Health Benefits for Startups
Health benefits for startups can be a daunting thing to check off of your to do list. For recruitment and retention purposes, it's so important to have competitive benefits.
But how do you afford them?
You'd love to help your growing team with coverage, but is your benefits solution scalable?
Your remote team members are essential to your success, but will you have to administer more than one benefit plan and juggle multiple renewals?
When does a startup founder even have time to manage something like benefits?
All of these are valid questions—questions that our team at Take Command has experienced firsthand. We're a startup ourselves, so we know a thing or two about the paint points startups face and we're passionate about benefits solutions that help build up other startups.
This guide covers:
- The choices startups have for health insurance
- The pros and cons of each health insurance option for startups
- Why startups are a good fit for health reimbursement arrangements
- What options there are for health insurance for startup founders
- A case study of how one startup benefited from their HRA from Take Command
- How to get started offering an HRA to your startup
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Best Health Insurance for Startups
Why Benefits Matter for Startups
Remember, employee benefits aren't just important to ensure that your team is happy and healthy, if you fail to offer competitive benefits, it can bring some serious consequences to your startup.
These might include:
- Financial consequences of hiring and training new hires.
- Risk of losing employees you depend on (and information and ideas) to competitors.
- Crushing workloads from being understaffed.
- Hours lost in recruitment and training for new hires.
Options for Health Benefits for Startups
When evaluating health benefits for your startup, it's important to take into account a few factors that will ultimately direct which option is best for your company.
- your budget
- your bandwidth
- how your company is set up
- your location (i.e., how individual and group plan costs vary in your geographic area)
Now let's jump into your actual options for health benefits for startups. And fear not, you have several options! Although we will be the first to say that some options are better than others.
Let's get to it.
Here are your options for health insurance for startups.
Your first option is doing nothing. If you have less than 50 employees, you aren't actually required to offer benefits at all. Do we advise this? No. How are you going to recruit and retain talent to support your amazing business idea without competitive benefits?
Ok, moving right along.
Group health insurance for startups
Historically speaking, small business group health insurance—or fully-funded insurance—has been the primary option for many small employers who are looking to offer health benefits for their employees. It's also referred to as corporate health insurance or group health insurance and sometimes includes vision and dental insurance for small businesses, if it's included in the plan.
It is geared toward businesses with less than 50 full time employees everywhere except four states where it applies to businesses with up to 10 employees.
The upside? These ACA-compliant plans are well known, tax-free, have solid product options, and are proven to be an effective retention strategy. Coverage is generally guaranteed, meaning that anyone who applies and meets the criteria will be accepted to the program.
Purchase of a SHOP plan may qualify the buyer for the Small Business Health Care Tax Credit.
And yes, there's a downside.
The shortcomings can be detrimental to startup budgets; small group plans are expensive, one-size-fits-all, with unpredictable premium increases year over year and participation rate requirements.
Self-funded Health Plans
Technically speaking, self-insured employers pay for claims out of pocket when they arise as opposed to paying a predetermined premium to a carrier for a small group plan.
This type of plan, also known as a self-insured plan, is usually seen with a large enterprise as a means to control their healthcare spend and manage their own risk pool.
The benefits of this type of plan are that it's more customizable to your workforce, you have control over the health plan reserves so you can maximize your interest income, it’s more affordable per enrolled employee than a traditional plan, there's no pre-funding of health coverage, and you aren't subject to state health insurance premium taxes (usually around 2 to 3%).
They’re also subject to fewer regulations and allow employers to customize their healthcare plan to meet their unique business needs.
And because companies are paying only for the healthcare costs of their own employees, there may be money left over at the end of the year that can go toward other business needs.
Self funded plans, while ideal for some types of companies, really aren't a fit for startups.
While self-funded plans allow the company to potentially save the profit margin that an insurance carrier adds to its premium, the potential risk is much higher since the company is responsible for paying out the actual claims—especially in the event of catastrophic claims which could potential bankrupt a company.
Risk is inherent to any startup, but adding risk from a self-funded plan is not the type of risk you want to take.
Health Reimbursement Arrangements
A health reimbursement arrangement is an affordable, tax-advantaged alternative to traditional small employer health insurance where startups are reimbursing employees for health insurance and medical expenses (if applicable) on a pre-tax basis.
