Illinois small businesses have it rough when it comes to finding affordable health insurance for their employees. It might even feel like there are only three options:
- Offering traditional group health plan
- Giving employees some extra money
- Doing nothing at all
There is another solution that is gaining more attention among small employers since it became available a couple years ago: a fixed, pre-tax health benefit also known as ICHRA.
What’s an ICHRA, in real language?
ICHRA is short for Individual Coverage Health Reimbursement Arrangement, a confusing and long acronym that, in basic terms, allows employers to give pre-tax dollars to their team to help cover some or all of their health insurance premiums. Up until 2020, this wasn’t possible. But federal regulation passed in 2019 and made available the next year, now gives employers a new more flexible option.Note: The healthcare industry loves acronyms, which can make discussions confusing. So for the sake of this guide, we’ll most often refer to ICHRA by what it is—a pre-tax fixed benefit.
Why is health insurance so hard for small businesses?
Size matters when it comes to health insurance costs and it is the main reason why small employers — startups, non-profits, and really any business with under 20 employees — get a raw deal. Let’s count the ways:
- Long-winded sales processes for traditional small group plans often take 30 or more hours over six weeks.
- Participation criteria often requires that 70% or more employees enroll.
- And the cost. Employee health insurance for small businesses has become an expensive venture with the average premium cost rising 25% in 10 years. Today, the price of an individual health is nearly $8000 and for families it’s nearly $23,000.
Increasing cost and complexity are top reasons as to why employee health insurance is out of reach for a lots SMBs. In fact, just 39% of small businesses with under 10 employees offer employee health benefits, the lowest number on record over the last 12 years.
So how can small employers retain their current talent and recruit new ones without health benefits, one of the most important hiring considerations for employees? It’s not easy and feels a bit unfair. But, we’re here to help. We’ll explore three currently available options — Traditional Health Insurance, Giving Extra Money and Pre-Tax Fixed Benefit (ICHRA). Let’s dig into the advantages and disadvantages of each.
#1 The most traditional route: Fully insured, group health insurance plan
This is the type of health plan that most small businesses are used to. Generally, you work with a broker who gathers basic information about your employees, business and budget to provide a set of options. Everyone gets the same rate based on employees’ age and geographic location. Very small businesses will likely have to choose one plan for all. Larger ones may be able to offer a few plan options with different deductibles, copays, and premiums.
Advantages of traditional group health insurance plan
- Less risk: The insurance company bears the risk if the total claims exceed the premiums. This is a benefit for small businesses, where unexpected costs can have a much bigger impact.
- Regulated coverage: These health insurance plans are subject to state laws and regulations. This means that they must provide certain standard benefits, ensuring employees have access to good health insurance.
- Helps with recruitment/retention: Beyond salary, health insurance coverage stands as a crucial employee benefit. Its absence can determine whether your top preference selects you or opts for another position.
Disadvantages of fully insured health plan
- Expensive: These plans often have the highest premiums.
- Less flexibility: Smaller-sized small businesses often need to choose from the pre-designed plans offered by the insurer and one plan for all employees.
- High participation rates: Most plans require at least 60% of employees to enroll. That can be a high bar for many SMBs.
- Unpredictable premium increases: Often just one employee with an unexpected costly medical event, will result in higher premiums the next year. This can make it tough sustaining a benefits budget year-over-year.
- Complicated enrollment and onboarding: Small business owners often manage the paperwork themselves, which can take 30 or more hours over many weeks, every year.
#2 Give employees extra money
Small businesses who simply don’t have the time or the budget (usually about $1000 per employee) to offer a group health plan are opting for another route – a little extra cash in their employees paycheck. While there are some perks for going this route, namely ease and simplicity, it might not be translating into the value that the employer intends.
Advantages of giving money:
- Simple: Just add some extra money to a paycheck.
- Control over a benefits budget: Employers can give exactly what they can afford.
Disadvantages of giving extra money:
- Not valued: Do the employees even know it’s a benefit? Extra money blends in as salary or wages.
- It’s actually 42% less: After taxes, that extra benefit doesn’t go as far. The combined tax impact breaks down like this: FICA tax (15.3%), federal income tax (about 22%), plus state income tax (4.95% in Illinois).
- Your employees aren’t better off: Are they even buying insurance?A little extra money can be used for anything, not necessarily health insurance.
#3 The newest option: Pre-tax, fixed health benefit (ICHRA)
One of the newest health insurance options for small businesses is ICHRA or pre-tax, fixed health benefit. The name is a mouthful but the way it works is actually quite simple.
Rather than offering traditional group health insurance, employers can give money to their employees’ (as their health benefit) before any taxes are taken out to help cover their individual health insurance premiums. As for the health plan, employees shop for, purchase and own their own health plan – allowing them to choose a plan that fits their needs.
