Health insurance options for small business owners
My firm, Lasting Wealth Principles, does not sell any insurance products, but I still believe that having the proper health insurance is particularly important for small business owners. Deciding on the type and amount of health insurance to purchase depends on an individual’s specific financial circumstances. Health insurance protects small business owners and their families from the costs of medical care, which continue to rise. If a small business owner does not have health insurance, it could only take one medical emergency or illness to completely derail their progress towards business and personal financial goals. As I go through the insurance planning part of my financial planning process with small business owner clients, I review their current health insurance and evaluate whether it could be beneficial to choose another option. I provide a list below of health insurance options for small business owners that include Individual Health Insurance Plans, Small Business Health Options Program, Spouse’s Employer-Sponsored Plan, Association Health Plans, COBRA coverage.
Individual Health Insurance Plans
Small business owners (self-employed with no employees) can purchase individual health insurance plans directly from insurance carriers or through the health insurance marketplace. These types of plans allow the flexibility to find health insurance coverage that has desired benefits from preferred doctors and hospitals. Also, these plans offer several coverage options and premiums, which means small business owners can find plans that specifically fit their needs and budget. Another feature of these plans is the ability to renew or change the health insurance plan annually.
Small Business Health Options Program (SHOP)
Small business owners (1-50 employees) may have the opportunity to enroll in Small Business Health Options Program (SHOP) plans. These types of plans can be purchased through an insurance company or with the assistance of a SHOP-registered agent or broker. Small business owners can choose the level of coverage they want to offer to employees and then let their employees select the plan that works best for them.
SHOP insurance provides flexibility as it allows small business owners the following options:
Offer their employees one plan or let them choose from multiple plans
Offer only health coverage, only dental coverage, or both
Choose how much to pay toward their employees' premiums and whether to offer coverage to their employees’ dependents
Decide how long a new employee is required to wait before enrolling in coverage
These health insurance plans available to small business owners offered through SHOP are considered high quality and affordable as they are from private insurance companies, cover essential health benefits, and are not allowed to exclude coverage for treatments for pre-existing conditions. Note that small business owners should also check SHOP availability in their state as some states may use their own websites for enrollment and management of SHOP coverage.
Spouse's Employer-Sponsored Plan
In many situations, a small business owner is married, and their spouse has access to employer-sponsored health insurance coverage. In this case, it could be economical for a small business owner to join their spouse’s health insurance plan as a dependent. Depending on the details (premiums, benefits, coverage options, etc.) of the spouse’s employer plan, making this decision can be cost-effective. I illustrate below with a hypothetical example.
Mark and Brenda have been married for five years. Mark previously worked at a corporate-type job in marketing and Brenda is a teacher (with excellent health insurance benefits). With the support of Brenda, Mark finally took a leap of faith by resigning from his high-paying corporate job and launching his own marketing consulting firm. Since Mark no longer has access to employer-sponsored health insurance coverage through his previous corporate job, he decided to join Brenda’s health insurance plan as a dependent. With Brenda’s health insurance plan providing excellent coverage, this decision was very cost-effective for Mark’s business (i.e., not having to enroll in his own health insurance coverage) and family.
Association Health Plans (AHP)
Association Health Plans (AHP) allow small business owners (including those who are self-employed) the opportunity to join together and increase the number of participants to purchase health insurance as a large group, which can potentially result in lower premiums and better coverage options (e.g., negotiating better rates from healthcare providers and insurers). Note that there are eligibility requirements (see below) for an association to provide coverage to self-employed individuals.
Satisfy the association’s membership criteria that is a “commonality of interest,” which can be either related to profession or the location where the business operates
Satisfy basic conditions regarding his or her work, which can involve the number of hours worked or relate to a certain level of income
COBRA Coverage
If a small business owner recently left a job that had employer-sponsored health insurance, then COBRA continuation coverage could potentially be an option. The benefit of COBRA would allow continuation of the same health insurance coverage that was provided through the previous employer, but the drawback is the responsibility of paying a higher premium amount.