As the owner of a small business, you might be asking yourself, "Do small businesses have to provide health insurance?" This depends on how many people you employ. Legally speaking, only businesses with fewer than fifty employees are not required to offer health plans.1
If your business has more than fifty employees, you have to provide small business health insurance to your staff, or you face a fine of around $3,860 per employee2.
The Benefits of Providing Small Business Health Insurance
Although it’s perfectly legal as a small business with fewer than 50 employees to not provide small business health insurance, there can be advantages to doing so. And even if you’re just starting out and worried about the additional financial challenge of health insurance, there are still good reasons to consider providing it to your employees.
Let’s start with tax-friendly tools available to help with small companies’ health insurance needs. You’ll find there are what's called health reimbursement arrangements3. These can help you as a small business owner to afford health benefits – meaning you get the advantages of providing health insurance to your employees.
If you’re still asking yourself “Do small businesses have to provide health insurance?", consider what direction your business is taking. You might want to grow your company in the future – so having a competitive benefits package is one key way to attract and retain talent in the job market.4
Also keep in mind that your business is only as good as the team you’re able to build. It’s essential that each member of that team remains loyal and committed to your small business and its objectives. Fair remuneration will always be a huge motivating factor for those seeking employment, and for those already working with you. But don’t lose sight of the fact that salary isn’t everything: you have to offer something more – small companies’ health insurance, for example – to remain competitive and attractive to the best employees.
There are still more answers to the question "Do small businesses have to offer health insurance?" – like the fact that benefits such as health insurance have a positive knock-on effect right across your small business. A happy team is a more productive team5, meaning your small business stands to grow its profits. Employees worried about how they’d cope if ill health struck are likely to be stressed, reducing your small business’s effectiveness in the long term.
Small Business Health Insurance Options
In the past, the most common type of health insurance for small businesses was group insurance6. However, several other options and packages have emerged over the years.
We'll take a look now at three small company health insurance options currently available. You may be familiar with these plans in passing, but it’s vital to ensure you understand each of them in greater detail. This will help you get the best plan for your company, based on factors such as how your business is set up, and what industry it operates in. It’s also important to note that plans are priced differently based on the area7. What works for one type of small business may not be the best option for yours.
Your three main health insurance options as a small business owner are:
- Health Reimbursement Arrangements (HRAs)
- Small group insurance
- Self-funded plans
Reimburse for Health Insurance With an HRA
As mentioned earlier, an HRA is an affordable, tax-friendly plan enabling business owners to reimburse workers for medical expenses on a pre-tax basis. The employee covers their initial health expenses, then submits a claim for these to your small business, reimbursing them.
Traditionally, everyone who asked, "Do small businesses have to provide health insurance?" found themselves advised to take small group insurance. This has been the go-to option for many people looking to offer health insurance for small businesses, and was designed to offer employee health insurance to companies with fewer than fifty workers8.
Group insurance, as the name suggests, allows you to provide health plans to a group of members. This not only includes company employees, but in some instances, their family members, too. The option is so popular that group members generally get their plans at a reduced cost: the insurer's risk is spread across several individuals, so they don’t need to price it too high.
When an employer purchases group insurance, they extend it to their employees. This means the option is not available for individuals. That said, you can buy group insurance even if you employ only a single worker.
Unlike group insurance, where there’s a set premium, a self-funded plan means an employer covers health-related costs as these arise, rather than paying in advance9. Businesses do this primarily as a means to save the company money.
When a small business owner chooses self-funding, they usually set up a trust fund where the money is held – ready to cover any health cost claims. If an employee falls sick, or has some health-related bill, the claim they make is paid from this fund. As a small business owner, you can choose to handle the administration of these claims yourself, or engage a third party to manage this on your company’s behalf.
What Is the Best Option for Your Company?
As we’ve shown, there’s no one answer to the question, "Do small businesses have to offer health insurance". Unfortunately, there’s also no one option that's universally best for everyone when it comes to health insurance for small business. You need to look at several factors before making your decision on which type to buy. Those factors should include your budget, number of employees, and what type of business you’re in.
to your employees if you employ fewer than 50, this doesn't mean there aren’t advantages to your small business. Offering your employees health insurance benefits can bring many rewards. Just be sure to choose a plan that suits your company’s budget.
Need some advice?
If you’re a small business owner and haven't yet decided whether or not you should get health insurance for your employees, talk to us on (930) 203-1232 – our friendly representatives are ready for a no-pressure chat on how we can help you with your insurance needs. Or get a quote in minutes for your small business health plan with our online estimator.
- 1) https://www.uschamber.com/co/run/human-resources/small-business-health-insurance-requirements
- 2) https://www.nolo.com/legal-encyclopedia/is-my-employer-required-to-provide-health-care.html#:~:text=Under%20the%20ACA%2C%20employers%20with,per%20year%20(in%202020).
- 3) https://www.healthcare.gov/glossary/health-reimbursement-account-hra/
- 4) https://www.forbes.com/sites/forbeslacouncil/2018/07/03/the-four-advantages-of-offering-health-and-wellness-benefits-to-employees/?sh=3680f343646a
- 5) https://www.ncbi.nlm.nih.gov/pmc/articles/PMC2690190/
- 6) https://www.healthcare.gov/small-businesses/learn-more/explore-coverage/
- 7) https://www.healthcare.gov/see-plans/#/
- 8) https://healthcoverageguide.org/part-one/group-coverage-basics
- 9) https://healthcoverageguide.org/part-one/group-coverage-basics