How to Start Health Benefits for Your Small Business in Colorado (2021 Beginner's Guide)

f you are thinking about offering healthcare to your employees but don't know where to begin, you've come to the right place.  In this guide you'll learn about all the options available to you as a small business owner, and all the factors you need to consider as you make a decision on health benefits for your employees.

With health benefits being the most important, most expensive, and probably most complicated benefit you will offer as a business owner, it's easy to get overwhelmed quickly.  But, don't worry because it is not as hard as it seems, and it is worth the effort!

While businesses of less than 50 employees are not required to provide health benefits, small businesses with a thoughtful health benefits package have healthier, more productive, and more loyal employees, and have an easier time recruiting and retaining their staff.

So, let's make this process as easy as possible and get started!

1. Understand your health benefits options

• Small Group Insurance Policies
• Health Reimbursement Arrangements
• Self Insurance
• Medical Cost Sharing
• Direct Primary Care

2. Survey your employees and their health needs

3. Determine your healthcare budget and discuss tax planning with your accountant

4. Getting started

About the Author

You might be wondering why a family medicine doctor is giving business benefits advice. A few years ago, I would have wondered the same thing, but then I started my direct primary care (DPC) practice.

As a DPC doctor I actually care for a number of small businesses and their owners as part of their benefits package.  I have quickly learned what is working and what is not working for business owners, and with my inside knowledge of the healthcare system I have helped guide employers to a health benefits solution that works best for them.

And so, I hope this guide is a useful resource for you and your business!

Understand your options

PPO. SHOP. HMO. QSHERA/ICHRA/EBHRA.  There's a lot of options to consider and it's easy to get lost in the alphabet soup of health benefits.  But, at it's core, there are just a few basic choices for you to understand to get started.

Small Group Insurance Policies

These policies are what people typically think of when they think of employer sponsored healthcare, and this is essentially traditional health insurance.

‍Networks‍

Small group policies can be categorized by what "network" of doctors and providers your employees will be able to choose from:

• PPO - Preferred provider organization - These plans typically have the largest network and least restrictions on who your employees can see.  People can typically see specialists without a referral, and there is usually some type of out of network coverage.
• EPO - Exclusive provider organization - This is like a PPO but with a more restrictive network, and often no out of network coverage.
• HMO - Health maintenance organization - These are completely self-contained and self-managed networks, and referrals are typically required for any specialist care.

PPOs are typically the most expensive, and HMOs the least.  In my experience HMO's tend to provide lower quality healthcare because medical decisions are based on whatever is cheapest for the HMO, with very little say being given to individual doctors or their patients.   However, many businesses like them because of the lower cost.

Metal tiers‍

You can offer bronze, silver, gold, and sometimes platinum tiers of insurance coverage to your employees.  These are differentiated by the monthly cost, called the premium, and the amount your employees will need to pay before the insurance coverage kicks in, called the deductible.  Bronze has the lowest monthly premium, but the highest deductible.  Gold (and platinum) have the highest premiums, but the lowest deductible, and may cover more services before even hitting the deductible.

Employer contribution and affordability

‍As a small business, you are not required to contribute to your employee's monthly premiums, however there are a number of reasons why you should.

First off, your contributions may be tax deductible.  Tax law is complex so talk with your accountant about any tax benefits, more on this below.

Second, without a contribution, your employees may not be able to afford the coverage you provide.

Lastly, your insurance plan may require 70% of your eligible employees to sign up for the plan.

Also consider whether you will cover your employees spouse or dependents under your policy as this could affect how much you need to contribute.

Pros vs Cons of Small Group Insurance Policies

Pros

• Potential for tax savings
• Guaranteed coverage for your employees
• Relatively easy to implement

Cons

• Expensive and will likely increase in price each year
• Plans may be unaffordable for your employees

The cost of small group policies is often a huge barrier to businesses, and is the reason many small businesses do not offer any health coverage.  Don't worry though, there are other options to consider that may be a better fit.

Health Reimbursement Arrangements (HRA)

HRAs are great tools to help your employees with healthcare expenses, while providing flexibility for employers to contribute what they can afford, in a tax advantaged way.

