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Understanding small business health insurance

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This article is based on research for our recent eGuide, How to create a benefits package.

A solid benefits package attracts top talent. According to Glassdoor, almost 80 per cent of employees would prefer benefits to a pay increase – and that number increases to 89 per cent in employees under the age of 34. The best part is, offering benefits is becoming an increasingly easy and cost-effective option for small and even micro business owners, as new services and platforms emerge.

One of the most important components of any benefits plan is the health insurance. Here’s an overview of what you need to know when selecting a small business health insurance plan.
Types of coverage

There are many things you can cover with a health insurance plan, and it’s important to know the terminology. Here are your basic options:

Extended health care

Usually a basic health plan starts here. This is essentially the medical expenses not covered by an employee’s provincial health coverage. This can include prescription drugs, specialist visits, vision care, hospital stays, and emergency travel coverage.

Dental coverage

This coverage expenses from preventive and diagnostic dental treatments.

Accidental death and dismemberment

This covers an employee and their family in the event of a serious accident (paralysation, loss of a limb, etc.) and also provides benefits to an employee’s family if they die accidentally.

Life insurance

This coverage provides money to an employee’s family if they die.

Disability

Long-term or short-term disability provides employees with a portion of their income if they become injured and can’t work.
Types of plans

Most employers and employees are familiar with traditional, fully-insured benefits plans. However, that’s actually only one of several types of health insurance plans that are available. And, some of the non-traditional options might be much more suited to your small business. Here are the basic types:

Traditional employee benefits plans

In a conventional health care benefits plans, the employer usually pays a per-employee fee that is based on anticipated claims. All the administration is done by an insurance company, and it takes on all liability in the event of a lawsuit.

Administrative services only (ASO) plans

In this type of plan (also known as self-funded health care), an employer pays for benefits claims from its own funds – in other words, instead of paying a monthly or yearly fee for anticipated claims, they pay for actual claims only. They use a third-party company to administer the plan (hence the name of the plan type).

Health-care spending accounts (HSA or HCSA)

In this type of plan, employees are allocated a pre-determined amount of money to cover their medical and dental needs. Employees can then pick and choose from a variety of health benefits.

Hybrids

For small business owners looking for more flexibility, some insurance providers offer a traditional or ASO plan combined with elements of a health-care spending account.
Types of providers

When you’re ready to discuss these options in more detail, there’s also a range of ways to choose and purchase these health insurance plans, and integrate them into your small business.

Small business health insurance brokers and advisers

If you’re looking for some expert advice, a growing number of benefits brokers and advisers are specializing in small business options. Many insurance providers are going a similar direction, with new programs specifically suited to smaller companies.

Professional Employer Organizations

Another option is to use a PEO, such as PEO Canada or ADP. A PEO is essentially an outside company that handles all your HR needs (it’s sometimes called a “co-employment” arrangement). The biggest advantage of a PEO is that your company’s benefits are part of a larger plan used by many small businesses, which means you can often access lower rates or more comprehensive services.

HR service platforms

One final option is a new wave of platforms offering HR services similar to PEOs, but with more flexibility. Some let employers bring in their own service providers to manage through a platform, while others let employees manage spending accounts via an app.

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