Best Health Insurance Strategies for Small Businesses in Colorado

Exploring Alternatives to Traditional Group Health Insurance

Persistent cost hikes push individuals and businesses to explore health sharing plans, often 50% cheaper than traditional health insurance.

These plans take a community-based approach to healthcare, allowing members to share medical expenses and potentially reduce their monthly costs.

Health sharing plans are not traditional insurance and operate differently. They include guidelines like waiting periods for pre-existing conditions. Coverage options may also vary based on specific plan rules. Consult a Personal Benefits Manager for tailored advice on managing Colorado healthcare expenses and finding the best options for you.

For small businesses that operate on tight budgets, these growing costs can quickly become unsustainable, forcing them to either reduce benefits or stop offering them altogether.

But alternative solutions like Health Reimbursement Arrangements (HRAs), health-sharing plans, or High-Deductible Health Plans (HDHPs) with Health Savings Accounts (HSAs) offer lower-cost ways to provide coverage. These alternatives can help small businesses reduce their financial burden while still giving employees access to healthcare.

Small businesses can balance financial stability with employee healthcare access by exploring alternative health benefit options. This guide offers strategies and alternatives for Colorado small businesses to effectively manage health benefit costs.

Who Must Offer Group Health?

Under the ACA, businesses with 50 or more full-time employees must provide health insurance or face penalties.

Small businesses with fewer than 50 FTEs are not required to provide health insurance, but they still need to offer competitive benefits to attract good and reliable employees.

Group Health Plan Strategies for Small Businesses in Colorado
1. Assess Your Business Needs	Review your budget and employee demographics to determine what kind of health benefits would be feasible and desirable.
2. Determine your ALE status	Determine whether your business is an applicable large employer under the ACA, and therefore must offer group health insurance (required if you have 50 or more full-time equivalent employees under the ACA).
3. Evaluate Group Health Insurance Costs	Evaluate the rising cost of group health insurance premiums and deductibles, and how this affects your ability to offer coverage.
4. Explore Alternatives to Traditional Insurance	Consider lower-cost alternatives like HRAs, health-sharing plans, minimum value plans, or Cafeteria Plans for more flexibility in benefit offerings.
5. Consider Employee Income Levels	Ensure your strategy considers both higher-wage and lower-wage employees, offering options that meet their different needs.
6. Implement Cafeteria Plans or Section 125 Plans	If flexibility is important, consider a Cafeteria Plan (Section 125 Plan), allowing employees to choose pre-tax benefits like health insurance or retirement contributions.
7. Consider High-Deductible Health Plans (HDHPs) with Health Savings Accounts (HSAs)	For cost-effective coverage, consider pairing HDHPs with HSAs, allowing employees to save tax-free for medical expenses while, also helping to keep your premiums low.
8. Explore Health Reimbursement Arrangements (HRAs)	Explore ICHRAs and QSEHRAs to offer tax-free reimbursements to employees for health insurance or medical expenses, without offering a group plan.
Step	Description

For help establishing your business needs. feel free to contact our Personal Benefits Managers for a free consultation.

