By Kristi Sweeney, CFP®, LUTCF
As a small business owner, you have several choices regarding your health insurance.
Which is the best choice for you? Consider:
1. On the job coverage:
If you have not included yourself under your company’s Workers Compensation (as
an owner, you can waive off), you may not be covered for work related medical claims.
If you are on your spouse's employer’s medical plan or on Cobra, it is very likely
that you are not covered for medical claims related to your occupation. Be sure
you have your own group or individual plan that includes this coverage for owners
and officers who are eligible to be excluded from Workers Compensation coverage.
Or include yourself on your Workers Compensation policy. Be aware of this critical
risk.
2. Bonuses, salary adjustments, direct payments to or for employees’ medical
coverage:
Instead of offering group benefits, many small employers increase salaries or make other wage adjustments. Colorado law clearly states, however, that if you are providing
dollars towards health insurance, you HAVE a group plan. Your "plan" is subject
to all state and federal group laws and mandates. Individual health insurers may
exclude employees from getting their own individual policy when there is an employer
contribution. While this practice is not illegal, it does expose you as the business
owner to more risk.
3. Participation Requirements:
As of January 1, 2002, state regulations allowed insurers to require 75% participation
and NOT COUNT those on spouse’s group plans but COUNT those employees who have individual
coverage depending upon when the coverage was issued. The result is that smaller
companies may have difficulty getting group insurance if they have eligible employees
on individual plans. Since individual plans are generally less expensive, many dependents
of employees apply for individual health insurance when dependent coverage is not
employer paid. This is not detrimental to your group participation at this time.
4. Providing group benefits to independent contractors:
Keep business relationships with independent contractors as clear as you can. Offering
group insurance benefits of any kind may have the unintended consequence of turning
contractors into employees. You are liable for paying employment taxes and are responsible
for Workers Compensation insurance. If independent contractors work for you over
a certain number of hours per week, many insurers will allow them to be part of
your plans. However, this may be a risky practice for you as an employer. Consult
with your legal advisor before taking this step.
DISABILITY INSURANCE- As a small business owner, you and your business
are particularly vulnerable to the risks of a prolonged illness or a disability
from an accident. Your business and your lifestyle may very well depend only on
YOU and your ability to earn an income. Some possibilities to cover this risk (from
most preferable to least beneficial):
1. Individual Long Term Disability Insurance:
Can you qualify for this coverage? It requires good health, net after business expenses
income greater than $20,000, an insurable occupation, and continuity of business
for more than one year. This coverage protects you, your family and your lifestyle
in case of prolonged illness or injury that keeps you from being able to work as
many hours or as effectively as you do now.
2. Business Overhead Expense Disability Insurance:
This is critical insurance if you are the main income producer in your business,
have considerable business expenses and need to continue the business for one to
two years in order to sell, transfer or return to your business. This coverage protects
the business, and your investment in your business, in case of your disability.
3. Group Disability Insurance:
Less expensive than individual coverage, you can easily qualify if you have over
ten employees to be included in your plan but only if you’ve been in business for
a few years. Drawbacks? Insurer can cancel, raise rates, and change benefits. This
is not a good fit if your income fluctuates significantly. Group insurance is usually
not portable because it cannot go with you if you sell your company.
4. Long Term Care Insurance:
usually thought of for older people, this insurance is important any age since it
covers expenses of a chronic, long term catastrophic disability. Insurance benefits
provide money for ongoing care whether at home or in a care facility. Some policies
are available that
pay a flat amount per diem rather than reimbursing for claims.
The amount of daily benefit can range from $50 to $300 a day. Qualifying for coverage
is not dependent on employment, income or occupation - If you are healthy, you can
qualify.
5. Accident and Dread Disease Plans:
This coverage is limited to one year or one specific disease. Benefits
paid are limited for instance to $1,000 per month or one lump sum payment depending
upon the type of injury or illness. Generally, you must be working and have an insurable
occupation, so policies are available to most people. It provides limited protection
but can help fill in the gaps with increasingly higher deductibles.
Without income protection insurance, you may have to use savings, sell assets, rely
on Social Security Disability payments (strict eligibility requirements), or get
Workers Compensation for on the job related claims that cause loss of income. Medicaid
is also available for those with very minimal assets and income.