Unlike Health Savings Accounts (HSAs) and Flexible Spending Accounts (FSAs) that are accounts, HRA stands for Health Reimbursement Arrangement, meaning that the model operates on reimbursements.
Startup employees will pay the insurance company or doctor’s office directly and then submit a claim to get reimbursed for their expenses tax-free. Dental and vision insurance for startups can be reimbursed with an HRA as well!
The use of new reimbursement models of HRAs put the employer's reimbursements on nearly the same tax playing field as traditional small group plans, but without all the hassles and requirements.
Before, a big advantage for group plans was that they were deductible expenses for employers and were taken out of employee paychecks on a pre-tax basis.
With an HRA, employers can make reimbursements without having to pay payroll taxes and employees don’t have to recognize income tax. In addition, reimbursements made by the company count as a tax deduction.
97% of startup founders we polled said that HRAs would significantly help with retention and recruitment.
Sound intriguing? We thought so. Let's dive into the details of HRAs for startups and why they are uniquely positioned to serve new and growing companies like yours.
Why HRAs are the best option for startup health insurance
Startups are uniquely positioned to benefit from offering HRAs as opposed to traditional group health insurance for many reasons, including:
- Budget control and predictability: Startups often have limited resources and budgets, making providing competitive group health insurance plans difficult. HRAs, on the other hand, allow startups to contribute a defined amount towards their employees' health expenses, providing more control over costs.
- Bandwidth and administrative burden: Startup founders often don't have an HR team and will be taking on the responsibility of choosing and administering benefits on their own. Do they have time for this? Definitely not. HRAs are a way to outsource your HR. Most of our clients spend less than one hour managing their Take Command HRA.
- Remote employees: Startups frequently operate across multiple states, which can complicate the process of obtaining a single group health insurance plan that satisfies each state's varying requirements and regulations. With an HRA, employees can choose individual plans that suit their needs, regardless of location.
- Diverse workforce needs: The workforce of a startup is often diverse, with employees having unique healthcare needs and preferences. Traditional group health insurance plans may not cater to this variety, whereas HRAs offer a more personalized approach, allowing employees to select plans that align with their specific requirements.
- The need for agility: Group health insurance has limitations that make it less suitable for startups. These plans can be expensive, and eligibility criteria can be restrictive, especially for smaller or multi-state businesses. Additionally, group health insurance typically offers limited choices, which may not meet the diverse needs of a startup's workforce.
HRAs offer cost-effective, flexible, and personalized solutions that are well-suited for startups.
By allowing employees to choose individual plans, HRAs cater to their specific needs, promoting a more satisfied and healthy workforce. The streamlined administration and support provided by Take Command make implementing HRAs an accessible and efficient choice for startups seeking to offer valuable health benefits to their employees.
What about health insurance for startup founders?
One of the main questions we're asked is whether or not a company owner can participate in their company's HRA. The answer is it depends.
Your eligibility depends on how the plan and business are set up. Here's how each type of company interacts with HRA eligibility for owners.
Partnerships: Partners are directly taxed, making them self-employed and not eligible for participation in either ICHRA or QSEHRA. The QSEHRA Loophole: if the partner’s spouse is a W-2 employee (and not a partner spouse) then the owner can participate in the QSEHRA as a dependent of the spouse.
Corporations: (Including C-Corps, B-Corps, Non-Profits, and LLCs taxed as C-Corps - anything where the entity is separate from ownership.) Corporations are the easiest entity type to handle when it comes to health insurance because owners are considered employees and can benefit from the company’s QSEHRA or ICHRA. Their dependents and any W2 employees can benefit as well.
S-Corps: An S-Corp owner that owns more than 2% of the company is considered self-employed and not an employee, therefore typically cannot participate in the HRA. However, self-employed individuals can already deduct some health insurance expenses without an HRA.
Sole proprietors: These unincorporated businesses are owned and operated by one individual with no distinction between the business and owner. In a nutshell: The sole proprietor is not an employee and will not qualify for an HRA.
In order for a startup founder to participate in an HRA, they must be considered an employee of the business.
Talk to an expert
Our team is here to answer your questions.
