Health Care Benefits at Start-ups: When should they start offering them?

Alex: Yes - it is competitive to get the right talent. But healthcare is not their main criteria in they selecting to work for your company. I would delay offering HC benefits as much as possible. The staff members can use their cobra or spouse's benefits. You can also provide extra allowance to employees who are exceptions.

I should have mentioned in my answer above that all HRA "salary reduction" amounts specified by the employee in order to pay for individual health coverage "pre-tax" are a direct reduction in the employer's payroll base. Employer therefore saves FICA on that amount and any other payroll driven charges (e.g., workman's comp premium running off total payroll amount). After savings cost of HRA admin is either a wash or a net gain to employer. The per capita cost of this approach for a startup can be substantially less than a full blown qualified employer sponsored healthplan.

When the company can afford it, it's time to look at benefits. There is nothing worse than putting health insurance in place (or other benefits), only to realize you cannot afford to keep it going. People who choose to go with a startup know that benefits (medical/dental/life/etc.), are not often offered in a startup. They accept the position anyway for a host of reasons. BUT, once the company offers a benefit and then retracts it -- that becomes a major issue!

Take it easy. Do the best you can for your employee(s) in pay and whatever else you can do. Get momentum going to the point of believing you can keep it going, then look at benefit packages.

@J Michael @Iris; thank you for that feedbac; I think what you're saying makes total sense - wait until the business is in a financial position where it can realistically offer benefits.

@Robert - thank you for the insight - that is alternative that I did not know about.

For a start-up that is too cash strapped to consider a group health insurance plan, it may be worth looking into any voluntary or "worksite" benefits which don't really cost the employer anything. Most of the companies who offer these products make the enrollment and admin very easy, so there isn't even much time spent by the employer. These aren't qualified health plans and there are usually minimum participation requirements, but it's an option worth looking into if the company wants to offer some benefits and can't yet handle the costs of a full-blown health plan. Also, once the company does have the funding to buy a group health plan, the voluntary benefits can remain as an enhanced offering to employees.

Kevin is absolutely right about using worksite benefits to some degree. However, the products rarely even come close to the comprehensive nature of an actual health plan (i.e., whether it be individual or group). We encourage employers to (1) fix the amount of money they want to spend on employees at a specific dollar amount (n.b., possibly varying by class of employee) and then (2) allow employees to spend it how they choose. If they have spouse coverage someplace else, often worksite benefits are a great fit because such employees do not feel disenfranchised if they can spend pre-tax money on something else. NOTE: worksite benefit premiums for health related products are fully reimburseable under an HRA and can be purchased by an employee with pre-tax money just like an individual health policy. Some employees will want to use pre-tax savings to buy an individual health insurance policy and some employees will want to use pre-tax money for worksite products and other reimburseable expenses. Employer FICA savings on salary reductions should make employer happy to encourage such behavior. There may be some admin burden on employer related to maintaining a payroll deduction system for the voluntary products. The administrator which we represent (http://sales.zanehra.com/bbcg) works hand in glove to interface payroll with HRA systems.