needs, stipends/ICHRAs may also be a good fit.
2. Group Health Insurance Plans
Traditional group plans offer a centralized way to provide health coverage to your entire team. These plans require partnering with a broker or insurance provider to purchase a single plan everyone can join.
How It Works
- Businesses work alongside brokers or providers to set up a group insurance policy offering standard benefits to all employees.
- Employees enroll in the plan selected by the employer.
Pros
- Tax Savings: Group plans are tax-free for both the employer and employees.
- Employee Trust: Employees are familiar with this structure and typically value the consistency of a group plan.
- Scalability: As your business grows, scaling group plans is straightforward.
Cons
- Higher Costs: Premiums for group plans are typically higher than those for individual health plans.
- Less Flexibility: Employees lose the ability to choose their own insurance options, which can be an issue for teams with diverse needs.
- Administrative Complexity: Setting up and managing group plans often involves more paperwork and compliance obligations.
Best For
Small businesses with growing teams interested in providing traditional health benefits. If you want a widely trusted option and are willing to handle the administrative responsibilities involved, group plans are a strong choice.
3. Partnering with a Professional Employer Organization (PEO)
PEOs go beyond health benefits, functioning as an all-in-one solution for HR management, payroll, compliance, and more. Through a PEO, you gain access to large-group health insurance plans at competitive rates, leveraging their buying power.
How It Works
- Businesses partner with a PEO that becomes a co-employer, effectively sharing employee management responsibilities.
- PEOs offer access to their network of large-group plans and handle administrative tasks like compliance and payroll.
Pros
- Access to Robust Plans: Employees benefit from high-quality group insurance plans at lower rates.
- Streamlined Administration: PEOs handle everything from payroll to compliance, saving you time and stress.
- Scalability: PEOs are great for businesses expanding across states.
Cons
- Higher Fixed Costs: PEO solutions typically come with higher base costs compared to handling benefits yourself.
- Limited Flexibility: The PEO may restrict your choice of health carriers or plans.
Best For
Businesses seeking a comprehensive HR solution or those expanding into new regions. PEOs are particularly effective for companies with multi-state operations needing to stay compliant with a variety of regulations.
Deciding What’s Best for Your Business
Choosing the right health benefits model depends on factors unique to your business. To narrow your options, consider the following steps:
1. Evaluate Your Business Goals and Budget
Take stock of your short- and long-term business goals. If your priority is simplicity and cost management, stipends may be ideal. For businesses with larger budgets focused on employee retention, group plans or PEOs could make more sense.
2. Understand Your Employee Demographics
Identify what matters most to your team. Do they value flexibility in choosing their plans, or would they prefer the convenience and reliability of a group plan? A quick employee survey can provide clarity.
3. Analyze Growth Trajectory
If you’re on a fast growth track, choose a scalable solution like a PEO. Alternatively, if your team size is likely to remain small, stipends or a more straightforward group plan may suffice.
4. Partner With Experts
Navigating the world of health benefits alone can feel overwhelming. Partnering with brokers or organizations that specialize in health benefits—like PairPEO—can help simplify the process and ensure compliance.
Take the Leap
Choosing the right health benefits for your team is an investment in your business’s future. By thoroughly evaluating your needs, goals, and team preferences, you can find an approach that aligns with your unique circumstances. Whether you opt for a simplified stipend, a trusted group plan, or a comprehensive PEO solution, the key is to prioritize your team’s well-being.
View our infographic on offering health benefits for the first time for a quick overview.
