Franchisees are similar to small business owners in one important way. On top of managing the day-to-day operations, they also have to think about retaining and recruiting talent. And just like SMBs, offering access to health insurance, the most desired employee benefit, is complicated and expensive.
So, what should franchisees do? Let's dive into the top three health benefit options for franchise owners and explore them in more detail.
First, why do health benefits matter for franchisees?
Employers with less than 50 full-time employees are not obligated to offer health benefits, but doing so is not just beneficial for your employees, it's also good for your business. Happier employees stay longer, and in a competitive job market, that's crucial.
Have more than 50 employees? Larger employers are required to provide health insurance as part of the Affordable Care Act law. Employers who don't comply are often fined. To read more about the IRS requirements, click here.
For the purpose of this article, we're focusing on franchises with less than 50 employees, where health insurance is not required but a good idea. Let's take a closer look at the top three health benefit options for these types of franchises.
3 Health Benefit Options for Franchisees:
Traditional Group Health Insurance Plan: Fully-insured or level-funded
A traditional group health insurance plan is the most common type of health benefit offered by employers. It covers the employee (and sometimes their dependents) with a shared cost between the employer and employee.
Generally, the options fall under two types: Fully-insured and level-funded. We're about to jump into some health insurance jargon here, but we'll simplify it as best as we can.
With a fully insured health insurance plan the company (franchisee) pays a premium to the insurance carrier. The premium rates are fixed for a year, based on the number of employees enrolled in the plan each month. With a fully insured plan, the insurance carrier assumes the risk and responsibility of all claims. This means that the insurance carrier covers the cost of the claims, while the company is safeguarded from large claims by a stop-loss insurance. The company has the responsibility of paying monthly premiums regardless of the health costs incurred each month.
With a level-funded health plan employers pay a fixed monthly amount to a carrier like fully insured plans. This amount typically includes the cost of administrative and stop-loss insurance, along with an estimate of the expected claims based on the health of the employees. Because they are making an assesment on your employee health, they require some underwriting, meaning each employee will be required to fill out a short health survey.
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 franchise owners, where unexpected costs can have a much bigger impact.
- Regulated coverage: Fully insured and level funded health plans are subject to state laws and regulations. This means that they provide certain standard benefits, ensuring employees have access to basic healthcare. (This could also fit the "less risk" category.)
Disadvantages of Traditional Group Health Insurance Plan
- Expensive: These plans often have the highest premiums.
- Less flexibility: Smaller-sized franchises will 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 franchisees.
- Unpredictable premium increases: Often just one employee with an unexpected costly medical event, will result in higher premiums the next year. (This is particularly true for level-funded plans.) This can make it tough sustaining a benefits budget year-over-year.
- Complicated enrollment and onboarding: Franchise owners often manage the paperwork themselves, which can take 30 or more hours over many weeks, every year.
Health Savings Accounts (HSAs)
These accounts allow employees to save their own pre-tax dollars for medical expenses. Employers can also contribute to these accounts, which can be a great way to incentivize employees to take care of their health. HSAs are flexible and can be tailored to meet individual employee needs, however, they are only available to employees with qualified high deductible health plans.
Advantages of Health Savings Accounts (HSAs)
- Tax advantaged: Contributions to an HSA are pre-tax, which means both employees and employers can benefit from tax savings. This can be especially advantageous for franchisees, as they can reduce their taxable income.
- Flexible: Unlike traditional group health insurance plans, HSAs give employees the freedom to spend their healthcare dollars how they see fit. If an employee changes jobs, they can take their HSA with them.
Disadvantages of Health Savings Accounts (HSAs)
- Limited: HSAs are only available to employees who have a high-deductible health plan.
- Complex: HSAs require more management and oversight than traditional health insurance plans. For franchisees, this could mean investing more time and resources into administrating these accounts.
Pre-tax, fixed health benefit (also known as an ICHRA)
An ICHRA (individual coverage health reimbursement arrangement) is a newer type of health benefit that can be beneficial for franchises, especially those with a smaller workforce. With an ICHRA (pronounced ICK-ruh), employers set aside monthly pre-tax dollars that employees can use to purchase their own insurance. This allows for more flexibility and can be cost-effective for both employers and employees.
Advantages of a pre-tax, fixed health benefit
- Control: ICHRAs provide franchisees with the ability to define their own contribution rates. This control allows business owners to set a budget that aligns with what they can afford.
- Employee choice: Employees have the freedom to choose their own health insurance plan, based on what they need (also removing the pressure to find one health plan that fits everyone.)
- Tax advantaged: Like HSAs, ICHRAs also offer tax benefits. The funds contributed towards ICHRA are tax-deductible for franchisees, reducing their taxable income. It also means it goes a lot further than simply giving employees extra cash.
- Flexible: Prefer to provide health benefits to only full-time or salary staff? With an ICHRA, you can tailor the benefit to a specific category of worker.
Disadvantages of a pre-tax, fixed health benefit (ICHRA)
- 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.
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What types of franchisees would be a good fit for an ICHRA?
A pre-tax fixed health benefit, like the one that StretchDollar offers where dollars can only be applied to premiums, are particularly beneficial for franchises with a smaller workforce.
It can also be ideal for franchises that have employees working in various locations since health insurance costs vary by county.
Bottom line: Franchises have more options for health benefits
Offering employee health benefits is crucial for recruiting and retaining a happy, healthy, and productive workforce. When it comes to health benefit options for franchises, you have a few great choices like group health insurance, HSAs, and ICHRAs. Each option has its own perks, but an ICHRA can be a fantastic choice, especially for smaller franchises.
Looking for more guidance on pre-tax fixed health benefits? Contact StretchDollar or get started here.
