How to choose a health insurance plan for your startup?

Why Offer Health Insurance?

In the United States, health insurance is typically tied to employment. Most people expect their employer to provide health coverage as part of their compensation package. For startups, this represents a significant investment - typically around 15% of your total salary costs.

The conventional wisdom is to cover 100% of the employee-only plan costs, though policies vary for covering dependents (spouses and children). This benefit is crucial for attracting and retaining top talent in competitive markets.

Understanding Plan Tiers

Under the Affordable Care Act (ACA), health insurance plans are categorized into metal tiers based on how costs are split between the insurer and the insured:

• Bronze: Insurer covers ~60% of costs, lowest premiums but highest out-of-pocket costs
• Silver: Insurer covers ~70% of costs, balanced premiums and out-of-pocket costs
• Gold: Insurer covers ~80% of costs, higher premiums but lower out-of-pocket costs
• Platinum: Insurer covers ~90% of costs, highest premiums but lowest out-of-pocket costs

Recommendation: For startups in competitive markets like NYC or California, Silver tier plans offer the best balance. Your tier selection should depend on your funding stage, runway, and how competitive you need to be for talent.

Selecting a Carrier

New York Market

The New York market offers several strong options:

• UnitedHealthcare: Excellent network density across NYC
• Aetna: Good coverage with competitive pricing
• Empire BlueCross BlueShield: Comprehensive network throughout New York state
• Oxford (UHC subsidiary): Popular in Manhattan with strong provider relationships
• Cigna: Solid option with good customer service

California Market

California's health insurance landscape is dominated by one major player:

• Kaiser Permanente: Integrated healthcare system (HMO model) with excellent care coordination. Kaiser is often the top choice for California-based startups due to its comprehensive network and competitive pricing.
• Blue Shield of California: Alternative option with broader PPO networks
• Anthem Blue Cross: Another viable option, especially for larger companies

Key consideration: Survey your team about their specific healthcare needs and preferred providers before selecting a carrier. Network adequacy is crucial - ensure your chosen carrier has strong coverage where your employees live and work.

Strategies by Company Size

1-10 Employees: PEO or ICHRA

At this size, you have two main options:

• Professional Employer Organization (PEO): Services like Justworks, Rippling, or Gusto bundle payroll and benefits. PEOs pool small companies together to get better group rates. The trade-off is less flexibility in plan selection.
• Individual Coverage Health Reimbursement Arrangement (ICHRA): Give employees a fixed stipend to purchase their own coverage on the individual market. This offers maximum flexibility but shifts research burden to employees.

Recommendation: PEOs are usually the path of least resistance for early-stage startups. They handle compliance, administration, and offer decent plan options.

10-25 Employees: Transition to Broker

Once you cross 10 employees, you can typically get better rates by working with a benefits broker who sources plans directly from carriers. Brokers provide:

• Market insights and carrier negotiations
• Multiple plan comparisons
• Ongoing administration support
• Compliance assistance

Most brokers are paid by insurance carriers through commissions, so their services are typically free to employers.

25-500 Employees: Level-Funded Plans

Level-funded plans are a hybrid between fully insured and self-funded arrangements:

• Pay a fixed monthly amount (like traditional insurance)
• If claims are lower than projected, receive refunds at year-end
• Stop-loss insurance protects against catastrophic claims
• More cost-effective than fully insured for healthy populations

Important: Level-funded plans require health disclosure information about high-risk conditions to price accurately. This is where platforms like Rivendell streamline the enrollment process.

500+ Employees: Self-Funded Plans

At this scale, most companies move to fully self-funded plans where they pay claims directly and manage their own risk. This requires:

• Significant cash reserves for claims volatility
• Third-party administrator (TPA) to process claims
• Stop-loss insurance for catastrophic protection
• Dedicated benefits team or consultant

Self-funding offers maximum flexibility in plan design and potential cost savings, but comes with increased administrative complexity and financial risk.

Additional Considerations

Health Savings Accounts (HSAs)

HSA-eligible high-deductible health plans (HDHPs) can be attractive for their tax advantages:

• Lower monthly premiums
• Triple tax advantage (pre-tax contributions, tax-free growth, tax-free withdrawals for qualified medical expenses)
• Account funds roll over year to year

However, the higher deductibles may be challenging for employees without significant savings, especially those with ongoing medical needs or families.

Regional Nuances

Making Your Decision

Choosing health insurance is a balancing act between cost, coverage quality, and employee satisfaction. Here's a practical framework:

1. Understand your budget: Calculate 15% of your total salary costs as a starting point
2. Survey your team: Learn about their current doctors, prescriptions, and coverage preferences
3. Choose your strategy by size: Follow the guidelines above based on your employee count
4. Select tier and carrier: Silver tier is often the sweet spot; choose a carrier with strong local network
5. Plan for growth: Consider where you'll be in 12-18 months when selecting a solution

Remember, health insurance is not a one-time decision. You'll reassess annually during renewal periods, and your needs will evolve as your company grows. Start with a solution that works today, and be prepared to upgrade as you scale.