Image: FOCUS: Map of Your World
We reached out to 22 small businesses and got their take on the difficulties behind finding healthcare for startups. Here are some tips and strategies they shared with us.
Under the Affordable Care Act (Obamacare), companies with 50 or more full-time employees must provide healthcare for their employees. While many startups and small businesses don’t quite make that employee benchmark, most do decide that finding health coverage for their employees is a worthwhile and necessary cause. Whether it’s for the small business healthcare tax credits or simply for attracting and retaining talent, many small companies go into the (oftentimes) very long and frustrating journey of getting the right health benefits for their people.
Unfortunately, the journey to finding healthcare for startups is riddled with roadblocks. It’s confusing and tedious, and often results in founders and business owners recruiting the help of professional employer organizations (PEOs) – companies to which you can outsource things like human resources-related duties, such as managing payroll or finding and offering healthcare coverage – and licensed insurance brokers or agents. After reaching out to more than 30 startups and small businesses, we learned the various complexities involved in trying to make sure employees have healthcare. We include insights from 22 of these companies, sharing with you some of their struggles as well as their tips to help find healthcare for startups.
Steady Entrepreneurship Growth
Every year, the Kauffman Foundation compiles data on the rate of entrepreneurial growth in the United States. Known as The Kauffman Index, the organization focuses on three main metrics: startup activity (the annual creation rate of new ventures); “Main Street entrepreneurship” (the annual rate at which local, small business owners appear); and “growth entrepreneurship” (the annual growth rate of personnel within all startups and small businesses combined). Looking at the most recent report featuring 2016 data, we see an upward trend in both startup and small business activity – with another sizable increase predicted by this year’s end. Starting at around 2010 (post-Great Recession, after the financial crisis ending in 2008 and the subprime mortgage crisis ending in 2009), there’s a consistent and even sizable growth in entrepreneurial activity.
According to the data, the number of startup entrepreneurs who started companies out of opportunity (that is: people who weren’t laid-off their jobs but rather saw entrepreneurship as an opportunity) jumped from approximately 74 percent in 2009 to more than 86 percent in 2016. Starting in 2012, we also notice local, small business activity picking up – seeing a significant shift from -0.53 activity (according to the Index’s scoring) to 0.75 in 2016. Despite the consistent upward trends in startup and small business growth in America, we’ve yet to establish some kind of uniform (or, at least, simplified) system through which these small companies can find the healthcare coverage they want and need for their employees.
Limited (and Decreasing) Options Through Obamacare Exchanges
While recent reports on the House and Senate healthcare bills show growing (and even majority) support from small businesses for Obamacare repeal, it’s not exactly the case that startups and small businesses find Obamacare useless. According to Census data analysis from the Center on Budget and Policy Priorities, between 2013 and 2015 the Affordable Care Act provided insurance for approximately 4.8 million people at companies with fewer than 50 employees. That’s certainly not insignificant. While enrollment through the federal exchange’s SHOP (Small Business Health Options Program) saw little success, small companies in states with their own exchanges actually turned to them regularly for employee healthcare.
For many founders and business owners, the state exchanges helped their small companies significantly – or, at least, that was the case in the early years of ACA. “For the first couple of years, I personally bought healthcare [through] the Washington state Obamacare exchange, while my founder was on his spouse’s work coverage. When we started hiring more people, especially younger employees, we’d encourage them to purchase healthcare on their own via the exchange,” says Praveen Seshadri, CEO of AppSheet, a Seattle, WA-based software startup that allows users to easily build and deploy mobile apps using data. “I don’t have grievances with the exchange. It was useful to me. It was really good that the plans were standardized and you didn’t have to look for loopholes.”
In some states, like California, state exchanges continue to provide healthcare consumers with good options. “I looked at the options and I realized that fortunately, as a Californian, I had access to CoveredCA and was able to easily select a plan that best fit me,” says Andrew Fielding, the founder and CEO of Stabilify, a California-based mental health software company. “As a boss of a small company I helped my employees find insurance through CoveredCA, as well.”
