Small businesses with fewer than 50 employees are not legally required to offer health insurance to employees, but health coverage is one of the most desirable job benefits. Approximately two-thirds of business owners provide health insurance as a way to hire and retain the best workers.
Whether employer-sponsored health insurance is required by law or is offered as an optional perk, businesses that are required or want to provide it should consider plan options, including alternatives to traditional group health insurance.
Health Insurance Legal Requirements
Below is some important information about the Patient Protection and Affordable Care Act (ACA), sometimes called Obamacare:
- The ACA requires businesses with 50 or more full-time equivalent employees (the number of full-time employees plus a fraction of the number of part-time employees) to provide health insurance. This is known as the employer mandate.[1]
- Employers who do not comply with the mandate—either by not offering coverage at all or offering coverage that does not meet value and affordability standards—can face annual penalties.
- ACA rules mandate providing employees with a Summary of Benefits and Coverage form. Noncompliance can result in penalties.
- HealthCgov notes that employers may be required to provide information about ACA’s Small Business Health Options Program (SHOP) Marketplace plans to their employees, regardless of whether they offer health insurance.[2]
- The Internal Revenue Service (IRS) also has ACA tax provisions, including reporting requirements.
- When an employer puts a group plan in place, they are subject to other state and federal laws, such as the Employee Retirement Income Security Act of 1974 (ERISA), the Consolidated Omnibus Budget Reconciliation Act (COBRA), and the Health Information Portability and Accountability Act (HIPAA).[3]
Healthy Workers, Happy Workers
Businesses with fewer than 50 employees are not subject to the ACA’s employer mandate. Nonetheless, they may choose to offer health insurance as an optional perk.
An employer-sponsored health plan can provide the following benefits:
- Attract and retain workers
- Keep staff healthier and more productive
- Reduce sick days and on-the-job injury and illness
- Raise employee satisfaction
- Save money through ACA tax credits for group health plans
With regard to tax credits, businesses that have fewer than 25 full-time workers, pay at least half of their employees’ health insurance premiums, and meet other criteria may qualify for a tax credit that covers up to 50 percent of insurance premium costs they pay.[4]
Group Health Insurance Options
Small business owners who want to enroll in small business health insurance have two main options: they can go directly to private insurers or find plans through the ACA’s SHOP Marketplace.
- SHOP healthcare plans are generally the only way for companies to qualify for the Small Business Health Care Tax Credit. They are offered by private insurance companies and include the following types of plans: Health Maintenance Organization (HMO), Preferred Provider Organization (PPO), Exclusive Provider Organization (EPO), Point of Service (POS), and High Deductible Health Plans (HDHP). Not all insurers offer SHOP plans, and availability can vary by location. Blue Cross Blue Shield, Kaiser Permanente, UnitedHealthcare, and Aetna are some of the major insurers that have SHOP plans. ACA plan enrollment is only available during certain times of the year.
- Companies that do not qualify for SHOP plans can turn to the private health insurance marketplace for group plans. Although non-SHOP plans may not meet the standards necessary for the Small Business Health Care Tax Credit, the premiums that employers pay may be tax-deductible. Enrollment in private plans is available year-round. The same types of group plans offered as SHOP plans (e.g., HMO, PPO, and EPO) can also be purchased as private plans.
With a group health plan, employers and employees share the costs. The employer can decide how much of the cost they will bear and how much employees will bear. Typically, employees are given different plans to choose from at different price points.
Employers that want the competitive advantages of offering health benefits but do not want to sponsor a plan due to cost issues can consider a Health Reimbursement Arrangement (HRA), such as the qualified small employer HRA (QSEHRA) or Individual Coverage Health Reimbursement Arrangement (ICHRA).
- QSEHRAs and ICHRAs allow employers to keep their healthcare spending at a fixed amount while giving employees greater flexibility when choosing a plan.
- These arrangements—funded solely by employers—allow businesses to provide health insurance coverage for their employees by reimbursing them for premiums the employees pay for health insurance they purchase on their own. The employer sets a maximum allowance that they will pay out through the arrangement.
- QSEHRAs are only available for small businesses with 50 or fewer employees. The IRS sets an annual cap on contribution limits.[5]
- ICHRAs are available for employers of any size, with no contribution limits for fewer than 50 employees.
- Employees submit eligible health plan costs to their employer, and the employer reimburses them.
- Payments made through an HRA arrangement are 100 percent tax-deductible for employers and usually tax-free for employees, provided they maintain minimum essential coverage (MEC) under the ACA.
Group Coverage Is a Group Effort
Health insurance laws in this country are almost as complex as the tax code, making it difficult to understand the legal responsibilities of employers and how they can make the most of group health plan incentives. Our business attorneys are here to help you ensure that your business complies with any applicable health insurance laws. Call us to schedule a consultation.
[1] What Is the Employer Mandate?, Healthinsurance.org, https://www.healthinsurance.org/glossary/employer-mandate/ (last visited Sept. 11, 2023).
[2] Exploring Coverage Options for Small Businesses, HealthCare.gov, https://www.healthcare.gov/small-businesses/learn-more/how-aca-affects-businesses/ (last visited Sept. 11, 2023).
[3] U.S. Dep’t of Lab., Understanding Your Fiduciary Responsibilities Under a Group Health Plan (2019), https://www.dol.gov/sites/dolgov/files/ebsa/about-ebsa/our-activities/resource-center/publications/understanding-your-fiduciary-responsibilities-under-a-group-health-plan.pdf.
[4] The Small Business Health Care Tax Credit, HealthCare.gov, https://www.healthcare.gov/small-businesses/provide-shop-coverage/small-business-tax-credits/ (last visited Sept. 11, 2023).
[5] Health Reimbursement Arrangements (HRAs) for Small Employers, HealthCare.gov, https://www.healthcare.gov/small-businesses/learn-more/qsehra/ (last visited Sept. 11, 2023).
