The smarter California Small Business Health Insurance Option

Health insurance for small businesses in California has more options than ever, with an abundance of carriers like Blue Shield and many others, lots of health insurance plans offered through Covered California for Small Business, lots of choices like HMOs and PPOs, and affordable premiums for health care on the individual market. Group plans, on the other hand, continue to get more expensive. For business owners looking for affordable California small business health insurance, California QSEHRAs are here to save the day.

Why HRAs in California are Trending

Small businesses represent the strongest net job growth in the state, with businesses with less than 20 employees making up over 88% of businesses in California and 20% of the workforce. 

Understanding how vital small businesses are to the state’s economy, the fact that it is still so hard to find quality California small business health insurance for these types of companies is really disappointing. But it's not surprising, either, since pricey group plans for small companies, health insurance for startups, and those just starting out just aren't financially viable. Plus, premiums creep up year after year, making it not only pricey, but unpredictable for those tight budgets as well.

As a reference point, in the  2023 Employer Health Benefits Survey, Kaiser Family Foundation reported that the annual premiums for employer-sponsored family health coverage reached $23,968 this year, with workers on average paying $6,575 toward the cost of their coverage.  YIKES.

So how do these small businesses stand a chance at competing with big companies when it comes to offering California small business health insurance packages? Instead of breaking the bank on expensive traditional group plans or leaving the burden to your employees, try a QSEHRA. 

The new tax-advantaged tool that no one is talking about

Wondering what an HRA is? We thought so.

HRAs are designed as any great startup or small business should be: it’s lean, it’s flexible, it’s tax-advantaged, it’s budget-friendly. It's designed to help startups and small businesses afford health insurance for their team.

With an HRA, California small businesses enjoy the same tax benefits as larger corporations, thanks to relatively recent bipartisan legislation called the 21st Century Cures Act. Before this law was passed, employers could only provide HRAs when they were a part of an ACA compliant group health plan. If they provided reimbursements or funds outside of these group health plans, the company was penalized. 

The bottom line is that HRAs are a great way to afford benefits for your staff. The downside is that it hasn't been widely publicized so a lot of people don't know about it. 

It's not surprising that more and more innovative small businesses in California are jumping on board with HRAs.

In fact, certain California markets are prime for the reimbursement trend.

Here's why California small business owners (and their employees) love HRAs over working directly with an insurance company. 

• It’s smart. An HRA uses tax benefits to help small businesses. Contributions to HRAs are tax-free. That means you aren’t paying payroll tax and your employees aren’t paying income tax. 

• Boosts retention. Wondering what the number one factor is for millennials and job seekers considering a new job? You guessed it—health insurance benefits. Without a competitive benefits package, the best and brightest might choose to go elsewhere. Another perk for employees is that they can choose the best plan for them instead of being looped into a group plan that might not cover their doctors, their prescriptions, or their health needs.

• Saves time. Selecting and administering a group plan takes a lot of time and effort. As a startup, you’ve got better things to do. Choosing the right HRA administration platform will save you time down the road as well. Take Command's platform onboards employees, generates plan documents, ensures that you remain compliant, and makes tax time a breeze.

• Saves your budget. These costs are predictable. Unlike a group plan that might creep up in costs year over year, you control the amount contributed to an HRA. It’s on your terms and within your budget. Wondering what happens to the leftover funds if they aren’t used? It stays with the business and doesn’t roll over. That means you aren’t responsible for funding a bunch of accounts; you only pay out when an employee submits an expense for reimbursement. 

• It’s flexible. You can design your HRA to fit your needs. Want to just reimburse for premiums? Great. Want to add qualified medical expenses to the deal? Even better. Want to scale the contributions based on age, status, or family size? You can do that too (as long as it’s fair!).

The two flavors of HRAs that California small business owners should look into to meet the new California individual mandate.

• Individual Coverage HRAs: Allows companies of any size to reimburse for health insurance up to any amount
• Qualified Small Employer HRAs: Designed just for small companies with less than 50 employees and is slightly more flexible in the types of plans it can work with.

How do you know if you qualify? 

California small business owners have two routes to go here. If you employ more than 2 and less than 50 employees and do not currently offer a group healthcare plan, you can participate in the small business HRA program (QSEHRA). If your company is larger than this, take a look at an ICHRA instead! Either one will work for small companies.

Any full-time staff, which the program defines as working at least 30 hours a week for at least 120 consecutive days, is eligible.

If need be, the following individuals may be excluded from your QSEHRA plan:

• Employees who have not completed 90 days of service
• Employees under age 25
• Part-time and seasonal employees
• Union employees (unless the union agreement provides for eligibility)
• Non-resident aliens without income from sources within the United States

Need help with California Small Business Health Insurance? 

Take Command Health's team of QSEHRA experts have designed a data-driven platform for small businesses in all 50 states that can be tailored to fit your needs for QSEHRA administration. We take care of the monthly reporting, tax details, employee on boarding, industry benchmarking, and compliance issues. In other words, we do all the have lifting so you can get back to doing what you do best.

Our experts are ready to help via chat on our website!  Give us a shout. 

If you want to dive deeper, check out our new, first of its kind QSEHRA Guide! 

→ Read our California small business health insurance guide!