But those in other states aren’t as lucky, and small business support for ACA repeal isn’t unfounded – rising healthcare premiums have pushed many startups and small businesses away from the exchange, leaving them with even more limited options as they seek elsewhere to find health coverage for their employees. As in the case in Washington, these costs are due to the exit of insurers from Obamacare exchanges rather than an ultimate failure of the system itself to provide affordable insurance. For many small companies, the ACA state exchanges did succeed in offering healthcare options for employees, but as more insurers left (and continue to leave) state exchanges, the decrease in market competition leads to higher prices for these companies.
Jeff Kear, cofounder of Planning Pod, a web-based event management software startup, shares a similar story in Denver, CO. “We are fortunate to be based in a state that has its own exchange and runs it very efficiently and competitively,” he says. Up until last year, that is, when insurers like UnitedHealth and Humana made the decision to leave the individual market and the state’s exchange. “Those that stuck around offered mostly high-deductible plans with very few benefits at high premiums.” Faced with tough decisions about the company’s employee health benefits, Planning Pod reached out to a health insurance broker that helped the company create a small business plan (or “small-group plan”) for the company.
The Senate bill would have stripped some of the more traditional rules for small-group plans – regulations put in place by the ACA, such as gender-based and health status-based price discrimination for premiums. However, with the proposed healthcare bill ultimately failing in the Senate, the revised rules for these more narrow small-group plans and the broader association health plans will be saved for future health legislation (if, at all, we see one). Additionally, in May of this year, the Trump administration announced plans to end Obamacare enrollment through SHOP (state exchanges will continue to operate, though). For now, it seems that the government has yet to propose a solution to the high burden of costs placed on small companies. Kear, though, isn’t completely without hope for a future resolution. “The group plan [we currently have] is still expensive, but at least you get decent coverage, as opposed to the exchanges that have been damaged – hopefully not permanently – by Washington’s ineptitude.”
How to Find the Right Kind of Healthcare for Startups and Their Employees
With both federal and state exchanges no longer a feasible option for most startups, what’s the best method for finding and selecting the right healthcare options for your employees? According to the startups and small businesses we spoke with, there are really only two options. For small businesses trying to find coverage for their employees, your best bet is to either employ a professional employer organization or use an insurance broker. Below, you’ll find some of the startups’/small businesses’ experiences with each.
Benefits of Using a PEO to Find Healthcare for Startups
A professional employer organization (PEO) is an outside organization that provides companies with services to help them manage certain core functions. For startups and small businesses, PEOs are used often to manage employee benefits, payroll, training, health insurance, and anything else that a small companies may need support in. PEOs, it seems, are better fit for much smaller companies with fewer employees (50 people or less). Also similar in function are HR software that can help fulfill these tasks – for the most part, though, the small companies we reached out didn’t placed a higher emphasis on PEOs. .
Here’s what some startups and small businesses had to say about their experiences with PEOs in finding healthcare benefits for their employees:
Ben Friedman, cofounder and head of operations at All Set, a Boston, MA-based startup that helps people find top-rated house cleaners using verified reviews:
“My company size is 10 people. I foresee using a PEO until the monthly fees associated with using a PEO surpass the cost of a full-time internal hire. Building a business is incredibility difficult and there are thousands of things that need to be taken care of. Using a PEO to outsource is the fastest, easiest, and quickest way to get what you need and move on. Overall, when you’re in the early stages of developing your company you should be focused on the product and getting customers, not medical plans.”
Jordan Wan, founder and CEO of CloserIQ, a New York, NY-based startup offering a network of top sales talent for companies:
“We went directly with a PEO at the beginning. The all-in-one HR solution was very appealing vs. having to educate ourselves heavily and put together our own HR stack. Startups and small businesses can save a lot of time and stress by using a PEO for employee healthcare. As a small company we don’t have our own HR department, so we decided to use JustWorks to provide healthcare to our employees. Justworks has freed up our time in taking care of other things as well like payroll and other benefits.”