ICHRA Advantages For Employers

ICHRA Features	Description
Personalized Plan Choice	Employees can choose the health insurance plan that best fits their needs, rather than being restricted to a one-size-fits-all group plan offered by their employer. This flexibility ensures better coverage tailored to individual circumstances.
Portability of Coverage	Since ICHRA funds can be used for any qualifying health insurance plan, employees can keep their chosen plan even if they leave the employer, ensuring continuity of coverage and avoiding disruptions.
Tax-Free Reimbursements	ICHRA reimbursements for qualifying health expenses are tax-free, meaning employees do not have to pay income or payroll taxes on the amounts reimbursed, effectively increasing their overall compensation.
Potential for Lower Premiums	Employees can use ICHRA funds to purchase plans on the individual marketplace, where they may find more affordable options compared to group plans, particularly if they are eligible for premium subsidies based on income level.
Expanded Access to Health Insurance	Employees who may not have qualified for group health insurance or who are ineligible for certain benefits (e.g., part-time workers) can now gain access to health insurance through ICHRA reimbursement.
Freedom to Shop the Marketplace	Employees can compare a wider range of health plans on the individual marketplace, allowing them to select plans with preferred doctors, hospitals, networks, or coverage types (e.g., high-deductible health plans for HSA compatibility).
No Network Restrictions	Unlike many employer-sponsored group plans that limit coverage to specific provider networks, employees using ICHRAs can select plans with their preferred doctors and healthcare facilities.
Coverage for Non-Traditional Insurance	ICHRA funds can be applied to certain non-traditional insurance options, such as catastrophic coverage or high-deductible plans, offering additional flexibility to employees with unique coverage needs.
Support for Remote Workers	Employees who live in different states or travel frequently can use ICHRA funds to select plans that are accepted nationwide, offering them healthcare stability wherever they are located.
Increased Transparency	ICHRAs provide employees with clearer visibility into their employer's healthcare contributions and personal healthcare costs, allowing them to make more informed financial and healthcare decisions.
Better Alignment with Family Needs	Employees can choose a plan that fits their entire family's needs, ensuring better coverage options for spouses, dependents, or children, as opposed to being limited by employer-selected group plan options.
Simplified Healthcare Expenses	ICHRAs can be used for various qualifying medical expenses beyond insurance premiums, such as co-pays, deductibles, or prescriptions, helping employees better manage out-of-pocket costs and reducing financial strain.
Continuity with Medicaid or Subsidies	Employees eligible for Medicaid or marketplace subsidies can still use ICHRA funds to supplement their coverage, allowing for seamless integration between different insurance options and employer contributions.
Lower Healthcare Cost Burden	By providing tax-free funds to cover premiums or medical expenses, ICHRAs reduce the financial burden on employees, helping them manage healthcare costs more effectively and potentially lowering out-of-pocket expenses.

ICHRA Advantages for Employees

Advantage	Description
Personalized Plan Choice	Employees can choose the health insurance plan that best suits their personal needs, rather than being restricted to an employer-selected group plan. This allows for better alignment with individual and family healthcare preferences.
Portability of Coverage	ICHRA-funded health plans are owned by the employee. If the employee leaves the company, they can keep their individual insurance plan, ensuring continuity of coverage without relying on COBRA or losing coverage when switching jobs.
Tax-Free Reimbursements	Reimbursements for health insurance premiums and qualified medical expenses under an ICHRA are tax-free, meaning employees do not need to report them as income. This effectively increases their take-home pay while reducing healthcare costs.
Potential for Lower Premiums	Employees can shop for the best deals on the individual marketplace, potentially finding lower premiums compared to employer-sponsored group plans, especially when they can combine ICHRA reimbursements with subsidies if they qualify.
Access to Preferred Providers	Employees are not restricted to a specific network of doctors or hospitals. They can select a health plan that includes their preferred healthcare providers, giving them greater control over their medical care and continuity with trusted providers.
Tailored Coverage for Families	ICHRAs allow employees to select individual health plans that better meet their family’s healthcare needs, rather than being bound by a group plan that may not offer adequate coverage for dependents or spouses.
Flexibility in Healthcare Choices	Employees can choose from a wide range of individual health plans, including high-deductible plans that can be paired with a Health Savings Account (HSA), giving them more control over how they spend their healthcare dollars.
Support for Part-Time or Seasonal Workers	Part-time, seasonal, or temporary employees, who may not qualify for traditional group health insurance, can benefit from ICHRA reimbursements, enabling them to get affordable health coverage on the individual market.
No Employer Network Restrictions	Unlike many group health plans with limited networks, employees can select any plan from the marketplace that works for them, potentially accessing wider networks and more diverse healthcare options than what the employer would provide.
Clear Cost Transparency	Employees have a clear understanding of how much their employer is contributing toward their healthcare costs, enabling better financial planning for healthcare expenses. They can easily calculate their total healthcare budget each year.
Nationwide Availability	Employees who live in different states, frequently travel, or work remotely can purchase insurance plans that offer coverage in multiple states or nationwide, ensuring comprehensive healthcare access wherever they are located.
Support for Pre-existing Conditions	ICHRA funds can be used to purchase plans on the individual market, which must comply with ACA regulations, ensuring that employees with pre-existing conditions cannot be denied coverage or charged higher premiums based on their health.
Consistent Healthcare Benefits	For employees who may be considering switching jobs, knowing that they can keep the same health insurance plan offers stability and peace of mind, avoiding the disruptions that often come with changing group plans when changing employers.