Introducing myBasePay: Innovative HR platform in search of an HRA solution to enhance employee benefits offering
myBasePay is a dynamic platform that delivers affordable and efficient hiring and back-office solutions for recruiting, staffing, and HR professionals. They streamline HR operations with cost-effective hiring solutions. Their suite of products is designed to alleviate the administrative burdens often associated with time-consuming HR functions, such as payroll, compliance, and more. By providing cutting-edge service technology tailored to the needs of an external workforce, myBasePay ensures temporary workers receive the benefits they deserve.
At the core of their services, they manage the most crucial aspects of the contractor lifecycle. myBasePay supports talented professionals by offering exceptional customer service practices, all driven by our world-class technology. With myBasePay, HR professionals can focus on finding and retaining top talent while our platform handles the operational complexities behind the scenes.
Overcoming healthcare challenges with Take Command's ICHRA solutions
myBasePay is an innovative company with operations in multiple states, disrupting their industry with groundbreaking solutions. As a startup with a growing workforce, they were committed to providing their employees comprehensive healthcare benefits. However, finding an appropriate healthcare plan for their employees was challenging, given their limited resources and eligibility for competitive fully insured or self-insured group plans. A referral from their broker led them to Take Command, and they decided to explore the benefits of offering an ICHRA to their employees.
Addressing myBasePay unique healthcare needs with Take Command's comprehensive solutions
myBasePay's lack of prior health insurance plans and budget, coupled with their multi-state operations, made it difficult for them to qualify for a competitive group health insurance plan. They wanted a solution that would enable them to provide their employees with comprehensive healthcare while managing costs effectively. They also wanted user-friendly and efficient administration software and service to simplify the process for their employees.
Facilitating a seamless ICHRA implementation with Take Command's expertise and support
Take Command's HRA administration software and service provided myBasePay with the tools and support needed to implement a successful ICHRA. The easy-to-use platform guided the employer and employees through the process, offering personalized solutions tailored to individual needs. Although there was initial confusion among employees, the Take Command team worked closely with myBasePay to address concerns and provide education on the opt-out option and purchasing through the general marketplace.
Success story: enhanced employee healthcare through Take Command's ICHRA solutions
As a result of partnering with Take Command, myBasePay successfully introduced an ICHRA to their employees, providing them with a more personalized healthcare solution. The employer has reacted positively to the ICHRA offering, with many employees appreciating the options available. Despite some initial confusion, the overall experience has been well-received, and the company plans to continue offering the ICHRA in future plan years.
By choosing Take Command, myBasePay has demonstrated its commitment to employee wellbeing while effectively managing the financial implications of providing healthcare benefits. The partnership has resulted in a more flexible and personalized healthcare experience for their employees, contributing to the company's long-term success and growth.
Pioneering the future of health benefits for startups and growing businesses
Take Command is a trailblazing company that provides comprehensive HRA administration software and services. Catering to startups and growing businesses, Take Command is dedicated to simplifying the health benefits process for employers and employees. With a keen focus on flexibility, personalization, and efficiency, Take Command is revolutionizing the health benefits industry by offering tailored healthcare solutions that address a diverse workforce's unique needs and preferences.
Take Command's user-friendly platform and responsive support team ensure a seamless experience for employers and employees as they navigate their health benefits options. The platform's educational resources and guidance empower employees to make informed decisions, contributing to a more satisfied and healthy workforce.
Serving a diverse range of businesses, Take Command is transforming how companies approach health benefits. By offering a more cost-effective and adaptable alternative to traditional group health insurance, Take Command enables startups and growing businesses to provide comprehensive healthcare benefits to their employees without sacrificing financial stability or flexibility.
As demonstrated in this case study, Take Command is reshaping the health benefits landscape by offering innovative HRA administration solutions that cater to the evolving needs of today's workforce. With its customer-centric approach and cutting-edge technology, Take Command is poised to become a leading player in the health benefits industry, helping startups and businesses worldwide provide their employees with the healthcare they need and deserve.
How much will you save with an HRA?
Since HRA reimbursements are tax-free, startup founders can enjoy considerable savings. Check out our HRA tax savings calculator to get a savings estimate.
Let's talk through your HRA questions
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Susanne is a copywriter specializing in the health and wellness industry. Before starting her own business, she spent nearly a decade at a marketing agency doing all of the things – advisor, copywriter, SEO strategist, social media specialist, and project manager. That experience gives her a unique understanding of how the consumer-focused content she writes flows into each marketing piece. Susanne lives in Oklahoma City with her husband and two daughters. She loves being outdoors, exercising and reading.