Liran Amrany, founder and CEO of Debitize, a New York, NY-based startup that lets consumers use credit cards more responsibly:
“We use JustWorks for health insurance – price is very competitive and […] we get access to health insurance plans and rates that [are] way better than anything you’d find as a small company. The only catch is you need to have at least two employees and at least one of them on payroll – which means you can’t be bootstrapping. Even with a broker, as a small company you are very limited to the options available, and they are all quite expensive.”
David Waring, cofounder of Fit Small Business, a New York, NY-based small business that, well, write articles on topics relevant to running a small business:
“We found that [PEOs] offer the best health insurance options to our employees at the most affordable cost to us. If we were not part of a PEO,then we would be in a bucket for small-group health insurance and pay higher rates because we are not a big company. By going with a PEO we were able to get access to big group health insurance rates. Once we cross 100 people, we may look at getting our own policy because I think the company will be large enough at that point to negotiate similar rates as to what we can get through our current PEO and we can save on the fee the PEO charges us.”
Arya Ghavami, founder and CEO of FOCUS: Map of Your World, a Los Angeles, CA-based company creating an interactive map that allows you to make connections with people nearby:
”I started reaching out to my close friends for references and one of them recommended Gusto, an all-in-one HR solution. Not only were they able to help us set up payroll, but they simplified the entire healthcare coverage process. They gave me a very simple quote with multiple options, and clearly explained it in a way that made it easy for me to grasp and relay to my team. Thanks to Gusto’s tools, I’ve been able to quickly and easily set-up our team with the proper healthcare coverage and can get back to working on building the product I love. Making the process of sign up and implementation easy for healthcare coverage is the number 1 roadblock towards making it a non-issue for founders; Gusto allowed us to do that.”
Yvonne Denman Johnson, founder of HootBooth PhotoBooth, a small business that sells portable photo booths:
“ADP was able to provide a range of options that I was not able to find in the open market. They had everything from high-deductible health plans to PPO options. I would consider getting quotes from brokers; however, I like how ADP integrates the employee deductions for healthcare as a part of payroll processing.”
Will Gadea, founder and creative director of IdeaRocket, a New York, NY-based animation and video production agency:
“We currently have five employees. We started with a broker, but for the sake of convenience our payroll company – ADP – is now managing our health insurance coverage. If I were starting from scratch, I would definitely consider using a PEO. The logic of integrating a lot of the services you need to support employees is strong, and I would recommend that startups look into it.”
Shobin Uralil, cofounder and COO of Lively, a San Francisco, CA-based startup that’s created a modern health savings account platform for employers and individuals:
“My cofounder Alex was one of the first employees at Justworks, so we had a bit of an advantage here when reviewing and selecting a PEO. However, health costs are always a concern for a business, no matter their stage of growth. As a startup, we try to be fiscally conservative, yet balance that perspective with offering competitive benefits to attract top tier talent. It’s hard to feel like this is ever a win-win, but you do the best you can to create a balanced health offering. We tried to put systems in place we could grow with and add benefits value to over time (like an HSA).”
Jace Grebski, partner at SWARM, a New York, NY-based product studio and venture lab:
“[It’s] the same price as a broker, give or take a few bucks, and there are additional health related benefits through the PEO. Everything under one roof, and less of a headache. Brokers are fine, but not for a small company; you don’t have the leverage to negotiate [large group rates].”
Benefits of Using an Insurance Broker or Agent to Find Healthcare for Startups
While they normally cost a little more than a PEO, many startups who recommend insurance brokers or agents argue that they may be a better option for some companies – particularly those nearing the 50-plus personnel mark.