With an HRA, an employer sets aside money for each employee every month to reimburse that employee for eligible healthcare expenses.  This money is tax-free for both the employer and employee. There are a few different types of HRAs:

QSEHRA - Qualified Small Employer HRA

QSEHRAs are only available to businesses under 50 employees who do not offer a group insurance policy, and if you offer a QSEHRA you must offer it to all full time employees.  You can contribute a maximum of $5,250 per year per employee ($10,600 per family)

ICHRA - Individual Coverage HRA

An ICHRA is essentially a less restrictive QSEHRA.  It is available to businesses of any size, and there are no caps on contributions.  An ICHRA can be offered to certain classes of employees, and not others, and contribution amounts can vary between employee classes and family size.  Additionally, group health insurance can be offered to one class of employee, and an ICHRA to others, as long as one group is not offered health insurance and an ICHRA.

EBHRA - Expected Benefit HRA

An EBHRA can be offered by companies of any size, but must be offered alongside group health plan coverage.  There is a cap to employer contributions of $1,800 per year.

While you can set up and run an HRA yourself, this really is not a DIY project.  There are a lot of rules and patient privacy issues to navigate through.  I strongly recommend signing up with an HRA administrator who will run the program for you.  A quick online search for HRA administration tools should point you in the right direction.

Offering a QSEHRA or ICHRA to your employees creates an open enrollment period, so you can get started at any time.

Pros vs Cons of HRAs

Pros

• Tax savings for you and your employees
• Flexibility to create a plan that fits your business budget
• Any unused funds are kept by your business if an employee leaves

Cons

• Healthcare expenses that are reimbursed to owners of the business typically have to be reported as income, and are not tax free for the owner.

As much as I love HRAs and the flexibility they provide to small business owners, the next option can be an even better fit for the right small business.

Self Insurance

In theory, this is the simplest healthcare option.  As an employer, you simply pay cash for your employee's medical expenses.  No insurance plan needed.

I hear you small business owners, this sounds terrifying.  Not only do you need a pile of cash to pay for healthcare claims on day 1, but you are at tremendous risk if your employees get sick.  And yes, this option has typically only been used by very large corporations who can absorb the financial risk.

But, there are ways for small businesses to self insure without needing money up front, or incurring the risk.  The benefit? You can save a massive amount of money.

So let's discuss level funding

With level funding you are still technically paying for your employee's medical expenses, but you have a stop-loss insurance policy that will kick in once your business has paid a set amount of claims each year and will cover the remainder of the claims, so you are limiting your risk.

Also, instead of having to pay all of the claims up front, with a level funded plan you pay a set amount per month to a plan administrator who will essentially run the program, and will front the money to pay your employee's claims for you as they come in.

The best part about this plan?  If you have a year where your claims are low, you will not hit your stop-loss limit, and are refunded all (or a portion) of the difference between your stop-loss limit and your actual claim costs.

Confused?  Check out this chart:

As a primary care doctor, I get really excited when people and companies are rewarded for staying healthy.  Since businesses are often refunded money at the end of the year, healthcare costs with a level funded plan are frequently 30% less than with traditional group health insurance, and can get even lower when paired with high quality preventive healthcare like I provide with DPC.

So, while it can be complicated to understand, and complicated to get set up, it can absolutely be worth the effort to set a level funded plan up.

Note that the more employees you have, the more this type of plan makes sense, but I have seen these plans work with as few as 3 employees.

To get started, get in touch with a skilled broker or plan administrator who is used to setting up and running these types of plans.

Pros vs Cons of Level Funded Health Plans

Pros

• Potential for tremendous savings
• Customizable to your business's exact needs
• Flexibility for your employees in how they seek care

Cons

• Can be complicated to get set up
• Can be subject to premium increases like a group plan

While self insurance can save employers a healthy chunk of change, this next option provides employers a solution that is, dare I say... affordable?

Medical Cost Sharing

Medical cost sharing has become more popular lately as health insurance becomes unaffordable for individuals and businesses.  Cost sharing groups are typically priced 50% less than traditional group health insurance.

Medical cost sharing groups are nearly identical to health sharing ministries, but without the religious component.  They take their member's monthly contributions and add it to a large shared pool of money.  When a member has a medical expense, money is taken from this pool to reimburse the member.  Cost sharing groups have safeguards and rules in place to ensure that the pool of funds will not run dry.

How are medical cost sharing groups so much less expensive?  Members are encouraged to pay cash for their medical care (we've written about how this is always cheaper than using insurance (LINK)).  In addition, administrative costs are much lower than insurance.  Unfortunately, there are limits to pre-existing conditions, and while that lowers the cost, it can also leave some of your employees without help if they have large medical expenses.

