I think you will agree with me that small business health insurance here in Massachusetts can be expensive.

You want to do right for you and your employees. Heck, health insurance here in the US is extremely important. However, some of these quotes you receive are no short of “sticker shock”.

Moreover, you pay your bill, and you wonder where the money goes.

It doesn’t have to be this way.

You can have great coverage for you and your employees and not pay an arm and a leg for it.

In this article, we discuss the following:

• What a small business does for medical insurance here in Massachusetts now
• How a self-funded health insurance plan works
• Attributes of a self-funded health insurance plan
• Example of a self-funded health insurance plan
• Types of firms that a self-funded plan works well
• Now you know a small business here can get affordable health insurance

Let’s start off a describe the current landscape for health insurance options for a small business owner operating in Massachusetts.

Current Health Insurance Options For A Small Business Owner In Massachusetts

Most small business owners want to help their employees. A great way to do that is by offering health insurance to their employees. Thousands of businesses offer health insurance coverage to their employees and subsidize some, or all, of the monthly premium.

However, here in Massachusetts, health insurance options for small business owners are, let’s say, limited.

Now, what do I mean by that?

Well, I don’t mean there are limited choices. No, there are plenty. Many great health insurance carriers offer plans to small business owners in Massachusetts.

The problem, we have heard, is that these plans cost a lot of money.

There are ways to offset these costs; however, they are rather limited. We discuss the typical process next.

Most Small Business Owners Go Through The Health Connector For Health Insurance In Massachusetts

Most small business owners in Massachusetts will go on the health connector and search for plans.

What draws the small business owner is that they have the potential to receive 50% credit on their cost.

However, this credit comes with some limitations:

• Must have fewer than 25 full-time employees
• Average employee salary is $50,000 or less
• Must pay a minimum 50% share towards the health insurance premiums
• Health insurance must be purchased through the health connector marketplace

For most small business owners, the full-time employee requirement is no big deal. Many businesses in Massachusetts have fewer than 25 employees.

The problems lie in the next requirements. The average employee salary has to be $50,000 or less. A restaurant might be able to meet this requirement, but a medical practice or engineering firm, likely not.

Additionally, you need to pay 50% minimum towards your employee’s health insurance premiums. A medical group should be able to meet that just fine. However, we just said they probably could not meet the $50,000 average salary requirement.

Conversely, that restaurant might have a hard time meeting that minimum percentage even though it could probably meet the average salary maximum.

There are great plans available through the health connector. However, your business may not qualify for the 50% credit.

What do you do?

Well, you think you don’t have many options. You enroll in a plan. Maybe you can only contribute 30% of the health care premiums. You, your family, and your employees need health insurance, so you purchase a plan.

You pay a lot, and you don’t feel like you are receiving any benefit. Moreover, you don’t even know where the money is going. You are spending a mint every month.

You don’t think there is a better way.

Possibly A Better Health Insurance Option For A Small Business In Massachusetts

There could be.

There could be a health insurance option where you can receive a portion of your money back.

Additionally, there are no restrictions like paying a minimum percentage of the health insurance premiums.

What is it?

It is called self-funded health insurance.

Geez, John, you say. I pay health insurance so I won’t have to fund it myself!

Well, you do…and you don’t…

Moreover, I can almost guarantee that the price will probably be less than what you pay for through the healthconnector.

Before you think this won’t work for you, let’s discuss what self-funded plans are.

How A Self-Funded Health Insurance Plan Works For Small Business Owners

Contrary to what you may think, self-funded health insurance plans are a convenient way to offer affordable health insurance to employees. (And, even 1099 contractors, too.)

Yes, it is true. In a self-funded arrangement, the employer assumes the responsibility for the costs and benefits.

However, the plans provide a stop-loss dollar level for employers. The employer is not responsible for any claims above this level. Additionally, if claims are less than anticipated, employers can receive some money back. We will go over these two attributes soon.

First, some notable information about self-funded health insurance:

• Governed by law
• Must meet minimum essential coverage, so no tax penalty for employees
• Cover small businesses between 2 and 50 employees
• Employees working 20 or more hours per week are considered full-time
• 1099 contractors accepted
• No additional risk for employers
• Customizable designs

OK, John, you say. I’ll take your word so far. But, how much will this cost me?

Let’s introduce that next.

What Are The Employer’s Costs?

With a self-funded health insurance plans, employer’s pay one payment each month. Each payment consists of:

• Stop-loss premium
• Claim funding
• Administrative costs

The claim funding is the dollar amount paid towards claims. When employees have a medical event, the carrier pays the claim from this fund.

The stop-loss premium is insurance itself. If claims exceed the claim funding maximum level, called the aggregate limit, then the carrier pays 100% of claims.

The administrative costs are self-explanatory.

Here is an example:

Please note: in Massachusetts, employers may be responsible for any pediatric vaccines.

It’s important to reiterate that the employer’s maximum is the claims funding. If claims exceed this amount, the stop-loss kicks in. The carrier then pays 100% of the claims after this.

In this example, you as the small business owner pay $2,700 per month for the plan.

The claims funding amount, in this example, is $10,000 ($833.36 X 12). Any claims over this amount, the carrier pays.

We provide a detailed example later in the article.

How Does The Rebate Work?

We mentioned earlier that employers can receive a rebate for fewer monetary claims in a year.