“You can only be good at – and have time for – so many things. The insurance industry has undergone significant changes over the last few years,” says Adam Hyers, a licensed insurance agent and the founder of insurance agency Hyers & Associates. According to him, rules and regulations are constantly changing, so it’s helpful for a startup to have a broker around so that they’re aware of their best options. Often, startups reach out to him once they reach certain employee numbers and need some extra leverage to retain and attract talent. “As startups grow and reach certain full-time employee thresholds, new rules apply to what they have to offer in order to avoid penalties. Other times, it’s a matter of offering comprehensive benefit packages to retain and attract key employees. Many startups begin with few to no benefits, but find that it’s difficult to attract new talent without a meaningful benefits package.”
You can read what the following companies think about their experiences with brokers:
Leo Welder, founder of ChooseWhat.com, a company that provides online resources to help entrepreneurs set up small businesses:
“We hired a health insurance broker rather than a PEO because, while PEOs offer more services, our primary need was getting a good health insurance plan quickly, at the best price possible. A broker was the fastest, best route to accomplishing that goal. If you’re a startup trying to determine the best healthcare options, I would recommend asking friends and mentors for a referral to a health insurance broker. It doesn’t cost anything to meet with them and to get quotes from several insurance providers. Even if you ultimately go a different route, a referred health insurance broker is the best place to start.”
Paul Thatcher, vice-president of HR at Jive, a startup that’s grown to become the world’s largest privately-held UCaaS (Unified Communications as a Service) company:
“Jive uses a broker who benchmarks what other companies in the tech space are doing; we listen to employee surveys and feedback and then the executive team decides on the plan. We absolutely recommend this for other startups. Investing in benefits and insurance shows the employees that they’re valued and helps attract talent.”
Justin Williams, CEO of Noteworth, a startup that connects healthcare organizations to on-demand, patient-generated health data gathered from wearables and connected medical devices:
“To find health insurance for the company, I called several insurance brokers in my area, and did side-by-side comparisons of group plan options for about a week. After the evaluation process, it was surprisingly easy to purchase group insurance, even for a company of our small size.”
Bill Hall, founder of Simulation Studios, a San Francisco, CA-based small business that designs business simulations and corporate development tools:
“At first, I tried to [find employee health insurance] on my own. Within minutes I realized I needed a professional. I talked to an insurance agent and it was one of the best decisions I made for me and my business. My agent found health insurance that was better than anything I found on my own. Equally important, the agent handled everything. Even after I purchased the insurance, the agent handled any issues that came up. The agent took care of everything. Best decisions I could have made. More than ever, we will continue to utilize an agent. Considering the uncertainty in health care today, I would recommend this route for any small business owner. I preferred to go directly through an agent simply due to the simple process: it was easy to pickup the phone and handing it off was a breeze. My biggest tip is to remember that times will come up when either you or and employee is going to have to deal with an insurance company; having an agent take care of all this is one giant task off your to-do list and one less worry.
Sandi Lin, cofounder and CEO of Skilljar, a Seattle, WA-based startup that offers an online learning platform to help companies educate their customers, vendors, and partners:
“I didn’t know anything about healthcare and was recommended by several trusted Seattle founders to local brokers. Washington state has some unique requirements, and that also pushed me towards relying on the advice of our local startup community. We did have some early conversations with folks like TriNet and Zenefits but I lost confidence after getting passed around multiple times internally to find WA state-specific expertise.
Joe Nax, president and founder of Virtual Operations, an IT Managed Services provider in Orlando, FL:
“Working with a broker is paramount for anyone not familiar with the process and offerings. Each provider’s plans are different enough that it is hard to compare without someone to guide you through the process. In choosing a broker, I advise that you pick a firm that represents multiple insurance carriers so that you see a range of offerings and get the best rates possible. Further, I also recommend that you review your insurance plans on a yearly basis. Insurance rates typically go up substantially each year – we have actually seen an average of 13 percent increases year-over-year – and you will need to comparison shop on a regular basis to keep these costs in line.”
Brandon Doyle, founder and CEO of Wallaroo Media, a full-service digital marketing agency based in Provo, UT:
“We ended up working with a broker that offered us a handful of options to choose from. I found that this was the best option for our startup, and I would recommend this strategy for other companies.”