If you’re wondering why you’ve never heard of ICHRA before, it’s because the health benefit option is relatively new, made possible in 2020 due to IRS legislation. A lot happened in 2020 and it has been slow to catch on but that’s changing. More and more small businesses are turning to ICHRA as an affordable, flexible health benefit solution.
Advantages of ICHRA for Illinois small businesses:
- Set your own budget: Rather than being tied to the costs of a group plan (which are also unpredictable), the small business owner decides how much they want to contribute toward their employees’ health insurance costs.
- Employee choice: Employees are not limited to a single health plan as they are with traditional group health insurance. Rather, they can choose a health plan that best meets their needs.
- Flexible: Want to give a different amount to your Full-Time employees versus Part-Time? You can with an ICHRA.
- No participation requirements: There is no minimum participation needed. As many or as few can enroll or waive.
- Hassle-free enrollment: Employers no longer need to go through a long shopping process to find a perfect group plan. Because employees pick their own plan, they are also relieved of the weird role of coming in between an employee and their doctors.
- Valued as a benefit: Unlike “giving extra money” employers can be assured that their people are using it for health insurance. And, unlike a group health plan, employees also know exactly how much their employer contributes to their benefit.
Disadvantages of ICHRA for small businesses:
- Employee confusion: With the freedom to choose their own plans, some employees may feel overwhelmed by the options and struggle to make an informed choice.
- Expectation gap: Employees used to high-end health plans with lots of bells and whistles, may not find those options on the individual marketplace.
Where employees shop for a health plan: An overview of the individual marketplace in Illinois
Employees offered a pre-tax fixed health benefit (called ICHRA) will need to select a “qualified health insurance plan” to take advantage of their benefit. Generally, this means a health plan that complies with the requirements of the Affordable Care Act, a law passed in 2010, that established a federal health insurance exchange and consumer protections such as the coverage of preexisting conditions, prescription drugs, maternity care, and more.
In 2015, a little more than 8 million people found health insurance on the marketplace. By 2022, the number grew to 14 million and over that time the exchange also expanded its selection and options. Let’s take a look at the options in Illinois.
Health insurance carriers in Illinois
Today, there are nearly a dozen insurers offering health insurance exchange plans in Illinois. These include large national carriers and regional players:
- Celtic Insurance Co. (Ambetter)
- Cigna Healthcare of Illinois, Inc.
- Health Alliance Medical Plans, Inc. (HAMP)
- Health Care Service Corporation (Blue Cross Blue Shield of Illinois)
- Quartz Health Benefit Plans Corporation
- MercyCare HMO
- Molina Healthcare of Illinois, Inc.
- Oscar Health Plan, Inc.
- SSM Health Plan (WellFirst Health)
Note: The set of available insurers changes by county. The ones listed above and named below are in Cook County, Illinois.
Health insurance average costs in Illinois
When checking out the health insurance exchange, you’ll find plans categorized by metal tiers: Gold, Silver, and Bronze. The higher-tiered plans have higher monthly premiums but come with lower out-of-pocket expenses, like deductibles, copays, and coinsurance. On the flip side, the lower-tiered plans have more affordable premiums but higher out-of-pocket costs. Here’s a good way to decide which makes sense for you.
Gold health plans: Best if you have high expected medical costs
Molina Healthcare’s Confident Care Gold 1 + Vision
Gold health insurance plans have the lowest deductibles and copays, an advantage for those who require frequent medical visits. But, these plans come with higher monthly rates.
Silver plans: Best for those with average medical costs
Blue Cross and Blue Shield of Illinois Blue FocusCare Silver 210
Silver health plans are a good middle ground between Bronze and Gold plans, combining lower monthly premiums and out-of-pocket costs.
Bronze and Catastrophic plans: Best if you’re healthy and have emergency savings
Ambetter’s CMS Standard Bronze plan
The bronze policies have the cheapest monthly premiums but much higher cost-sharing (co-pays, deductibles, etc). So if you need medical care during the year, you have to pay more money out of pocket before coverage kicks in.
Snapshot of health insurance costs in Illinois
The cost of health care varies by the age of the individual and the county they reside in. Here’s a snapshot of the lowest-cost health plan on the Illnois health insurance exchange for a Cook’s County, Illinois resident by metal tier and age.
Finding the best health insurance value for your Illinois small business
To sum it up, small business health insurance is complicated. But it doesn’t have to be. A pre-tax, fixed health benefit (ICHRA) aims to simplify health benefits for smaller-sized small businesses in Illinois who find traditional group health plans out of reach.
Looking for more guidance on pre-tax fixed health benefits? Contact StretchDollar or get started here.