Finding affordable health insurance for employees can be tough for small businesses in North Carolina. It might even feel like there are only three options: offering a traditional group health plan, giving employees extra cash, or doing nothing at all.
There's actually another solution that's been getting a lot more attention among small employers ever since it became available a couple of years ago. It's called ICHRA, a hard-to-say acronym that means a fixed, pre-tax health benefit. We’ll explain more.
What is an ICHRA, in normal language?
ICHRA stands for Individual Coverage Health Reimbursement Arrangement, which doesn’t tell you much more than it’s a confusing and long acronym. ICHRA is actually a way to give employees pre-tax dollars to help cover their health insurance premiums. Believe it or not, this wasn't possible until 2020, thanks to a federal legislation passed one year before. Today, employers have access to this new, more flexible funding option for employee health benefits..
Note: The healthcare industry loves acronyms, which can make discussions confusing. So for the sake of this guide, we’ll most often refer to ICHRA as a pre-tax fixed benefit.
Why is affordable health insurance so hard to find for small businesses?
The size of a business plays a crucial role in determining health insurance costs, which often puts small employers—startups, non-profits, and businesses with fewer than 20 employees—at a disadvantage. Let's dig into the reasons behind this. Traditional small group plans generally:
- Have long sales processes often taking up to six weeks. When you’re wearing so many hats this can be a high hurdle.
- Generally have a participation minimum. Meaning, about 60 to 70% of your employees must enroll to make it even possible to offer.
- Oh, and the cost! Employee health insurance for small businesses has become exorbitant. Premiums have increased by a whopping 25% in the past decade. Today, individuals face an average cost of nearly $8,000, while families have to dish out around $23,000. Ouch!
All these rising costs and increasing complexities have made employee health insurance unattainable for many small businesses. In fact, the percentage of small businesses offering health benefits to their employees has hit a record low of 39% in the past 12 years. Eek.
So how can small employers retain their current talent and recruit new ones, without health benefits, the most important hiring considerations for employees outside of salary/wages? We’ll explore three currently available options — Traditional Health Insurance, Giving Extra Money and Pre-Tax Fixed Benefit (ICHRA). Let's dig into the advantages and disadvantages of each.
#1 The most traditional route: Fully insured, group health insurance plan
This is the kind of health plan that small businesses are usually familiar with. Typically, you work with a broker who collects basic info about your employees, business, and budget to offer a range of options. Basically, everyone gets the same rate based on age and location. If you're a tiny biz, you'll probably have to pick one plan for everyone. If you're bigger, you might get a few plan options with different deductibles, copays, and premiums.
Advantages of traditional group health insurance plan
- Less risk: The insurance company bears the risk if the total claims exceed the premiums. This is a benefit for small businesses, where unexpected costs can have a much bigger impact.
- Regulated coverage: These health insurance plans are subject to state laws and regulations. This means that they must provide certain standard benefits, ensuring employees have access to basic healthcare.
- Helps with recruitment/retention: Beyond salary, health insurance coverage stands as a crucial employee benefit. Its absence can determine whether your top preference selects you or opts for another candidate.
Disadvantages of fully insured health plan
- Expensive: These plans often have the highest premiums.
- Less flexibility: Smaller-sized small businesses often need to choose from the pre-designed plans offered by the insurer and one plan for all employees.
- High participation rates: Most plans require at least 60% of employees to enroll. That can be a high bar for many SMBs.
- Unpredictable premium increases: Often just one employee with an unexpected costly medical event, will result in higher premiums the next year. This can make it tough sustaining a benefits budget year-over-year.
- Complicated enrollment and onboarding: Small business owners often manage the paperwork themselves, which can take 30 or more hours over many weeks, every year.
#2 Giving employees extra money
Some small businesses that don't have the time or money to offer a group health plan are choosing a different approach - a little extra cash in their employees' pockets. While there are some benefits to this, like simplicity and ease, it might not be delivering the value the employer intends.
Advantages of giving money:
- Simplicity: Just add some extra money to a paycheck.
- Control over your budget: Employers can give exactly what they can afford.
Disadvantages of giving extra money:
- Do they know it’s a benefit? Extra money can easily look like extra salary or wages.
- It’s actually 42% less: After taxes, that extra benefit doesn’t go as far. The combined tax impact breaks down like this: FICA tax (15.3%), federal income tax (about 22%), plus state income tax (4.95% in North Carolina).
- Are they even buying insurance? A little extra money can be used for anything, not necessarily health insurance.
