A guide to health insurance for startups

As a small business or startup, navigating the health care system can feel daunting among the other daily tasks and decisions you’re required to make. However, understanding the nuances behind health insurance for startups is important for compliance. Health insurance for startups can be a compelling benefit for new hires, but it can also be costly if you don’t understand your options.

In this guide, we’ll discuss the considerations your team should keep in mind when seeking coverage and finding the best fit for your company’s size and needs. 

Are startups required to provide health insurance for employees?

Under federal law, Applicable Large Employers (employers with 50 or more full-time equivalent employees on average during the prior calendar year) must offer health insurance (U.S. Department of Health and Human Services).

Depending on where your business is based, you should be mindful of other state laws that may apply to your business.

Benefits of offering health insurance as a small business

While you may not be considered an Applicable Large Employer under federal law, there are still advantages to offering healthcare to your employees:

• Tax benefits. Offering health insurance may be tax deductible for the business. Some small businesses or startups might be able to qualify for tax credits.

• Recruiting. In some industries, providing employees with health insurance has become the norm. This can even affect the recruitment process, as some potential hires will prioritize roles in companies with employer-sponsored health insurance.  A survey of U.S. workers by Willis Towers Watson, a multinational insurance advisory company, found that: 46 percent of worker respondents agreed that health benefits were an important factor in their decision to work for their employer. 

• Pre-tax savings. Employees may be able to pay for their coverage using pre-tax dollars, which can save them cash in the long run. 

• Retention. Caring for your employees’ well-being through health insurance coverage is just one way to show appreciation. This goodwill gesture could help retain employees in the long run. Clearly, health insurance is not just a perk but a critical component in attracting and retaining top talent. As a startup, understanding and utilizing health insurance options effectively can set you apart in the crowded marketplace.

Factors to consider for small business health insurance

Interested in insuring your team? There will be several considerations to keep in mind as you shop around for plans. 

Company size or number of employees

As mentioned above, if a company is not an Applicable Large Employer, federal law does not require that it offers health insurance. However, if it is, you’ll need to provide employees with the option of coverage. 

Workforce

Startups often have a diverse workforce, including full-time, part-time, and contract employees. Understanding what kind of coverage this workforce needs might influence your decision-making. The decision to provide health insurance might come down to the makeup of your company’s workforce.

For example, are employees seeking family insurance, or are they single-insured employees? If it’s a mix of both, it could be wise to offer a wide range of options under the plan to cater to the needs of your employee base.

Similarly, depending on the size of your company and state regulations, it might also be possible to offer coverage to part-time employees as well. What’s more, there are more designations than simply full and part-time, as well as ways to cover them. For example, if your company offers ICHRA coverage to both full- and part-time employees, they can offer different plans and reimbursements based on their classification.

Budgets

When you’re looking for health insurance as a startup, you’ll want to consider budget from two fronts: 

• Business budgets. While you might want to provide competitive benefits, you also have to consider the financial sustainability of health insurance for your employees. Whether that means covering a portion of an employee's premiums or opting for different packages, you’ll want to consider the long-term costs the company will incur for coverage. 

• Employee contributions. It also helps to have an understanding of how willing employees are to pay for health insurance premiums. Your team could be more budget-minded or want expansive policies to cover their family. Having a sense of their needs and spending power will influence your choice.

Tax implications

Providing health insurance to employees can come with some tax benefits. Typically, health insurance premiums paid by employers are considered a tax-deductible business expense. Plus, as a small business offering health insurance, your company could qualify for additional tax credits, like the Small Business Health Care Tax Credit under the Affordable Care Act.

Employer-provided health insurance can also provide tax benefits to employees. Employees can make contributions to their premiums pre-tax, reducing their taxable income overall.

Location

Where your company is based can impact the coverage you receive. Factors such as state mandates, provider networks, and premium costs can all differ based on your startup’s location. 

State-specific regulations, such as those in Florida or Texas, significantly impact the health insurance options available to startups. Each state has its own set of rules and mandates that govern the types of health insurance plans that can be offered, the coverage requirements, and the regulatory oversight of insurance providers. 

For example, some states have more stringent requirements for essential health benefits, which can affect the comprehensiveness and cost of the plans available to startups in those locations.

Health insurance for startups and ICHRAs

In the early days of a startup, finding the right health insurance can be a challenge. It’s a balance between meeting the needs of your team and keeping the budget in check for future growth. 

But what if you could sidestep the insurance selection option while empowering your employees to pick the best coverage for themselves? ICHRAs offer better health options for less money, letting your employees pick the coverage they need while still benefiting from group pricing and tax deductions. 

Learn more about how Thatch can help your team get the coverage they need.