Other Tips and Suggestions When Deciding on Employee Healthcare for Your Startup
Regardless of whether you end up using a PEO or finding a broker to determine what healthcare solution works best for your small company, the startups we talked to shared specific tips and considerations that you need to take into mind.
1. Limit Your Healthcare Options
While there are hundreds of different plans available – from better-known HMOs (health maintenance organizations) to lesser-known POS (point-of-service) plans – it’s your responsibility to keep the options limited so that 1.) you’re not overwhelmed in overseeing it and 2.) your employees know exactly what they have in front of them. “For starters, I would recommend two HMO plans (a cheaper one and a more expensive one) and one PPO,” says Eric Clapper, director of business development at Badger Maps, a San Francisco, CA-based startup that allows companies to literally map their customer data. “HMOs are the favorites for many families given that you always know how much you’ll have to pay when you’re in-network. And there will always be people who are interested in PPOs given that they have a stronger relationship with their doctor.”
2. Look Into Association Health Plans
Association Health Plans (AHPs) are groups of small businesses and individuals who come together through trade and professional associations to purchase insurance for their employees. Because of this, they’re often able to get lower rates for higher-quality health insurance plans. Do some research online and check to see if you qualify for AHPs before bringing on a PEO or broker. “Our accountant did some enquiries and we actually got the best plan choices through AWB (Association of Washington Business),” says AppSheet’s Seshadri. “We chose AWB because of cost – some of their plans had a better benefit/cost combination that the plans on the open exchange.” Lin from Skilljar adds: “My understanding is that healthcare is very complicated and very state-specific. Founders want benefits expertise at reasonable costs[…]I really like that the Washington Industry Technology Association offers plans geared towards tech startups as it would have been much more difficult otherwise. Startup communities need to band together like this with easy affordable high quality options.”
3. Consider a Healthcare Reimbursement Plan
A healthcare reimbursement plan lets you reimburse your employees for their individual health insurance premiums. This gives each of your employees the freedom to purchase any private health insurance plan on their own; you’re merely responsible for paying each employee a percentage or a specific dollar amount as reimbursement to cover some of their premium costs. “A reimbursement plan is a great model that empowers individuals to choose and tailor their own health insurance and receive a reimbursement benefit from their employer. It also allows the employer to choose a reimbursement level that is affordable while still providing a benefit,” says John Kinskey, the president and founder of AccessDirect, a virtual phone service targeted towards small businesses. “A reimbursement plan allows an employer to offer a competitive benefit for health insurance without the administrative overhead or liability.”
4. Don’t Rule Out High-Deductible Health Plans (HDHPs)
HDHPs allow consumers to get healthcare at smaller premiums than major medical health plans, but at the expense of high out-of-pocket costs (because of the high deductibles). However, if an HDHP is partnered with a health savings account (HSA), it could be a possible healthcare solution for some startups. “HDHPs coupled with an HSAs are the the most affordable healthcare offering a company can provide,” says Uralil at Lively. “On top of that, it is the only solution that provides long-term health savings for an employee that they can carry from year-to-year and job-to-job. The results are lower costs for the employer and more long-term financial health security for the employee. If the employer is still worried about the added out-of-pocket costs for things like higher deductibles (when compared to a PPO for example), they can contribute dollars to their employees HSA, therefore offsetting the cost, and allowing the employee to decide how to spend or save those HSA dollars.”
Are Startup Founders and Small Business Owners Responsible for Providing Health Coverage for Their Employees?
The most important consideration for entrepreneurs before diving into this, though, is whether or not they believe it’s important to give their employees healthcare (whether that’s in the form of reimbursements, partial coverage, full coverage, et al.). We gave startups the opportunity to provide the last word on this.
