Small businesses in America have been bleeding, even before the Covid-19 pandemic made it worse. Too many small business owners have continued wondering how much longer they’ll be able to stay in business in their current state. If they’ve made it this far, they know something has to change to survive.
While the Paycheck Protection Program offered temporary relief, the loan merely acted as a band-aid for struggling small businesses. When you take a look at the past decade, one line item that has been steadily sucking the life out of these companies is small business health benefits…one double-digit rate increase at a time.
It’s no question that the United States is built on the backbone of small businesses, and the American Rescue Plan Act of 2021 (ARPA) might just be the help we need to get us all back on our feet again.
Included within the nearly $2 trillion legislation are countless items, including the $1,400 checks to increased child tax credits, jobless benefits and more. The bill itself, however, is packed with more details than most people realize.
If you’re a small business owner, what you need to know is that there is a huge but hidden impact on small businesses health benefits.
The Bottom Line
If there is one common thread about small business leaders, it’s that they value the bottom line. So here it is:
A) individual plans are now cheaper than group plans, and
B) small businesses can take advantage of it.
If you are anything like the best entrepreneurs I know, your ears should be perked by the implication that you can accomplish something you need for cheaper. That’s just good business right there. So let’s dive into how…
How it’s Cheaper
Let’s take a closer look at how you can cut huge costs on your small business health benefits under this new legislation.
1. Bigger Plan Discounts
The first part of this update to health benefits has to do with “discounts” (i.e. subsidies) on individual health insurance plans. These subsidies serve to lower the cost of the insurance product. Keep in mind, these aren’t cheaper plans—the costs are sometimes higher than group plans at face value. However, it ends up costing you less because of these 50% plus discounts (subsidies)!
How these discounts are calculated is a bit complicated. Basically, there is a Federal benchmark called the Federal Poverty Level (FPL), which looks at the ratio of how many people live in a household compared to how much money the household makes. From there, an FPL percentage is calculated. Based on that FPL, subsidies are determined.
The IRS takes a local silver benchmark plan and puts a spend-limit for that plan to the individual. For example, prior to ARPA, if your FPL was 229% then you wouldn’t have to spend more than 7.9% of your household income on that plan. Under the new bill, that percentage is actually just 3.25%, which is thousands of dollars of savings!
In fact, this is some of the best news of all: across the board, on average discounts on individual health plans have doubled from the American Rescue Plan! This is one of the biggest reasons why group plans cannot compete with these individual plans now; they’re literally being partially paid for with an advanced tax credit for health insurance premiums!
Now, imagine those discounts applied to your whole team. The savings are astronomical.
2. More People Qualify
There used to be a threshold where if someone made too much money or had too small of a family (remember those FPL ratios I mentioned above), they would lose all discounts for health plans. It was even called a “cliff” by many because it didn’t gradually go away, it fell off hard and could cost thousands of dollars more just being a few points off.
But not any more! That threshold has been removed, and now everyone qualifies for a minimum discount, which actually presents some significant savings. For example, a 60-year-old couple making $75,000 a year will now see $16,000+ of savings because of this change. That’s amazing!
When I said to apply this across your whole team, I meant it. Why are you paying full price for insurance plans when you can unlock these discounts (if you’re being smart about it)?
Insurance is all about the transfer of risk. The whole concept of coverage is that you have an umbrella over you to keep you dry when it rains. It’s not about the color of the umbrella—it’s about whether or not its size and strength is sufficient to keep you from getting soaked when it pours.
Individual insurance covers your employees the same way group insurance covers your employees: by transferring risk away from them—for a cost, of course—and transferring that risk to the insurance carrier.
However, with individual plans, the cost is significantly cheaper because you bought this umbrella with a coupon called a tax credit.
When else would you ever ignore a tax credit? Imagine sitting down with a tax professional who points out that you have a chance to save money on your tax bill, but you turn it down because you’ve never heard of it before. You would never do that! So you shouldn’t with your healthcare.
Pro Tip: If you currently use or have looked into HRA-style health benefits for your whole team—like a Qualified Small Employer HRA (QSEHRA) or an Individual Coverage HRA (ICHRA)—then you are overspending because you lose all of those discounts in these methods!
Never Been Better
Now that we’ve looked at the bottom line and under the hood of ARPA, what does it actually look like to take advantage of this new legislation? Aren’t there a massive amount of details, HIPAA compliance, HR laws and privacy concerns for an employer moving their teams onto individual plans?
Yes, there are.
Let me introduce you to WageUp® by Remodel Health.
Around 7 years ago, employers began cancelling their traditional group plans and giving their people a bump in their salaries instead. In doing so, employers were actually able to customize health benefits and simplify the process for their teams. But they worried the IRS would not like this, so they actually asked about it.
IRS Notice 2015-17 (Question and Answer 4) completely changed the game for group health benefits. The IRS confirmed that an employer is allowed to provide taxable wage increases to their teams and point them in the right direction in order to shop on the Individual Marketplace for individual plans. And you guessed it, those employees do still qualify for those plan discounts—subsidies called Advanced Premium Tax Credits (APTCs).
WageUp® by Remodel Health is software that puts you, the small business owner, in the driver’s seat. You decide how much to spend, evaluate how much buying power you can give you to your team with these discounts, and ultimately provide access to similar health insurance products at a fraction of the old costs.
Generally speaking, I’ve seen small businesses will find themselves in one of two categories:
This is the classic way of delivering health benefits to your team through a group product. And this is the one that has been bleeding out American small businesses for well over a decade. The Affordable Care Act of 2010 did it’s best, but it’s hard fixing a broken system using the same broken system. A new paradigm was required in order for positive changes to actually happen to group health benefits.
If this is you, the goal would be to make sure your team has access to the same bottom line of plans, meaning their total risk for the year (deductible, out of pocket limit, etc) is what really matters. There are lots of great ways to impact this bottom line, too. Offering bigger buying power, HSA dollars, backend HRAs, and more.
There are a lot smarter ways to keep your team safe with great plans and cut costs in a profound way.
If you don’t currently offer health benefits to your staff, you may know how it feels to slide an offer across the table to your favorite recruit, only for them to ask you, “So, what do you guys do for health benefits?” And you just don’t have a good answer for them.
Maybe you used to give something to your team but it just got too expensive? Maybe you’ve looked into starting up health benefits again, or for the first time, but those group rates are just too big a pill to swallow?
Not anymore. Health benefits are closer than ever for your team. With Remodel Health, you are in control of your budget. You don’t have to be deterred by those ever-increasing renewal rates on traditional group health products. Now, you can stair-step your way into health benefits.
Doing something for your team is always better than doing nothing. And thankfully, doing something just got a whole lot easier and cheaper for small businesses thanks to this third stimulus.
Now is the time!
If you look at the national average for group health insurance rate increases, you’ll see you are paying double what you were just about 7 years ago. Is there any way your organization could have survived if any of your other expenses doubled in that amount of time? Absolutely not. You’d have done anything in your power to find a better solution!
Today, you do have the power to make a change that can impact the bottom line of your costs and keep great coverage for your employees. Email us and schedule a call with one of our licensed consultants. They’re ready to give you an objective analysis on what’s best for you, and help you tailor health benefits to your organization’s needs.
With Remodel Health, you’re the boss of the costs and quality of your team’s health benefits!
Important Notice: Remodel Health does not intend to provide specific insurance, legal, or tax advice. Remodel Health always recommends to consult with your own professional representation to properly evaluate the information presented and its appropriate application to your particular situation.