ICHRA Rules

Plan Documentation

Employers offering an ICHRA must provide formal plan documents outlining the details, including eligibility requirements, reimbursement limits, and coverage terms.

They must also issue a notice to employees at least 90 days before the start of each plan year, explaining how the ICHRA works, how it may affect eligibility for premium tax credits (PTCs), and instructions for enrolling in individual market coverage.

ICHRA Compliance

ICHRAs must comply with various federal regulations, including the Affordable Care Act (ACA).

Employers cannot offer both an ICHRA and a traditional group health plan to the same class of employees. However, they can define different classes of employees, such as full-time versus part-time, and offer an ICHRA to one class while providing a group plan to another.

Eligibility

ICHRA eligibility is defined by the employer.

They can choose to offer ICHRAs to different employee classes, such as full-time, part-time, seasonal, or employees in different locations. Employees covered by an ICHRA must be enrolled in an ACA-compliant individual health insurance plan, either on or off the Marketplace, to receive reimbursements.

Affordability

For an ICHRA to be considered “affordable” under ACA rules, the employee’s monthly premium for the lowest-cost silver plan available in their area, after the employer’s ICHRA contribution, must not exceed 9.12% of the employee’s household income (2024 rate).

If an ICHRA is deemed affordable, employees are not eligible for PTCs through the Marketplace. If it is not affordable, employees may opt out of the ICHRA and seek PTCs.

Reimbursement Limits

Employers can set reimbursement limits for ICHRAs, allowing flexibility in how much they choose to contribute.

They can vary these contributions by employee age or family size but must apply these variations uniformly within each class of employees.

Pre-Tax Contributions

Employers can choose to make ICHRA contributions on a pre-tax basis.

However, for this to apply, employees must purchase their individual insurance off the Marketplace. On-Marketplace plans cannot be funded with pre-tax dollars from an ICHRA.

Interaction with Other Benefits

ICHRAs can be offered alongside other benefits, such as Health Savings Accounts (HSAs), but only if the ICHRA is designed to reimburse for insurance premiums alone, not additional medical expenses.

If the ICHRA reimburses broader medical expenses, it may affect HSA eligibility.

These rules provide a framework for employers to offer flexible health benefits while ensuring compliance with federal laws.

For businesses with fewer than 50 employees, QSEHRAs allow employers to set aside a fixed amount to help employees pay for health insurance premiums. or medical expenses.

Employees buy health insurance for themselves and their families on the open market. They then submit proof of the expense to your QSEHRA administrator. You then reimburse the worker. Your contributions are tax-free, and the employee receives the benefit tax free.

While employer ICHRA reimbursements are unlimited, QSEHRAs have strict caps on how much employers can reimburse each employee. As of 2024, the limits are $6,150 for single employees, and $12,150 for families.

These limits are adjusted annually for inflation.

Note: QSEHRAs are only open to small employers under 50 employees or the equivalent who do not offer a group health insurance benefit of their own. If you offer a group health insurance plan, you cannot also offer a QSEHRA.

LEARN MORE: How To Start a QSEHRA In Colorado

ICHRAs vs. QSEHRAs

ICHRAs are similar to Qualified Small Employer Health Reimbursement Arrangements (QSEHRAs) but with some key differences:

This table compares ICHRAs and QSEHRAs side by side, helping you quickly determine which suits your organization better.