Yes, It Only Makes Sense
”Yes, I do. One of my marketing gals always says ‘teamwork makes the dream work.’ I want my team at its sharpest, healthiest, and happiest to contribute to building our company and delivering on our mission.” – Jessica Postiglione, cofounder and CEO of OLIKA
“Absolutely! And they should because its cheaper. The fees from the ACA (Affordable Care Act) and other state requirements are typically greater than offering healthcare coverage.” – Ben Friedman, All Set
“I believe that access to good, affordable healthcare is a basic human right, so after Noteworth raised some funding, I decided to cover 100 percent of my employees’ health insurance premiums each month. Having and affording coverage, or worrying about being able to go the doctor wasn’t something that I wanted my employees to be anxious about.” – Justin Williams, Noteworth
“No matter the level of assistance or method, offering employees some sort of access and assistance to health care is both the kind and human thing to do in addition to a strategic advantage.” – Bill Hall, Simulation Studios
“A company has a responsibility to provide healthcare coverage. Employees are the lifeblood of any organization plus when you invest in your employees they’ll invest in the organization and contribute to your growth. Jive has always covered 100 percent and continues to do so even with costs skyrocketing. Suggestions for people seeking to follow suit. Benchmark and be willing to listen to employee feedback. One thing Jive did was the founders took far less money out of the business for their salaries and instead invested in providing a top tier benefits and health package.” – Paul Thatcher, Jive
“Yes, I would say that a challenge that startups have is to provide benefits that are at least comparable to what larger firms are offering prospective employees. If you aren’t at least on par, you can’t compete for or retain talent, which is our biggest asset. Further to the point of responsibility of a company to provide coverage, I think that it is the responsibility of a company to provide some basic benefits to its employees. Health insurance is like PTO: they are basic parts of an overall compensation plan that should be thought of as the cost of doing business, just like taxes and such.” – Joe Nax, Virtual Operations
“This a really difficult question. If you’re asking a bootstrapped business to offer health insurance that costs the business $500 to $800 a month for coverage per person, then no. The company has a responsibility to stay in business first and foremost. If it has the cash flow to support partial or full coverage, then yes. The more important question is why we still don’t have universal healthcare in this country. A healthy workforce, is a productive work force. Now, if you’re talking about a venture backed enterprise, then absolutely.” – Jace Grebski, SWARM
“I think providing some form of health insurance benefit is a competitive reality to recruit and retain quality employees. Having said that, I don’t think business and industry should be viewed as the caretaker in terms of being responsible to provide healthcare insurance. To me, that smacks of days gone by where employees worked at the factory, shopped on credit at the company store, and were beholden to the company. A free market for health insurance with individual responsibility would drive competition and efficiency versus employees relying on a company to take care of their needs with the commensurate overutilization and lack of visibility to cost drivers and competition. A company’s responsibility is to pay well for performance and in the process empower individuals to provide for life’s necessities such as housing, food, transportation and healthcare.” – John Kinskey, AccessDirect
“I won’t go that far and definitely do not want to be judgmental. Doing a startup is very difficult. Money is always tight. Everyone joining a startup is an adult. They should go in with their eyes open. Every startup’s decisions on what to spend reflect values and culture. When there is no money to spend at all, it is impossible to provide healthcare or a reasonable salary. But when you get past that and get to some initial funding, the choices matter. Do you spend on the quality of the office? Do you pay for parking? For you pay for healthcare? What is your vacation policy? It all goes hand-in-hand. We’re fortunate to be able to provide healthcare options.” – Praveen Seshadri, AppSheet
“I think it heavily depends on the financial circumstances of a startup. The larger goal of a startup founder should be to grow fast but also take care of their employees who are driving the business forward. And given how critical healthcare is to an employee’s well-being, the company should do everything within their financial power to provide assistance to great care. Once a startup has raised capital and starts generating revenue, I think they should incrementally work towards full coverage as the business starts to mature. Understandably, there are tradeoffs in what employees value between benefits, stock options, and cash compensation so it is all very fungible as well.” – Jordan Wan, CloserIQ