Small Business Health Insurance Options
Interview with Mark Schwartz
Schwartz & Associates, NYC
By Jeff Yoskowitz and Kathryn Gordon
Kathryn: Hi Mark, I know you’re a broker and help find health insurance for business owners. Can you tell us how COBRA (the Federally mandated continuation of coverage) works for someone that is considering quitting their current job to start their own business?
Mark: If an employee under a plan either quits or is let go, they can extend via COBRA for 18 additional months. The employee remains under the coverage of the prior employer, but the employer can charge more for the plan at that point. It may be worth pricing out COBRA coverage options because under state law (such as NY state), in certain circumstances it can be extended past 18 months.
Jeff: What do you see changing in the health insurance business going forward?
Mark: The jury is still out on President Obama’s changes. Some may choose to pay fines rather than follow a particular standard. Hopefully, more people will have access to healthcare!
Until 2014, if you are an employee of a small to medium-sized business, the owner doesn't have to offer group benefits but you can choose to buy an individual policy. All you need for that is proof of residency in your state. Iindividual coverage will be more for coverage than a Sole Proprietor or Small Group Plan.
Kathryn: Can you tell us more about a Small Group Plan and a Sole Proprietor Plan?
Mark: Basically, there are 2 options open to business owners with less than 100 employees: a small group plan or sole proprietor. A company with more than 100 employees can qualify for a large group plan.
1) Small Group Plan (coverage for 2-49 people)
The advantage is that you can obtain better rates than with individual health coverage (or sole proprietor rates). What you need to qualify for a group plan is to be in a business relationship (either a partnership has been formed, or you have employees you pay via W2’s). You can offer coverage, or not, to your employees. You will be able to pick from a portfolio of different health insurance companies/costs via a broker, who can educate you on your options. The business relationship has to be substantiated – and a “true arms length relationship” in case of an audit.
2) Sole Proprietor (coverage for 1)
A business owner can obtain sole proprietor rates, which are generally not as favorable as group rates – but more favorable than individual health coverage rates. You can put your family on as dependents, but it will cost more per month than it would under small group health plan rates. So, if you have an employee besides yourself, it is clearly favorable to pursue small group options. There are specific options available to the sole proprietor specific to each state, which means that there are not as many options as under a qualified small group plan. But as a broker, we will find you what we can!
Jeff: What kind of documentation is required for you as a broker to obtain rate quotes for a small group plan?
Mark: We would need to have the following:
- Breakdown of the number of singles, employee/children, employee/spouse and number of families.
- The zip code of where the business resides
- A copy of the existing plan design (if plan already exists)
Mark: It depends on the details of that couple. If both people are working for XYZ company and both truly work for the entity, then regardless of their job descriptions they can get a small group plan. The wife may be the business owner and hire other family members, paid via a W2.
However, if for example, a wife owns a business and the husband keeps the day job – the wife could be a dependent under the husband’s employer’s plan, but would probably only qualify to get her own Sole Proprietor plan herself– not a group plan.
Jeff: Does the income level matter? Can someone put someone “on the payroll” for a nominal wage and qualify for small group health insurance rates?
Mark: If the owner requires an employee to work full time then payroll records must reflect wages that correlate to full time hours. Most small businesses pay their employees through a payroll service (such as Compu-Pay) for a nominal monthly fee, to have the documentation at the ready in case of a potential audit. It’s illegal to be a legitimate company without payroll records if a claim is filed. So in the prior example, a wife would have to legitimately hire the husband.
Jeff: If a small business owner decides to obtain health insurance for themselves (and/or their family), do they have to offer the same plan to their employees?
Mark: The owner can choose to have a different coverage plan for “upper management” versus what they offer to employees. And the business owner can determine if they want the employee to pay the health insurance premium, or if the employer wants to pay the premium for the employee as an incentive to attract and retain employees.
Kathryn: When someone obtains health insurance, how long are rates locked in for?
Mark: Typically it is 12 months from the date of coverage. We recommend that business owners be in contact with their broker so there isn’t a scramble regarding paperwork to make changes to a health plan. A small business might not have human resources or a CFO and the business owner is typically the person doing their own job as well as researching their health insurance options and processing paperwork.
Communication with their broker goes a long way. We start to talk to our clients as soon as we know if plan options are being eliminated (by the health insurance company), to show new options in the market. When we know projected rates, we start to talk to business owners. What was competitive last year (regarding utilization, and/or laws) may not be the same now. We need to talk to you, to avoid doing everything last minute.
Plans can be initiated all year round – it doesn’t have to be on a calendar year basis. Most companies make changes to their health plan 30 days prior. There is usually an open enrollment period when the paperwork needs to be completed.
Kathryn: It always seems like it’s a scramble, even for large companies to have their employees hurry up and complete paperwork!
Mark: Yes, but it doesn’t have to be. Every carrier requires different paperwork, and it’s best not to do it in haste. Health insurance can be obtained overnight via email if it’s required. Cards are typically mailed within the first month, but you can obtain verification of coverage via email to take to doctors in the interim.
Kathryn: Thanks Mark for all the information! And if someone wanted to contact you as a broker?