Texas small businesses universally face challenges when searching for affordable health insurance options for their employees. But there is a new option on the market that many don’t know about and it is getting some buzzworthy attention. It’s not (a) just another group health insurance plan (b) giving employees cash in lieu of benefits, or (c) not offering employees any option.
The new option has only been around in recent years. It’s called ICHRA (Individual Coverage Health Reimbursement Arrangement) and it’s a fixed, pre-tax health benefit that makes insurance a more reasonable option for small businesses while giving something that employees rarely have — choice.
Understanding ICHRA in under 30 seconds
The hard-to-say-acronym ICHRA, or “ICK-ruh” is a newish solution meant to improve access to employee health insurance coverage. It happens to be a whole lot simpler, too. (Gone are the days of confusion and limited options.)
Thanks to a game-changing federal regulation passed in 2019, small business owners can give pre-tax cash to their employees for health insurance premiums that they buy and own. Not to mention these advantages:
- No participation requirements.
- No minimum contribution amounts.
- No long-winded sales process.
Health insurance is a struggle for almost all small businesses - why?
The size of a business plays a significant role when it comes to health insurance costs, and unfortunately, small employers often find themselves at a disadvantage. This is particularly true for startups, non-profits, and any business with fewer than 20 employees. The challenges faced are numerous and include:
- To secure a traditional small group plan, the sales process is typically time-consuming. It's not uncommon for the process to span more than six weeks and demand more than 30 hours of meetings, calls and emails.
- Participation criteria often requires that at least 70% or more of their employees enroll in order to qualify for coverage.
- The biggest concern, of course, is the cost itself. Employee health insurance has become an increasingly expensive endeavor for small businesses. Over the past decade alone – average premium costs have risen by a staggering 25%. Individual health coverage currently amounts to nearly $8,000 per person annually while families face expenses nearing $23,000.
These escalating costs coupled with growing complexity have rendered employee health insurance nearly unattainable for countless SMBs . In fact,only 39% of small businesses with less than ten employees offer healthcare benefits - marking an all-time low.
Given these challenges, how can smaller companies retain their existing talent pool while simultaneously attracting new recruits without offering competitive health benefits? The situation seems unfair.
However daunting it may appear, there are three previously mentioned options currently available: traditional health insurance plans, giving financial compensation in lieu of insurance, or pre-taxed benefit programs (ICHRA). Let’s dive into the advantages and disadvantages of each, shall we?
Pros/cons of option #1: Traditional group health insurance plans
Traditional "fully-insured" group health plans are what most small businesses are used to. The way it works is the company contacts a broker who will research options based on the type of business, the budget, and basic employee info (like age and location), and all employees pay the same rate. Larger companies may use a "self-funded" group health plan arrangement but this puts all the risk on the employer so is not an option for small businesses.
Most smaller businesses (76%) typically choose one plan for all team members. On the other hand, large companies with more than 200 employees offer 3 or more health plans, typically offer options with varying deductibles, copays, and premiums.
Advantages of traditional group health insurance plans:
- Lower risk for small businesses: When employees become unexpectedly ill and require in-depth health care, small businesses can be more deeply impacted than big brands. With traditional "fully insured" group health insurance plans, the insurance company carries the risk if total claims exceed the premiums.
- Regulations: Because these plans are regulated by the state, insurers are required to provide a certain standard of benefits so that all employees have ongoing access to a predictable standard of insurance.
- Employee recruitment and retention: Benefits are part of an employee’s salary package, and the difference between a candidate seeking employment at one company or another could come down to the health insurance coverage offered. Full benefits is a strong way to compete in a complex hiring environment.
Disadvantages of traditional insurance plans:
- Cost: Let’s be honest, these plans can be expensive, and they typically come with the highest premiums.
- Participation rates: Enrolling in a group plan means that on average, at least 70% of employees must enroll, which can be insurmountable for many small businesses.
- Fewer options: Smaller businesses usually have to choose from a handful of pre-designed plans and can only offer one plan for all employees.
- Less premium predictability: High medical costs one year (even just with one employee) can mean higher premiums the next year, making budgeting a potential nightmare.
- Time drain: Small business owners usually manage this process themselves, which can take over 30 hours, spanning several weeks. Every year.
Pros/cons of option #2: Just give employees the extra money
Small businesses often give up after learning of the financial and time costs of group plans and just opt to give the extra cash to employees via their paychecks. It is a well-meaning option and there are some helpful upsides, but overall, this option doesn’t often translate into the intended value.
Advantages of money in lieu of insurance:
- Simplicity: In this scenario, all an employer has to do is add extra money to a paycheck. Even the tiniest company can easily handle that extra step.
- Budgeting: This option gives employers complete control and predictability for budgeting, as they give exactly what they can afford.
Disadvantages of giving employees cash:
- Perception: Employees don’t always understand that they’re receiving cash in lieu of health insurance and it just blends into their wages.
- Taxes eat it up: Despite no state income tax, employees in Texas will still have 15.3% taken out of that extra cash for FICA, and another 22% for federal income taxes. Ouch.
- Employees don’t end up benefiting: Do employees even end up using the money for insurance? There’s no way to know, so they may not even get the benefit the cash is intended for, leaving many without insurance.
Pros/cons of option #3: Pre-tax, fixed health benefit (ICHRA)
ICHRA (the pre-tax, fixed health benefit) is the newest health insurance option for small businesses. Instead of offering traditional group health insurance, employers can give money to employees to help cover their individual health premiums BEFORE any taxes are taken out.