ICHRAs vs. QSEHRAs at a Glance

Feature/Benefit	ICHRA	QSEHRA
Eligibility Requirements	Available to employers of any size, with no restrictions based on the number of employees.	Limited to small employers with fewer than 50 full-time employees who do not offer group health plans.
Employer Size Limitations	No size limitations; available to large, medium, and small employers.	Only available to small employers with fewer than 50 full-time employees.
Employee Classes	Employers can offer different reimbursement amounts to different classes of employees (e.g., full-time vs. part-time, or seasonal workers).	No employee classes allowed. Employers must offer the same reimbursement to all eligible employees.
Reimbursement Flexibility	Can be used for both individual health insurance premiums and qualifying medical expenses.	Can be used for individual health insurance premiums and qualifying medical expenses.
Contribution Limits	No federal contribution limits. Employers can decide how much to contribute based on budget and employee classes.	Annual contribution limits are set by the IRS. In 2024, the limits are $5,850 for individuals and $11,800 for families.
Employee Eligibility	Employers can determine which employee classes are eligible (e.g., full-time, part-time, seasonal, etc.). Employees must have individual health insurance coverage to receive ICHRA funds.	All full-time employees are eligible; part-time or seasonal workers may also be eligible at the employer's discretion.
Use with Premium Tax Credits	If an employee is eligible for premium tax credits, they can opt out of the ICHRA to retain those credits.	Employees can still claim premium tax credits, but the amount of the QSEHRA reimbursement reduces the tax credit.
Minimum Essential Coverage (MEC) Requirement	Employees must have MEC for the employer to provide ICHRA reimbursements.	Employees must have MEC for QSEHRA reimbursements to be tax-free. Without MEC, reimbursements are taxable.
Integration with Group Health Plans	ICHRAs cannot be offered alongside traditional group health plans for the same class of employees but can be offered alongside a group plan for different classes of employees.	Employers offering QSEHRAs cannot offer any group health plan to any employees.
Administrative Complexity	Requires more complex plan design, particularly for businesses with multiple employee classes, and more administrative oversight to ensure compliance with ACA requirements.	Simpler to administer than ICHRAs due to uniform reimbursement amounts for all employees and fewer compliance considerations.
Portability of Health Coverage	Employee-owned individual plans purchased through the marketplace remain with the employee, even if they leave the employer.	Similarly, employees keep their individual health plans when they leave, ensuring continuity of coverage.
Tax Treatment	Reimbursements are tax-free for both employers and employees if used for qualifying health insurance premiums and medical expenses.	Reimbursements are tax-free for both employers and employees, provided employees have MEC.
Employee Choice & Flexibility	Employees have the flexibility to choose any ACA-compliant individual health plan from the marketplace or a private insurer.	Employees also have the flexibility to choose an individual health plan from the marketplace or a private insurer.
Cost Control for Employers	Employers have full control over contribution levels and can adjust amounts based on employee classes, providing scalability for businesses with varying budgets.	Employers are subject to IRS annual contribution limits, providing a more controlled and predictable budget for smaller employers.
Compliance with ACA Employer Mandate	ICHRAs can help large employers meet ACA employer mandate requirements for offering affordable, minimum essential coverage (MEC).	QSEHRAs do not satisfy the ACA employer mandate because they are limited to small employers exempt from the mandate.
Use with Other Health Savings Accounts (HSAs)	Employees may contribute to an HSA if they are enrolled in a qualified high-deductible health plan (HDHP) and the ICHRA is structured to only reimburse for premiums, preserving HSA eligibility.	Employees can use HSAs if they are covered by a qualified HDHP, but QSEHRA reimbursements for medical expenses must not disqualify them from HSA contributions.
Scalability for Growing Businesses	Scalable for businesses of any size, making it ideal for growing companies that need flexible health benefit options.	Designed for small employers. Businesses may need to switch to ICHRA or a traditional group plan as they grow past the 50-employee limit.
Compliance Complexity	ICHRAs require compliance with ACA affordability rules, MEC requirements, and other regulations, adding a layer of complexity for employers.	QSEHRAs have simpler compliance requirements, focusing on offering the same benefit.

3. Health Sharing Plans

Health sharing plans offer an alternative to traditional insurance by allowing members to pool their resources and share medical costs.

Typically organized by faith-based or community groups, members make monthly contributions, and the plan helps cover eligible medical expenses when needed.

Cost Advantages of Health Sharing Plans

One of the main advantages of health sharing plans is their lower monthly costs compared to traditional group health insurance products.

