It's important for startups to offer health insurance since not having health insurance for employees can make it more difficult to attract talent. Some employees won't take jobs that don't offer health insurance, so they will avoid applying to your startup and seek jobs from larger companies instead. Unfortunately, group health insurance premiums can often be quite high, and this makes it difficult for cash-strapped startups to enroll and provide health coverage for their employees.
One way that you can reduce the cost of offering health insurance is to fund your insurance yourself. Self-funded insurance is managed by a health insurance company, but the funds that are used to pay the claims that employees make will come out of a trust fund that your business sets up rather than being paid by the insurance carrier. While this means that your business takes on more risk in order to insure your employees, it typically results in lower insurance costs. Below, you'll find three reasons why your startup should consider self-funded health insurance for employees.
1. You'll Often Save Money Funding Your Own Health Insurance
Prior to the Affordable Care Act, each business that purchased group health insurance was considered its own unique risk pool. If a business's employees were young and healthy, they'd pay less for their group health insurance premiums. After the ACA was passed, health insurance carriers now place every small business that they insure into one shared risk pool.
This is great for small businesses with older employees since they'll be pooled with other businesses that have younger employees and pay lower premiums as a result. Unfortunately, this has hurt many tech startups, who tend to be primarily staffed by workers in their 20s and 30s. Being pooled with every small business will increase your premiums for group insurance compared to if your employees were in their own unique risk pool. Health insurance premiums are often prohibitively expensive for tech startups due to this fact.
With self-funded insurance, risk pooling doesn't affect you at all — you don't pay any premiums to a health insurance carrier. You assume all the risk yourself, and the risk is often quite low when you have a workforce consisting of younger employees. By avoiding being combined with other businesses, the overall cost of your health insurance for employees is lower.
2. You'll Have Greater Ability to Customize Your Health Coverage
Self-funded insurance isn't regulated as much as group health insurance, which allows you to customize what's covered in the plan you offer to your employees. When you purchase group insurance, you don't have much ability to customize coverage — the health insurance carrier will present you with predetermined plans that they believe present an acceptable level of risk to them.
Since you're paying for self-funded insurance and taking on the risk yourself, you can choose what you cover. For example, you can provide your employees with coverage for dental, vision, or alternative medicine therapies like acupuncture. Offering additional coverage that's not typically found in group health insurance plans is a great way for your startup to attract and retain employees.
3. You Can Mitigate Risk With Stop-Loss Insurance
One of the reasons why small businesses often avoid self-funded health insurance is because of the increased risk that they take on by offering it. If one of your employees is in a car accident, for example, you may need to pay for multiple surgeries, a lengthy hospital stay, and physical rehabilitation. Medical expenses can quickly add up, and they can potentially bankrupt a small business that doesn't have much cash in reserve.
Thankfully, the risk to your business can be reduced by purchasing stop-loss insurance. You pay premiums to the stop-loss insurance carrier, and in return, they will cap the medical expenses you'll be expected to pay out-of-pocket each year. If annual health insurance claims exceed the amount you've set, then the insurer pays the remaining portion of your claims. Stop-loss insurance prevents you from being bankrupted by large claims, as it limits the amount of money you're expected to pay out for them.
If your startup doesn't offer health insurance for employees, contact a health insurance carrier that offers self-funded insurance options for small businesses. From an employee's perspective, it works exactly the same as normal group health insurance — the only difference is that the money to pay claims comes from your business instead of the health insurance carrier. Self-funding your own health insurance is a great option for startups who can't pay the premiums associated with normal group health insurance, and having health insurance will help your startup attract quality employees and keep them.