Offering health insurance is one of the best ways to help you retain employees and improve morale in your therapy practice.

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In fact, in one survey, 56% of respondents said that the quality of their health insurance was a major factor in determining whether they stayed with their current job.

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Before you start shopping around, here are some steps you can take to make the search for a healthcare plan for your therapy practice less overwhelming.

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Definitions of health insurance terms

If you’re a bit fuzzy on the details of how health insurance works, these are some useful terms to understand. If you’d like to take a deep dive, HealthCare.gov offers an extensive healthcare glossary.

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Coinsurance: The amount you pay for healthcare services after your plan pays for the rest. For instance, if you have coinsurance of 20% (or 80% coverage), you pay 20% of your healthcare costs, and your plan pays the rest.

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Copayment: A fixed amount you pay for a healthcare service covered by your plan, typically at the point you receive the service. Copays may vary according to which type of healthcare service you’re receiving.

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Cost sharing: A blanket term for fees you must pay out of pocket when receiving healthcare service covered by your plan. Types of cost sharing include copayments, deductibles, and coinsurance. Costs that aren’t covered by your plan—including premiums and penalties—are not considered cost sharing.

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Deductible: The total amount you must pay over a particular period (usually one year) before your healthcare coverage kicks in. For instance, if your deductible is $1,000, you must pay $1,000 in healthcare fees—either as part of a single larger purchase, or across multiple smaller purchases—before your plan covers any of your healthcare purchases.

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Premium: The amount you pay on a monthly, quarterly, or annual basis for your healthcare plan.

Does the ACA require you to offer health insurance?

You may have heard that some businesses, due to the Affordable Care Act (ACA), are required to offer employees health benefits.

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Just to clear the air: while some businesses must provide employees with access to health insurance, the requirement probably does not apply to your therapy practice.

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Employers with fewer than 50 full-time employees can buy health coverage for their employees through a state or federal SHOP Exchanges (often more cost-competitive options), the employer can decide the amount to contribute towards coverage, and coverage is guaranteed to be ACA-compliant.

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Those employers, likely such as yourself, with 25 or fewer full-time employee equivalents who obtain employee coverage through a SHOP Exchange may qualify for the Small Business Health Care Tax Credit.

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Additionally, self-employed individuals may enroll in individual Marketplace Exchange coverage, and may still be eligible for a Premium Tax Credit depending on their net income and family size. Self-employed people who would normally have difficulty obtaining reasonably priced insurance, or any insurance at all, no longer have to rely on their spouse's employer coverage or cling to a job because of the benefits.

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It should be noted, though, that employers who obtain group health coverage through an insurer will not be responsible for navigating the technical requirements of the Market Reforms added by ACA (such as coverage that does not exclude pre-existing conditions). It is the insurer's responsibility to design and provide coverage that meets these additional standards. 

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Small employers are exempt from penalties attributable to the insurer's noncompliance. It is also up to the insurer to satisfy new coverage provider information reporting requirements

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However, some small employers that offer coverage may face significant burdens under ACA, the biggest burden perhaps falling on employers that "self-insure" in that they pay for their employees' coverage directly rather than through an insurer. 

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These employers are to a large degree treated as insurers, and they must satisfy the technical coverage and administrative requirements imposed on insurers by the Market Reforms.

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If you’re considering dramatically increasing your number of staff, you can learn about the health benefits requirements for large businesses from the IRS page about employer shared responsibility provisions.

Interview your employees about their health insurance needs

It may sound obvious, but employee interviews are the place to start when it comes to choosing health insurance for your therapy practice.

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Whether your practice has two employees or twenty, get everyone together for a group discussion about what people are looking for, broadly, from their health coverage.

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Later, sit down for a one-on-one, confidential interview with each employee. There are topics some employees may not feel comfortable discussing in a group setting—such as ongoing health concerns, or affordability—and a one-on-one conversation gives them the chance to bring them up.

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Some questions you may ask include:

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• Do you prefer a health maintenance organization (HMO), point of service (POS), or preferred provider organization (PPO)? More on this below.
• Are you interested in health savings accounts (HSAs) or flexible spending accounts (FSAs)? Again, more on this below.
• Are you seeking coverage for dependents or spouses?
• Are you interested in dental and vision coverage?
• Would you want coverage for frequent travel?

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Keep in mind, however, that there are limits to what you are allowed to ask employees about their health.

