Startups Getting Health insurance. A few questions I’ve heard.
One thing that startups wring their hands over at some point is the issue of getting health insurance for the company. Rightly so, it’s expensive, it’s time consuming….it’s a pain in the butt….it’s also going to become a necessity as you want to start hiring people, maybe earlier than that. With that,
What are the best ways for a startup to provide health insurance for the founding team and early hires?
I’m going to make an assumption here and say that early hires means hires that were brought on board very soon after the founders started the company and have the same blank slate. Most people in this niche will likely have coverage through some other means, parents, spouse, individual plan, something. If not (especially if a founder doesn’t) something has to give and timelines move up.
First thing is find a broker, someone the company already knows, or perhaps a trusted referral. You can go looking for coverage yourself, but with the different companies, plans and now regulatory changes with the Affordable Care Act, let someone else do the homework and distill things down for you.
Second, get ahead of things by answering a few questions. Do we need to accommodate out-of-state employees now or with future hires? What percentage of my employees live or work in the state my company is domiciled in? How rich of a plan do I want to get, and how much of a percentage am I looking to contribute to my employees plan (this last question will require some quotes, but employers should have an idea of what they would like to do in a perfect world)? These are some key points that will determine how things play out.
How is the ACA (Affordable Care Act, aka ObamaCare) going to affect my company?
If you are a startup, the assumption is you are starting with only a few employees. With that in mind, the regulatory impact of the ACA on startups is minimal. The ACA’s primary impact will be on companies with more than 50 employees nationally. How insurance rates will be affected by the new laws will play out over time. Changes to plans in order to become ACA compliant will be rolling out in 2014. That said, most of the changes to become compliant are already baked into most plans that companies in MA would choose to implement already.
Do I have to offer health insurance?
Short answer is no, by and large, small companies are not forced by law to offer health insurance. In MA, there was a state provision mandating that if a company had 11 or more full time equivalent employees, and a company did not offer coverage, then a ‘free rider’ surcharge would be imposed. This provision was lifted by Governor Patrick in the most recent MA budget in July ’13 in order to avoid overlap with the new federal laws.
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3 insurance triggers startups should be aware of.
Startups have to worry about a lot of things when they are getting going. Quite a few items i’m sure we all wish they could sidestep, insurance is one of them. Unfortunately, insurance is one of those things that is going to creep up occasionally and in some cases inevitably. Below are 3 instances where you just plain have to bite your lip and take care of business.
1) Vendor contracts
As startups begin to pick up business, vendor contracts may come into play. Vendor contracts may require that the firm entering into an arrangement with a client company secure certain levels insurance coverage. This may extend to specific coverages such as professional liability (errors & omissions), commercial auto and umbrella coverages as well as general liability, especially in the case of services firms.
A common vendor contract will require that at a minimum general liability and professional liability coverage is put into place. Starting points for amounts of coverage will be $1 million per occurrence and increase from there dependent on the nature and scale of the work.
2) Moving into commercial space
Some startups will make this move quickly, others when revenues can support it. Bottom line is most startups won’t stay in their basement forever. Moving into commercial space, even virtual or shared office space will likely entail a lease or some form of agreement. These agreements may include an insurance clause stating that the startup needs to go secure a certain level of General Liability coverage and name the property owner on the policy.
Property Owners will likely require that they be named on such policies as additional insureds and require that a valid certificate of insurance be provided to the management office before handing over the keys. It’s good to be conscious of such requirements to make such a move seamless. The cost associated with coverage that will satisfy property manager typically aren’t too expensive, relatively speaking. You can usually take care if things for less than 1k/year.
3) Getting Workers Comp
You will need to secure Workers Compensation with your first hire, be it full or part time. But one question that crops up quite often is ‘do I need to get it for myself?’ This will depend on how your company is set up. If you are an officer of an S or C-Corporation then the company may need a Workers Compensation policy that includes those officers. Any corporate officer who owns at least a 25% interest in the corporation may be able to exempt themselves from the provisions of the Workers’ Compensation Act. If the company is a sole proprietorship, LLC or LLP, owners can hold themselves exempt from the requirement.
In Massachusetts, penalties for not having Workers Compensation coverage can add up quickly. Per the MA Dept. of Industrial Accidents, employers operating without Workers’ Compensation insurance will be issued a STOP WORK ORDER by the DIA Office of Investigations and shall be assessed a minimum fine of $100 per day commencing on the date of the issuance. Fines accrue each day until insurance coverage becomes effective, and the fine must be paid in full to release the STOP WORK ORDER, as authorized under M.G.L. c. 152, Sec. 25C. These orders can be appealed, but fines accrue at $250 per day when appealed, and STOP WORK ORDERS remain in effect until insurance becomes effective and the fine is paid.
In addition, an employer may be subject to criminal sanctions, including not more than one-year imprisonment and/or up to a $1500 fine upon conviction. Uninsured employers are also subject to debarment from public contracts for a period of three years.
Needless to say, it’s better to get the coverage in place.
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