This rebate is 50% of the savings.

Here’s how it works.

Let’s say your aggregate limit is $30,000. Your company has total claims of $15,000. You then receive 50% of this difference ($30,000 – $15,000) or $7,500.

Sounds good, John. What happens to the other 50%?

The carrier keeps it to offset their administrative costs.

You mean, I don’t keep it?

Not the other half. It is used to keep your premiums low.

Sure, you may want the other half, but I think you’ll agree about low premiums, right?

Attributes And Options of A Self-Funded Health Insurance Plan

Self-funded health insurance plans have important attributes, even those for small business owners in Massachusetts

We discussed the 3 attributes above:

• The claim funding bucket
• The stop-loss premium
• Administrative costs

However, plans must also meet the following guidelines.

• Specific state guidelines, if any
• ERISA

Additionally, self-funded plans provide to following:

• Customizable plan designs
• Provider Network Access
• HSA and HRA integration
• COBRA administration
• Customer service and administration for employees and business owners

The carrier offers thousands of health care combinations that will meet your needs.

Example Of A Self-Funded Health Insurance Plan In Massachusetts

OK, John. This all sounds good. Can you give me some numbers, costs, or an example?

Sure. Let’s walk through an example. Look at this below. This is a quote for a 5-person small business in Boston.

You can see below, this is what the business owner pays each month. We presented this previously.

You mean, I pay $2,700 per month?

Yes. $833 per month goes to the claim funding amount. If you multiply this number by 12, you get $10,000. This $10,000 amount is your claims “bucket”. As your employees go to the doctor and receive services, the carrier pays claims from this “bucket”.

The $1,246 is the stop-loss premium. This is the “insurance for your insurance” so-to-speak. If your claims exceed $10,000 as noted above, in this example, then the carrier pays 100% of the claims. In other words, payments to providers and other services come from the carrier at this point, not from you.

The $621 admin expenses is self-explanatory. This is how the carrier makes money, but also is your customer service support and other important services.

OK, so what do the employees pay?

Good question. See this census below:

This is what the employees will pay. How does this correspond to your monthly bill? Well, see below:

If you do the math, the total is $2,700.

Now, many employers share in the cost of health insurance, right? So, if you want to pay 50%, you will receive $1,350 back. How?

So, you’ll pay the carrier $2,700. Conversely, you will deduct $1,350 in total from your employees through payroll. They pay $1,350 and you, in effect, pay $1,350 per month.

How Does The Credit/Rebate Work?

Many people ask us about the credit, and how does it work?

We discussed this earlier, but it bears repeating.

Remember, Massachusetts does offer small businesses a credit through the healthconnector, but there are stringent requirements.

It’s best to use the example above. Remember, the $10,000 maximum aggregate limit?

Yes, John, that is the claims funding account. The $833 X 12 months.

Right. So, if your claims are less than that, you get 50% of the difference. So, let’s say claims are actually $5,000.

You will receive a check for $2,500. ($10,000 – $5,000) = $5,000 X .5 = $2,500.

OK, that sounds good. What happens to the other 50%?

Well, the carrier keeps that. Before you say, #%^*!, it’s important they do. That money offsets their own costs to keep your premiums low.

John, it would be nice to have that other 50%.

I hear you. However, consider the alternative. Do you know where your money is going? I doubt it. Here, the carrier is transparent. They have to be.

But, they offset that 50% off their internal costs to keep their costs low. Sure, it would be nice if they could put that extra 50% in a future claims“bucket” in case you did exceed your annual claim amount.

Maybe they will consider that option in the future? For now, the remaining amount offsets their internal costs. Personally, it is all good.

Types Of Small Business Firms That Work Well For Self-Funded Health Insurance Plans Here In Massachusetts

Any small businesses here in Massachusetts works well with self-funded health insurance plans. However, those businesses in the 2 to 30 employee range seem to have better pricing.

As we stated, though, some businesses won’t be eligible for the premium credits because of either:

• Average salary above $50,000, or
• Paying a minimum of 50% of the premium or more

Here are many types of businesses that work well for self-funded health insurance plans in Massachusetts:

• Engineering firms
• Law firms
• Medical offices and businesses
• Technology firms
• Really, any company that can’t meet the available credits through the healtconnector

Additionally, carve-outs are allowed. What’s a “carve-out”? All this means is you split a certain group of employees from others.

Most carve-outs are with executive management or all managers, for example.

So, let’s say you want only to offer a self-funded health insurance plan to managers, you can do that.

Additionally, husband/wife and family businesses are allowed. However, there are important requirements in these cases. It is best to contact us if you have questions.

Now You Know How Small Businesses Here In Massachusetts Can Get Affordable Health Insurance

Are you a small business owner here in Massachusetts needing affordable health insurance options for your company? A self-funded insurance plan can work. As we discussed, you have a “stop-loss” limit. Moreover, these plans potentially save you money versus a fully-insured plan (like those through the healthconnector).

Would you like to learn more or want a quote? Feel free to contact us or use the form below. It’s easy; we just need a census of covered employees and/or 1099 contractors.

As I always say, there is no risk with contacting us. If we can’t help you, you’ve learned a little more. We will part as friends. Seriously! I know most agents or agencies can’t say that. However, we can because we always put your interests first, not our own.