more-arw search

Q&A Forum

what are startups/small companies with 1-3 employees, doing about health insurance?

Susan Lucas's Profile

reimbursement for employee policies? State-mandated policies? or?


Topic Expert
Kent Thomas
Title: Founder
Company: Advanced CFO Solutions
(Founder, Advanced CFO Solutions) |

We see most small startups who are bootstrapping or following the lean startup methodology (keeping costs as low as possible) opting for individual plans for their team members. This has become even more viable and easier to do with the new insurance exchanges. What startups do about paying for the insurance premium usually depends on whether or not the individual is founder a or an employee and how much capital they have to fund the development and early sales stages of their company.

Anonymous User
Title: CFO
Company: Local Government Agency
(CFO, Local Government Agency) |

Newly formed, local governmental agencies are doing this very thing. Offering a fixed amount per month through a 125 plan while telling employees to obtain health care through the exchange.

In many ways, I applaud this because it puts the ever increasing cost risk back on the employee and incentivizes them to manage their health care costs as much as possible. It also makes them think about the actual cost and value of this normally taken for granted benefit.

However, the downside is that it makes recruitment difficult against other agencies that are providing health care as an employer provided benefit.


Alan Aidif
Title: Senior Manager
Company: Financial Services LTD
(Senior Manager, Financial Services LTD) |

For most businesses, employer paid health insurance will go the way of defined benefit pension plans. More responsibility will be passed to the employee (401K)--- especially given the advent of the State insurance exchanges. This is cost effective for the business and allows an employee to better tailor a health plan to his/her needs. Hopefully the matching contribution will be more than 3-10%.

Topic Expert
Wayne Spivak
Title: President & CFO
LinkedIn Profile
(President & CFO, |

Going to the exchange and seeing which is cheaper, small biz product or 3 singles.

Then based on what Kent said, determining how much they can afford to pay, without going bankrupt (something no one on the Hill understands..).

Susan Lucas
Title: Innovation Catalyst
Company: Siemens TTB (
(Innovation Catalyst, Siemens TTB ( |

Thanks to both of you for the input. Small biz product, haven't seen any. Through the usual brokers?

Becky Fuller
Title: Finance Manager
Company: Tierra Group International Ltd
(Finance Manager, Tierra Group International Ltd) |

I would recommend contacting a PEO professional employer organization.

Dabney Wellford
Title: CFO
Company: Wellford Consulting
(CFO, Wellford Consulting) |


You do not indicate who owns the entity, and if the owners work there. That will influence the type of health policy desired. (i.e., the owner may want to a policy that balances cost and the benefits, not exposing him/her to $6,500 in out-of-pocket medical costs and $6,500 in pharmacy costs, and other factors.) Sure, if you minimize costs, you get the cheapest coverage, then you hope that you do not have a catastrophic event. If you do not care about the employees, send them to the exchange, where they may or may not qualify for tax credit. (You will probably lose them and have to replace the position in the near future.) Make sure that you find a good broker who really understands the company's (and the owner's) needs. Also keep in mind that, if an employee gets a tax credit, the company can not reimburse the premium cost.

There is also a product out there called a Medical Bridge through Colonial Life which will fill in part or all of the deductible. It has a low cost and is being adopted more often than not to protect employees. It is indemnity-based, excluding it from the ACA. Make sure that your broker or a Colonial Life agent shows it to you.

Susan Lucas
Title: Innovation Catalyst
Company: Siemens TTB (
(Innovation Catalyst, Siemens TTB ( |

Thanks, Dabney. Owners work here, and are the only employees right now but there will be contractors brought on as employees once funding is finalized. Too small for Trinet, will look at Colonial Live. Good broker sounds like the way to go.

Glenn McCrae
Title: Chief Strategy Officer
Company: Early Growth Financial Services
LinkedIn Profile
(Chief Strategy Officer, Early Growth Financial Services) |

Our firm services over 250 tech backed start ups. In my experience, there is no simple answer to your question. We consult with our clients about their range of options: 1) no benefits, 2) DIY through a local insurance broker (company then covers a certain percentage of premium), or 3) PEO (e.g., TriNet). The earliest stage, less well capitalized start ups generally provide $0 coverage. Those with greater resources, who are trying to attract the best talent, often go the PEO route. 100% premium reimbursement for employee is typical at this stage, 0% for dependents. If profitability is achieved, dependent coverage is addressed (50% or higher). Every "start up" is different, and their "corporate culture" is often the determining factor.

Susan Lucas
Title: Innovation Catalyst
Company: Siemens TTB (
(Innovation Catalyst, Siemens TTB ( |

Gotcha, since the owners work here the goal was to start with them..saw something called a 125 plan in an earlier mail..? Thinking now that reimbursement policy might be best, which could be re-evaluated post-funding and when there are more employees.. no?

Shashi Mohan
Title: Managing Partner
Company: Singh&Jha Chartered Accountants
(Managing Partner , Singh&Jha Chartered Accountants) |

In Indian context, individual policies are taken by the employers. The sum insured depends typically on the role, position and remuneration package of the employee. In addition to the medical policy, companies can also offer 'accidental policies' to cover any accident etc to the employees. It also covers the instances of any permanent or partial disability. Private insurance companies also offers 'group medical policies' in case the number of employees are more than 10.

(Director of Global Accounting) |


I know of a few who have treated it like a business expense reimbursement. Since the company *would* have paid, each employee instead gets reimbursed up to a cap, then they can go to the "exchanges" and purchase whatever they want with what are in essence pre-tax dollars. This is far better than 125 plans as there is no "use it or lose it" function, and the administrative overhead is much lower.



Topic Expert
Malak Kazan
Title: VP, Special Projects
Company: ERI Economic Research Institute
(VP, Special Projects, ERI Economic Research Institute) |

We used a broker for 7 employee company. Cost sharing was 100% company paid for employee-only coverage and they pay for any additional family members to enroll in the plan. We decided to go with an Aetna HMO plan $0 deductible at a reasonable price. Hope this helps.

Susan Lucas
Title: Innovation Catalyst
Company: Siemens TTB (
(Innovation Catalyst, Siemens TTB ( |

thanks, very helpful. Will check it out.

(CFO) |

I really like that you went with employee pays for additional family members. It seems to be the fairest route. We don't hire families. WE hire individuals. Many mangers and staff level employees get confused about this and it can end up with serious consequences.

The cost of dependents can double the premium, resulting in what I see as a legal discriminatory practice. And, maybe even encouraging illegal discriminatory practice!

But every time I've pointed out in my career, that paying a $600/mo premium for a young, single employee but a $2,600 for an older employee with family coverage inherently favors one over the other, I get shot down. Worse, multiply it times 300 employees!

That is part of the reason I've liked Sec 125 plans (cafeteria). They amount to:

"Here is a list of tax free benefits you may choose from that we offer and here is what they cost as well as how much you have available to spend in tax free funds from us. Choose whatever combination best meets your needs. YMMV."

Products and Companies

Get Free Membership

By signing up, you will receive emails from Proformative regarding Proformative programs, events, community news and activity. You can withdraw your consent at any time. Contact Us.

Business Exchange

Browse the Business Exchange to find information, resources and peer reviews to help you select the right solution for your business.

Learn more

Contribute to Community

If you’re interested in learning more about contributing to your Proformative community, we have many ways for you to get involved. Please email [email protected] to learn more about becoming a speaker or contributing to the blogs/Q&A Forum.