Many small business owners are unaware of ICHRA because it’s relatively new. This pre-tax fixed benefit became possible in 2020 due to IRS legislation. But we’ve been through the distraction of a global pandemic during that time, so it is understandable that it didn’t grab everyone’s attention. Adoption has been gradual, but significant changes are underway.
Advantages of ICHRA for Texas small businesses:
- Dreamy budgeting: Group plans are unpredictable when it comes to costs, but ICHRA allows a business to decide the amount they want to contribute toward their employees’ health insurance costs.
- Participation rates: There is no minimum participation for ICHRA. If 19 employees waive coverage, but 3 enroll, it can still be an option.
- Adaptability: With an ICHRA, employers can choose to give different amounts to full-time versus part-time employees (or hourly vs salary.)
- Employee choice: Rather than be limited by a single plan all employees must choose when using traditional group health insurance, employees can choose their own to align with their personal needs.
- Perception of the benefit: Rather than just getting “extra cash,” employees understand this may only be used for health insurance and are thereby more likely perceive it as a benefit. And unlike group plans, employees know exactly how much the employer contributes.
- Simple process for employers: ICHRA offers streamlined enrollment whereby employers can skip the arduous task of vetting a broker, then searching for an ideal group plan.
- Privacy for employees: By allowing employees to select their own coverage, ICHRA also eliminates the awkward position of being involved in doctor-patient relationships.
Disadvantages of ICHRA for Texas small businesses :
- Confusion: Employees can become overwhelmed by the options available to them on the marketplace and may struggle to make an informed choice.
- Expectation gap: For employees or candidates accustomed to higher-end health plans, the options available on the individual marketplace may come with less bells and whistles.
The individual marketplace in Texas (where employees shop for a health plan)
Employees offered ICHRA (the pre-tax fixed health benefit) must select a “qualified health insurance plan,” meaning a plan that complies with the requirements of the Affordable Care Act (ACA). The ACAlaw was passed in 2010, establishing a national health insurance exchange, alongside consumer protections like covering preexisting conditions, maternity care, prescription drugs, and more.
In 2015, just over 8 million people selected health insurance through the exchange, and by 2022, 14 million were using the marketplace. During that time, more options were added. What options are available to employees in Texas? Let’s take a look.
Health insurance carriers in Texas
The health insurance exchange/marketplace in Texas offers a diverse selection of health insurance providers, both national carriers and regional brands. For example:
- Aetna (Aetna Life Insurance Company & Aetna CVS Health)
- Ambetter (from Superior Health Plan)
- Ascension Personalized Care (US Health & Life)
- Baylor Scott and White Health Plan
- Blue Cross and Blue Shield of Texas
- Community First
- Imperial Insurance Companies, Inc.
- Moda Health, Inc.
- Molina Healthcare of Texas
- Oscar Insurance Company
- Sendero Health Plans
Note: The set of insurers changes by county - see all plans and prices in your county here.
Average costs of health insurance coverage in Texas
On the exchange, you’ll find plans named after metals - gold, silver, and bronze. The higher-tiered plans have higher monthly premiums but come with lower out-of-pocket expenses (deductibles, copays, and coinsurance). Lower-tiered plans have more affordable premiums but higher out-of-pocket costs.
Let’s talk about how to decide which options make sense for you. Note: The prices below reflect a 35-year old female in Austin, Texas. (Travis County)
Gold health plans: Best for high expected medical costs
For example, the least expensive gold plan in Travis County, Texas (Austin) is Blue Cross and Blue Shield of Texas MyBlue Health Gold℠ 403 (~$433/month).
Remember: Gold plans typically have the lowest deductibles and copays, but higher monthly rates. It’s an advantage for folks who know they’ll frequently require medical visits.
**Silver insurance plans: Best for average medical costs
As an example, the cheapest silver plan in Travis County, Texas is the Baylor Scott and White Health Plan Prime Silver HMO 008 (~$470/month).
Remember: Silver plans are the middle ground between the other two metal-named plans, combining lower monthly premiums and out-of-pocket costs.
Bronze health plans: Best for healthy folks with emergency savings
For example, the Bronze plan that costs the least in Travis County, Texas is Sendero Health Plans’ Reliable Bronze (~$333/month).
Remember: Bronze plans have the lowest monthly premiums but significantly higher deductibles and co-pays, meaning if you need medical care during the year, you pay more out of pocket before coverage kicks in.
**Sometimes, Silver health insurance plans can cost more than Gold plans in certain areas. This is because subsidies are tied to a benchmark Silver plan's price, not the Gold plan's. So, a Gold plan might be a better deal for some people, even if it seems more expensive upfront
Snapshot of health insurance costs in Texas
Health care costs vary based on an individual’s age and location, but here is a quick overview of the lowest-cost plans in Travis County by plan tier and individuals’ age:
Find the best health insurance option for your Texas small business
In summary, health insurance has always been complicated - especially for small businesses. But a new option, the pre-tax fixed health benefit, ICHRA, seeks to simplify benefits and empower employees of smaller-sized small businesses in Texas. The option is a winner for businesses that find traditional group health plans to be too limiting and cumbersome.
If you’re looking for guidance on ICHRA pre-tax fixed health benefits, reach out to StretchDollar or get started here.