Health sharing plans often cost up to 50% less than traditional group health insurance. They attract businesses and employees seeking affordable options.

These plans often foster a sense of community and mutual support, which can enhance employee satisfaction.

Health Sharing Plans Are Not Insurance

Since health sharing plans are not considered insurance, they aren’t subject to the regulations of the Affordable Care Act (ACA).

This allows for more flexibility in designing coverage options that suit the needs of the members. Health sharing offers businesses a low-cost alternative to standard health insurance. It’s ideal for healthy individuals seeking lower premiums.

Limitations of Health Sharing

Employers should understand the differences between health sharing plans and traditional insurance.

While they offer cost savings and a supportive community, they may have limitations on coverage based on the group’s guidelines.

For example, health sharing plans do not typically include coverage for prescription drugs. They also generally impose waiting periods before they will share costs related to treating pre-existing conditions.

So health sharing plans may not be suitable for some employees or their dependents who have significant medical histories or conditions.

However, health sharing can be a fantastic option for those in good health with no preexisting conditions.

These plans can be a practical solution for businesses and employees looking to balance budget constraints with access to medical coverage. However, it’s important to carefully review the plan’s terms and make sure that it fits your employees’ needs.

Clear communication with your employees is essential to ensure they are aware of how health sharing works. For many, the benefits and savings make health sharing a favorable option to consider.

4. Section 125 Cafeteria Plans

For added tax efficiency, you can offer some benefits through a Section 125 Cafeteria plan.

These plans offer pre-tax benefits tailored to employees’ needs, providing flexibility often lacking in traditional health insurance plans.

Employees can choose from ancillary benefits like dental, vision, or life insurance. Options also include retirement or childcare assistance.

Cafeteria plans bring multiple benefits to employers:

1. Flexibility

One of the key advantages for employers is that a Cafeteria Plan allows them to provide a broad range of benefits quickly and easily, while saving taxes in the process. Instead of offering a one-size-fits-all solution, employers can provide a menu of benefits, and employees can tailor their selections based on what is most valuable to them.

This flexibility helps businesses cater to a diverse workforce where employees may have different financial situations, family structures, or healthcare needs.

2. Tax Savings

Meanwhile, both employers and workers benefit from the taxed. Employees can make pre-tax contributions toward benefits, lowering their taxable income and, in turn, reducing their tax burden.

Employers also save on payroll taxes for any contributions employees make under the plan. This makes it a cost-effective solution for both parties.

3. Retention Benefits

A Cafeteria Plan can also help employers attract and retain employees by offering a range of benefits that can meet varying needs. It adds a level of customization that is often not possible with traditional group health plans, enhancing overall employee satisfaction and retention.

Cafeteria Plan Regulations

Cafeteria Plans must follow strict guidelines under IRS Section 125 regulations.

Employers sponsoring cafeteria plans and HRAs must adhere to IRS non-discrimination rules. These rules  prevent plan sponsors from unduly favoring highly compensated employees over lower-wage workers.

Compliance with these rules is crucial to maintain tax-advantaged status. Noncompliance could lead to penalties for employers and employees.

In summary, a Cafeteria Plan lets small businesses provide flexible, tax-advantaged benefits for a diverse workforce. It controls costs without committing to one provider.

Considerations for Higher-Wage and Lower-Wage Employees

Remember to design your benefits package to suit both rank-and-file, lower-wage employees and management.

These are distinct groups with different needs: Higher-wage employees often have more disposable income, making them more likely to choose High-Deductible Health Plans (HDHPs) paired with Health Savings Accounts (HSAs).

Here are some things you should consider:

HSAs primarily benefit higher-wage employees who can afford larger contributions and upfront out-of-pocket costs.

Lower-wage employees may need options with lower upfront costs, such as:

Note: Health-sharing plans don’t qualify for Affordable Care Act subsidies, HRA reimbursements, or HSA-qualified medical expenses.

Smart employers who have diverse work forces offer a mix of benefits, with the full employee seniority and income spectrum in mind:

Balancing these options creates a flexible, inclusive healthcare strategy that meets the varied financial realities of your workforce while staying within budget.