Understand different health plan designs

Different health plans offer different levels of flexibility and coverage for employees depending on their design.

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The three main health plan designs are:

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1. Health maintenance organizations (HMOs)
2. Preferred partner organizations (PPOs)
3. Point of service (POS)

HMOs

With an HMO, members are able to see medical providers who are in-network. In-network providers have contracts with the health insurance company that guarantee a lower price, and that savings is passed on to members in the form of a less expensive plan.

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If a member visits an out-of-network care provider, unless it’s an emergency, the visit typically won’t be covered.

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Members of HMO plans choose primary care doctors to visit for regular checkups. If they need to see a specialist, in order to be covered, their primary care provider must refer them.

PPOs

A PPO gives members more flexibility in terms of who they are able to see for care, but with higher premiums and copays.

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Like an HMO, a PPO has in-network providers. But it also provides coverage for some out-of-network providers. The difference is that visits to in-network providers have more coverage—meaning, they cost less—than out-of-network providers.

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Providers that are out of network may be covered by the health insurance plan up to a certain limit. If their services are beyond that limit, members must pay the difference.

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Members of PPO plans don’t need to get a referral in order to see a specialist. 

POS

A POS plan lies somewhere between an HMO and a PPO. It features a narrower range of providers, like an HMO, but a higher premium and copay, like a PPO.

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Also, as with an HMO, each member has a primary care provider, and needs a referral to see someone out of network.

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Broadly speaking, POS plans are less popular, among employees, than HMO and PPO plans. They’re also less common in general.

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Learn about HSAs and FSAs

Depending on the insurance provider you choose, you may be able to sponsor health savings accounts (HSAs) for each employee at your practice. Through your insurance provider or an additional service, you may also be able to offer them flex spending accounts (FSAs).

HSAs

When they qualify for an HSA, your employee is able to contribute tax-free dollars to a savings account. The account is administered by an insurance company or a bank, and while the money is being held, it gains interest. Those gains are—again—tax free.

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In the event the employee withdraws money to pay for a qualified medical expense, the withdrawal is also untaxed. If money is withdrawn otherwise, it’s reported on the employee’s tax return, and subject to a 20% penalty.

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However, if the employee withdraws money after age 65, there is no 20% penalty. For this reason, many people use an HSA as a secondary savings account for retirement.

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In order to qualify for an HSA, an employee must be part of a high-deductible health plan, with a deductible of $1,400 or more for an individual, or $2,800 or more for a family.

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An HSA exists independently of the employer. Meaning, if your employee leaves your company, they won’t lose access to their HSA.

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Having an HSA can help a member of a plan with a high deductible cover unexpected medical expenses at a cheaper cost—thanks to tax savings—than they would be able to otherwise. If you’re considering a plan with a high deductible, be sure to talk to the insurance company about HSAs.

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For 2022, the annual contribution limits to HSAs are $3,650 for individuals, and $7,300 for families. If the owner of the account doesn’t reach the limit, the remaining amount rolls over into the following year.

FSAs

As with HSAs, when you offer your employees access to FSAs, they can put aside pre-tax savings, and later withdraw them, tax free, to cover qualified medical expenses.

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Unlike HSAs, FSAs are dependent upon employers. If an employee leaves your practice, that could mean they leave behind any savings in their account.

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Both employees and employers (on the employees’ behalf) can make contributions to an FSA. 

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For 2022, the contribution limits for FSAs are $2,850 per individual, up to $5,000 for families. 

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FSAs are more suited to shorter-term savings than HSAs. That’s because the contribution limits on an HSA roll over to the next year, while FSAs only carry over a small portion. And, thanks to the over-65 rule with HSAs, they can be used to save for retirement.

Decide whether to enroll in SHOP

The Small Business Health Options Program (SHOP) gives you access to an online marketplace where you can search for and compare health insurance plans. Enrollment is open to businesses with 50 or fewer employees.

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SHOP was introduced in 2010 as part of the ACA. It’s federally administered, but allows you to search for plans available in your state. Some states run their own versions of SHOP. 

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States with their own alternatives to SHOP are:

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• California
• Colorado
• Connecticut
• Idaho
• Maryland
• Massachusetts
• Minnesota
• New York
• Rhode Island
• Vermont
• Washington
• Washington, D.C.

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Through SHOP, you can hire an agent or broker to represent your business. However, many small business owners choose SHOP as an alternative to hiring a broker or contacting insurance companies themselves.