I also need to mention, that the typical protections offered by the government with insurance plans do not apply to cost sharing.

These plans are easy to set up, and can be started anytime.  I have had the best experience with Sedera Health, check out their business plans here.

Pros vs Cons of Medical Cost Sharing

Pros

• 50% less expensive than group health insurance
• More affordable for your employees when they do need care
• No restrictive networks, your employees choose where they receive care
• Easy to set up

Cons

• No coverage or delayed coverage on pre-existing conditions
• Lack of regulatory protections
• May be an adjustment for your employees to get used to asking for cash pricing

So far I've discussed ways that you can provide health coverage for your employees, but getting and affording actual healthcare is largely on them.  What about ensuring your employees can actually get cared for when they need it?  That's where DPC can help.

Direct Primary Care

Direct Primary Care (DPC) is the new kid on the block for business healthcare, but it is experiencing exponential growth as employers learn about it.  DPC not only saves employers money, but it also provides concierge level healthcare to their employees.

In fact, the State of Colorado provides a DPC option to all their employees, and saved over $1.4 million on healthcare costs, or $47 per member each month last year.

Numerous school districts, local governments, large corporations, and countless small businesses have also signed their employees up for Direct Primary Care, and almost all of them renew their memberships each year. 

So what is Direct Primary Care? DPC takes fee for service healthcare and throws it out the window.  For a monthly fee, a DPC doctor will provide virtually unlimited primary healthcare for all of your employees for no extra cost.  DPC practices typically offer convenient options like same day appointments, telemedicine, or even on site clinic days for larger employers.  They provide at cost medications, lab testing, and will also help your employees navigate the health system to find cash based pricing if necessary.

Numerous studies have shown that employees are healthier, incur less medical expenses, and are more satisfied with, and loyal to, their employers when they are offered direct primary care.

Direct primary care also significantly reduces employee absenteeism, especially in the time of COVID-19, because employees get same day access to care (and potentially care right from the workplace), when they are ill.

DPC can be offered as a sole health benefit to provide employees with primary care at an affordable price, or integrated into any of the previously discussed options to form a more robust and comprehensive benefit package:

• When offered with traditional insurance, employees get high quality care, employers save money on taxes, and insurance renewal rates typically decrease as healthy employees utilize their insurance less.
• When offered with an HRA, employees can typically join a DPC practice with before tax dollars.
• When paired with a level funded plan, healthy employees translate into a large year end rebate for employers.
• When paired with cost sharing employers can often get a discount on their monthly contributions.

Pros vs Cons of Direct Primary Care

Pros

• High quality healthcare that is affordable for employees and for businesses
• Flexible healthcare is more convenient for employees and employers, resulting in less absenteeism
• Employees have lower out of pocket medication costs with a DPC practice
• Healthier, more loyal employees
• Easy to set up, can be offered in combination with other health plans

Cons

• Is not an insurance policy and if offered alone will not cover employees for major health expenses
• Tax treatment is not well defined by the IRS in certain circumstances

Now that we've discussed all of the options in detail, how do you figure out which one is best for you?

Survey Your Employees and Their Health Needs

Imagine going through all the work of researching, designing, and signing up for a health plan for your employees, only to have no one sign up.

Now that you know what your options are, find out what your employees need and value most in a health plan.

Family Coverage

What percentage of your employees have family members who need coverage?  Does anyone get coverage from their spouse?

Even if you aren't planning on paying for coverage for family members, it's important to discuss it with your employees, because it will definitely affect who joins your plan and who doesn't.

Pre-Existing Conditions

This applies mainly to selecting a medical cost sharing plan, since they do not typically help with pre-existing conditions, at least not in year 1.

Obviously don't break any labor or privacy laws trying to find this information out.  As small business owners, we generally have a good, close relationship with our employees and tend to know if they have any health concerns that may need to be considered for when designing a health benefits plan.

If you know an employee has a pre-existing condition they are getting active care for, or a long term medication they are taking, it's best to consider small group plans or HRAs, not medical cost sharing plans.  With a very small business, a level-funded plan may not be financially doable if you know an employee has a lot of medical expenses.

Direct Primary Care should be strongly considered in this case, since your employees will get very high level care and will likely improve their health as a result.

Affordability

It's really important to make sure your employees will be able to afford the plan you are designing.

I'm talking about the monthly premiums, and the out of pocket costs to get care.