#3 Fixed, pre-tax benefit (ICHRA): The newest option
One of the newest health insurance options for small businesses is called ICHRA, or pre-tax fixed health benefit. The name sounds complicated, but the way it works is actually pretty simple.
Instead of providing traditional group health insurance, employers can give their employees pre-tax money to cover their individual health insurance premiums. This means employees can shop for, purchase, and own the health plan that suits their needs.
Now, you might be wondering why you've never heard of it before. Well, it's relatively new, made possible in 2020 thanks to IRS legislation. We all know how hectic 2020 was, so it's no surprise this newish option took some time to catch on.
Advantages of ICHRA for North Carolina small businesses:
- Set your own budget: Rather than being tied to the costs of a group plan (which are also unpredictable), the small business owner decides how much they want to contribute toward their employees' health insurance costs.
- Employee choice: Employees are not limited to a single health plan as they are with traditional group health insurance. Rather, they can choose a health plan that best meets their needs.
- Customization: Want to give a different amount to your Full-Time employees versus Part-Time? You can with an ICHRA.
- No participation requirements: There is no minimum participation requirement. As many or as few can enroll or waive.
- Hassle-free enrollment: Employers no longer need to go through long shopping processes to find a perfect group plan. Because employees pick their own plan, they are also relieved of the weird role of coming in between an employee and their doctors.
Disadvantages of ICHRA for small businesses:
- Employee confusion: With the freedom to choose their own plans, some employees may feel overwhelmed by the options and struggle to make an informed choice.
- Expectation gap: Employees used to high-end health plans with lots of bells and whistles, may not find those options on the individual marketplace.
Where employees shop for a health plan: The individual marketplace for North Carolina
Employees offered a pre-tax fixed health benefit (called ICHRA) will have the option to select a qualified health insurance plan from the federal health insurance exchange, also known as the marketplace. This marketplace was established in 2010 with the enactment of the Affordable Care Act, which aimed to ensure that Ameircans have access to comprehensive and affordable health insurance. The Act also incorporated consumer protections such as the coverage of preexisting conditions, prescription drugs, emergency services, maternity care, mental health services, and more.
The number of Americans enrolled in health exchange plans grew from 8.5 million in 2015 to 14.1 million in 2022. The exchange has more diverse selection and options than ever before. Let’s take a look.
Health insurance carriers in North Carolina
Today, there are nearly a dozen insurers offering health insurance exchange plans in North Carolina. These include large federal carriers you’ve heard of and regional players:
- Aetna Health Inc.
- Ambetter of North Carolina
- AmeriHealth Caritas North Carolina
- Blue Cross and Blue Shield of NC
- Celtic Insurance Company
- Cigna HealthCare of North Carolina
- Friday Health Plans of North Carolina
- Oscar Health Plan of North Carolina
Note: The set of available insurers changes by county, so the best health insurance plan available in North Carolina will depend on where you live and your chosen level (tier) of coverage.
Health insurance average costs in North Carolina
When checking out the health insurance exchange, you'll find plans categorized as Gold, Silver, and Bronze. The higher-tiered plans have higher monthly premiums but come with lower out-of-pocket expenses, like deductibles, copays, and coinsurance. On the flip side, the lower-tiered plans have more affordable premiums but higher out-of-pocket costs. Here’s a good way to decide which makes sense for you. (Note: The prices below reflect a 35-year old female in Charlotte, North Carolina.)
Gold plans: Best if you have high expected medical costs
The cheapest Gold plan in North Carolina is Ambetter - CMS Standard Gold with Atrium Health - HMO. [Approx $460 for a 35 year old.]
Gold health insurance plans offer the advantage of having the lowest deductibles and copays. However, it is important to note that these plans come with higher monthly rates.
Silver plans: Best for those with average medical costs
The cheapest Silver plan in North Carolina is the Aetna CVS Health - Silver S: Aetna network of doctors & hospitals + $0 MinuteClinic + $0 Telehealth 24/7 - HMO. [Approx $454 for a 35 year old.]
Silver health plans are a good middle ground between Bronze and Gold plans, combining affordable monthly premiums and out-of-pocket costs. In this case, the monthly premium is about the same as the Gold, but the deductible is twice as much.
Bronze and Catastrophic plans: Best if you're healthy and have emergency savings
The cheapest Bronze plan in North Carolina is Ambetter Clear Bronze with Atrium Health - HMO.
These policies have cheap monthly premiums for health insurance but much higher cost-sharing and often more limited networks. So if you need medical care during the year, you will have to pay more money out of pocket before coverage kicks in.
Finding the best value for your North Carolina small business