One of the most important financial and personnel-related decisions you can make for your startup is deciding on which health insurance plans to offer your employees.
Throughout the Bay Area and Silicon Valley, COVID-19 has made many startups reevaluate their choice of health plans. Not to mention that investors may be looking for ways to tighten spending with an economic crisis still looming large. Even before the COVID-19 pandemic, selecting which health insurance plan for your business has been a tough balancing act between trying to cater to your employees, recruit top talent, and adhere to your funding situation.
Your first step in trying to navigate how to successfully choose your group health insurance is to understand which tiers you want to offer. After the Affordable Care Act (ACA), health care plans were categorized into different level tiers by insurance companies.
You can think of the different metal tier categories like the Olympics. Small group ACA Plans are split into Bronze, Silver, Gold, and Platinum levels.
The higher the tier, the more coverage is paid for by the insurance company in terms of lower deductibles, copays, and out-of-pocket expenses. But at the same time, the higher the metal tier, the more you would pay for in monthly pre-tax premiums.
The plans reflect what percentage of coverage insurance companies pay for out-of-pocket expenses versus what an insured employee enrolled in the health plan would pay. As a general approximation, the plans cover out-of-pocket expenses at the following rates:
- Bronze: insurance company pays 60% / insured employee pays 40%
- Silver: insurance company pays 70% / insured employee pays 30%
- Gold: insurance company pays 80% / insured employee pays 20%
- Platinum: insurance company pays 90% / insured employee pays 10%
But a lot more goes into understanding the metal tiers than their percentage of coverage. Let’s break down the plan levels further to see which one would be best for your startup.
Bronze plans are the lowest tier of health plans. If you are low on cash flow then a Bronze plan will be the least cost for your startup. These plans have the lowest monthly premium out of most major plan options yet they have the highest price point for when you access your care.
You could even have a deductible as high as $6,000, which may only be waived for the first three doctor’s visits of the year.
As an employee, Bronze plans are a good option if you’re looking for coverage in case of an emergency and if you want some form of health coverage without paying a lot each month.
Startups that offer Bronze plans usually do so to offer a Health Savings Account, also known as an HSA. You can create an HSA for High Deductible Health Plans (HDHPs), which are typically only Bronze level plans. But a major caveat is that most companies no longer fund HSAs due to HDHPs providing less and less savings over the years.
Based on my clients’ experiences, Bronze plans are often cheap to buy but expensive to use. In other words, you may be able to cut down on pre-tax monthly costs when it comes to your premiums but you and your employees will be paying for it after-tax when it comes to actually using medical services.
Silver plans usually have a moderate monthly premium but the enrolled employee will have less out-of-pocket expenses to pay than a Bronze plan.
A typical deductible for a Silver plan is around $1,800 to $2,200 and may be waived for office and specialist visits with only a copay to pay. Some Silver plans even waive the deductible for certain lab tests, x-rays, and outpatient surgeries.
Silver plans are ideal if you are looking to control costs but you still would like to have an increased amount of coverage for care and services.
Silver plans are a smart compromise if your startup doesn’t have limitless resources but you still would like to offer your employees more robust coverage.
Gold plans typically have high monthly premiums but low costs for when the insured employee receives care.
Startups that want to retain and even recruit talent gravitate towards Gold plans. With a Gold plan offering, employees can be more at ease knowing that the costs of their appointments and procedures will cost less when they use them. For what you receive, Gold plans can be a cost-effective option even with the higher premium.
Employees who utilize large amounts of care would select a Gold option when available since they are willing to pay more in pre-tax premiums so that they could have more coverage for expensive appointments and services.
Platinum level plans are the highest tier and offer the most coverage for the insured employee’s medical costs out of all the tiers.
On the other hand, Platinum plans tend to have the highest monthly premiums. If you rarely use health care services then Platinum plans may be a poor option. Typically, Platinum plans are favored by those who have chronic health conditions or diseases, disabilities, or want to pay more on the front end than the back end for using services.
However, there may be tax incentives to a Platinum plan. As an employee, I would want to pay more pretax for higher premiums taken out of my payroll than pay more for services after tax when I try to use them.
Some of the top tech companies offer Platinum benefits. For startups, you may need proper funding in order to provide lucrative Platinum plans. Even with the right funding, startups face difficulty in sustaining Platinum plans because of the high cost and burn rate.
Just remember selecting a Platinum option depends entirely on who you’re recruiting from, if you’re targeting talent who may be accustomed to Platinum level coverage, as well as if you’re sufficiently funded.
Offering More Than One Tier
The wisest solution for a startup would be to offer your employees different options of plan tiers. With the right contribution model of how much your startup pays and how much your employee pays for premiums, you can offer a variety of solutions for your employees that would fit their individual health needs.
Employees can truly reap the benefits of having a diversity of options. Say you’re an employee and become pregnant or are expecting to become pregnant. If your startup offers a variety of plan options, you can sign-up for a Platinum plan to take advantage of the lower out-of-pocket costs for the tests, appointments, and delivery. Even with higher monthly premiums you can save a lot more with having high level coverage for services.
You can then downgrade to a lower tier with less of a monthly premium after you have your baby since having a baby is a qualifying event that allows you to change your health plan. Since all carriers are different, please make sure to check with your carrier and get it in writing before you do this.
A variety of plans will also cater to the diversity of your employees. Someone who is young, healthy, and doesn’t want to pay a lot in premiums may opt for a Bronze or Silver plan. Meanwhile if you are an employee and are going to have a major surgery this year, you may want to think about upgrading to a higher plan so you pay less out-of-pocket.
In the end offering different solutions will be the best way to go.
How Am I Supposed to Decide Between All These Plan Tiers?
All in all, the numbers make the decision for you. If cashflow is not an issue for your startup, then offering high-level plans may make sense for offering a comprehensive benefits package.
Don’t be afraid to start with lower-tiered benefits and work your way up. Employees will always appreciate if you upgrade their tiers as your startup grows, although downgrading plans may hurt morale when funding slows or during economic crises. Remember to exercise caution when selecting a plan tier.
We understand that even if you know the differences between all the various health insurance tiers, it may be difficult to decide which level, let alone which exact plans, will offer you and your employees the best coverage, care, and value.
At AEIS, we are your trusted partner that will help you make the best decision for your startup when it comes to employee benefits. We believe a robust, well organized, and well communicated employee benefits package is essential for incentivizing and retaining top talent.
Setup a complimentary consultation today with myself, Ron Bland, at firstname.lastname@example.org and 650-348-6234 x12 for a review of your current plans and how we can work together.
By Ron Bland
Disclaimer: Any compliance related information in this blog is intended to be informational and does not constitute legal advice regarding any specific situation. Should you require further compliance assistance or legal advice, please consult a licensed attorney.