The average employee with employer-sponsored healthcare will pay about $1600 in monthly premiums, and $1050 in out of pocket costs each year.  Obviously that increases with significant others or families on the plan.  Bronze plans have the lowest monthly premiums, gold and platinum have the highest premiums

If your employees can't afford the premium, they won't sign up.  If they don't sign up, your business may not be eligible.  So don't skip this discussion.

Also, consider that employees may avoid going to the doctor if they can't afford the out of pocket costs associated with your plan. So you may be paying all or a portion of their monthly premium, but they won't get any benefit from your health plan if they can't afford to use it.

Gold plans tend to have lower out of pocket costs than bronze when dealing with group health plans.

HRAs can be a great way to overcome the affordability issue since the money in those accounts is provided by you, the employer, and must be used for healthcare.

Direct Primary Care also gets around this issue, because the healthcare your employees get will be largely free of cost.

Specialized Care

If you know one or more of your employees needs to receive specialized care or has a group of specialists they need to see, think twice before signing up with an HMO, or EPO, which have very limited networks of doctors.

Keep this in mind if designing a level-funded plan as well, as you will want to make sure you allow access to a large network of doctors.

Medical cost sharing typically does not restrict who you see, although the pre-existing condition limitations may still be a factor.

Determine Your Healthcare Budget and Discuss Tax Planning with Your Accountant

Healthcare is usually the largest benefits expense a business will have, so make sure you have looked at your budget and what you can afford.  Also look down the road, because almost all healthcare options will increase in cost each year.

Traditional group health insurance is by far the most expensive option.  The average employer contribution is just under $4,000 per person per year with group plans.  Costs tend to increase around 4% each year, but varies with your local market.

Level-funded plans come in a bit less expensive, how much less depends on how you plan is setup, and how much you utilize it.

HRAs offer the most flexibility, by allowing you to decide how much you are contributing.  They remain an excellent tool for businesses with limited budgets to start offering health benefits, and a great tax advantaged tool for businesses regardless of budget.

Medical cost sharing tends to be the least expensive option, and is a great choice for certain businesses, especially with more limited budgets.

Direct Primary Care is one of the most cost effective ways to actually provide healthcare to your employees (as opposed to just providing coverage).  By keeping employees healthy, you can also use DPC to decrease the cost of your other coverage by decreasing utilization.

Tax Planning

With the exception of medical cost sharing, all of the options discussed can provide a tax break for you and your employees.  Since I am not a tax professional, I would recommend talking with your accountant about this topic.

If you purchase an insurance plan through the government's Small Business Health Options Program (SHOP) (more on that below), there are tax credits available to you.

Getting Started

Congratulations, now you're practically an expert on health benefits!

Just kidding, there's a ton more to know.  But you do know enough to get started and set up your health benefits program.

A skilled, independent health broker is a great place to start.  They have a ton of options to offer and can be creative in helping you find a solution that works for your business.  Get a good recommendation from other local business owners to find a broker whose interests are aligned with you and your business.

Natalie Leiker, a broker in the Littleton area who has helped a number of my patients, advises that "knowing when to make changes, evaluate your coverage or enroll in a new benefits plan is very important. While the open enrollment period for the individual market is November 1st- January 15th in Colorado, group health plans can be started or changed any time during the year. So if you're unhappy with your current coverage you do not have to wait until your renewal date to find something that fits your needs and the needs of your employees better. Additionally, a new HRA setup or eligibility change during the year opens a special enrollment period for most employees."

Natalie has also set up supplemental or ancillary insurance plans for individuals and small businesses that can be combined with any other option and can also be started at any time. Brokers like Natalie can also help connect you with HRA administrators if you decide to go that route with your benefits program. Feel free to get in touch with Natalie here if you'd like more advice.

If you're more of a DIY person, you can visit the government's Small Business Health Options Program (SHOP) website to browse available options. You can also search online for tools that can help with setting up an HRA if you would like to go that route.

If medical cost sharing seems like it is a good fit, reach out to Sedera to learn more about their group, or a knowledgeable health broker can also help you set up cost sharing.

And finally, if you are interested in Direct Primary Care learn more about DPC on our website. If your business is in the Denver or Littleton, CO area, get in touch with us, we're always happy to chat with interested business owners.

If you found this guide useful, please share the article, or link to us from your blog or website.  Best of luck, and congrats on taking the first step to offering health benefits in your small business!

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