How to Buy Health Insurance for a Small Business

Last year my good friend was starting a new business. He loved his idea and couldn’t wait to start growing, selling and expanding. But he also knew he had to take care of the necessary administrative duties of a small business. One decision he knew could have a big effect on his business was whether or not to offer health insurance to his employees.

Why get health insurance as a small business

Health insurance plays a large role in attracting and retaining talented employees. Some people think that offering a higher salary without benefits would attract better candidates, but the truth is that people actually have a hard time valuing the cost of health insurance. The old story of a professional tennis player should illustrate my point.

The tennis player wouldn’t play a big tournament when they offered $100,000. They bumped the offer up to $200,000, but the player still declined. The sports agent knew the player was family-oriented so he decided to get creative. He offered to fly the athlete’s entire family out to watch the match at his expense (a $5,000 value). The player instantly said yes to the “new” offer.

Offering health insurance can be your “paying for the flight,” a gift that has more value to the employee than the same amount of money in salary. Keeping your employees healthy will also reap rewards down the line as it reduces absenteeism and recruiting costs. And by keeping employees happy, you’ll be keeping them productive.

How to get health insurance

You have four primary ways to get insurance for your company:

1. Buy direct from a health insurance company

You can start by comparing online quotes from different carriers. One benefit is that you wouldn’t be paying a broker and so you might end up paying less. Keep in mind that it’s very difficult to compare the plans across carriers, so you need to understand what you are looking for. The potential downside is that you may decrease your initial cost but end up paying more in the future. You will also spend a significant amount of time learning the ins and outs of insurance.

2. Associations that offer health insurance

Joining a larger pool can help diffuse cost, but if you are under 50 employees you’ll be grouped into a risk pool regardless. Associations may lead you to pay less in premium but more in out-of-pocket expenses.

3. Individual health insurance

You may allow employees to select a carrier and plan themselves and offer a defined monthly contribution to their premium. If your demographic is young and not using healthcare that much, this option would enable them to simply purchase the lowest-cost option.

4. Use a broker

Brokers are experts in putting together the right insurance and benefits package for your business, with access to hundreds of different healthcare companies. While they take a commission on sales, those commissions often are not passed on to you.  The beauty of a broker/consultant is that they get more valuable each year as they learn more about your employees’ healthcare needs.

Our General Recommendation

We generally don’t recommend people try the do-it-yourself approach. Instead of spending precious hours learning the details of healthcare, hire a broker and free yourself to focus on the business. We believe any potential increase in cost is more than offset by the future savings when you have the right plan. You can spend less money and use your time to earn more.

Healthcare is only getting more expensive as premiums are hiked and insurance companies lose money. If you can help employees not only get coverage but pay less to use it, then you’ve got an offer that’s worth a lot more than the same amount in cash.