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When your business enrolls in SHOP, you can either settle on one plan for all of your employees, or give your employees the option to choose their own plans within the criteria you set.

SHOP and the Small Business Health Care Tax Credit 

Generally, as a small business employer, you have the opportunity to reduce the cost of providing health insurance to yourself and/or your employees during the course of the year through use of the small business health insurance tax credit. 

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While the credit is complex and there are important limitations, don’t let that discourage you from exploring this potentially impactful benefit to your practice.  

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Small businesses. The small business health insurance tax credit is targeted to employers that have no more than 25 full-time equivalent (FTE) employees paying wages averaging less than $50,000 (adjusted for inflation annually) for each employee per year. The credit is claimed on IRS Form 8941, Credit for Small Employer Health Insurance Premiums, which must be attached to your return.

The maximum credit is 50% of qualified premium costs paid by for-profit employers. However, you may claim the credit only if it offers one or more qualified health plans purchased through a state insurance exchange. 

Employees. To determine eligibility for the credit, employers must calculate their number of FTEs. The number of an employer's FTEs is determined by dividing the total hours for which the employer pays wages to employees during the year (but not more than 2,080 hours for any employee) by 2,080. The result, if not a whole number, is rounded to the next lowest whole number. Lawmakers selected 2,080 hours because 2,080 hours comprise the number of hours in a 52-week assuming a 40-hour work week. Any hours beyond 2,080, such as overtime hours, are not taken into account when calculating FTEs.

Average annual wages. Employers also need to calculate average annual wages. The amount of average annual wages is determined by first dividing the total wages paid by the employer to employees during the employer's tax year by the number of the employer's FTEs for the year. The result is then rounded down to the nearest $1,000 (if not otherwise a multiple of $1,000).

Additional requirements. Congress imposed some important limitations on the credit. Employers must exclude certain individuals from the calculation of FTEs and average annual wages. These individuals include a sole proprietor, a partner in a partnership, a shareholder owning more than two percent of an S corporation, and any owner of more than five percent of other businesses. Certain family members of these individuals are also excluded from the calculation of FTEs and average annual wages. These include a child, a parent, a sibling, and others. This list is not exhaustive. Please contact our office for more details about who is excluded from these calculations.

Additionally, the credit applies only to premiums paid by the employer under a qualifying plan. An employer's contribution is also linked to the average cost of health insurance in its state or part of a state. Our office can review your plan and determine if it meets the criteria for the credit.

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The credit also affects an employer's deduction for the cost of health insurance premiums paid on behalf of employees. The amount of premiums that an employer may deduct is reduced by the amount of the small employer health care tax credit.

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To determine whether you qualify, and find out the value of your tax credit, use HealthCare.gov’s small business health care tax credit estimator.

Create a budget for employee health benefits

Before considering different plans, try to get an idea of how much your practice can afford to pay each year for employee health insurance.

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According to a survey by the Kaiser Family Foundation (KFF), in 2021, employers paid an average of:

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• $16,253 per family plan (or 73% of the average premium)
• $6,440 per individual plan (or 83% of the average premium)

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You can use these numbers as a guide when planning to offer health insurance to each employee. Keep in mind that benefits in addition to those covered by insurance premiums—such as employer contributions to FSAs—can drive up the cost per employee.

Consider an HRA as an alternative to health insurance

If the cost of health insurance for your employees is outside your budget, you may still be able to help them cover some of their medical expenses by setting them up with a health reimbursement arrangement (HRA).

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As an employer, you make tax-free contributions to an employee’s HRA account. They can withdraw money from their account, and use it to cover qualified medical expenses. 

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These include:

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• Premiums for individual health insurance
• Prescription drugs
• Out-of-pocket medical expenses

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If you have 50 or fewer employers, you are likely able to set up a Qualified Small Employer Health Reimbursement Arrangement (QSEHRA). 

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Offering the employees of your therapy practice a healthcare plan is one of the most impactful things you can do to improve overall happiness and satisfaction in the workplace. That said, it takes some planning to determine what kind of coverage you can give them access to. 

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To get started, check out our guide on how to plan a budget for your therapy practice.

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This post is to be used for informational purposes only and does not constitute legal, business, or tax advice. Each person should consult their own attorney, business advisor, or tax advisor with respect to matters referenced in this post.

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Bryce Warnes is a West Coast writer specializing in small business finances.

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