Do Small Businesses Have to Provide Health Insurance?
The government does not require a small business to offer health insurance for workers if it has fewer than 50 full-time equivalent positions.
Health care coverage is a benefit that most full-time employees expect. And many part-time employees want to work for companies offering health insurance benefits. A common question for both employers and employees is “Do small businesses have to provide health insurance?”
The short answer to this question is no. Small companies, as defined by federal law in this instance, don’t have to offer their staff a health benefit plan or provide health coverage of any kind.
That being said, small business owners who are also full-time employers want to ensure they meet all federal health insurance requirements and understand the benefits associated with offering health insurance to their employees.
What is company-provided health insurance?
Company-provided health insurance is typically referred to as “group health insurance.” It typically encompasses costs associated with doctors, urgent care, and hospitalization. Sometimes, a group health insurance plan will include dental and vision, but often this coverage comes through separate policies.
How it works is the business buys health coverage and offers it to eligible employees and their dependents. They often deduct some share of the costs from the employees’ pay. Annual premiums for employer-sponsored family health coverage reached $21,342 in 2020, according to a KFF study, and workers paid an average of 26% of the cost, or $5,588.1
Also, the business might be able to recoup some of this by claiming a premium tax credit come tax time.2
Do you need to provide health insurance as a small business?
Under the Affordable Care Act (ACA), small businesses don’t have to offer group health insurance unless they meet specific criteria. Currently, federal law stipulates that if a company employs 50 or more full-time equivalent employees for 6 months or longer, they’ll need to provide health coverage or face a no-coverage penalty from the IRS when they file their taxes.
However, small employers that aren’t required under the ACA to provide a health plan might might lose a competitive advantage to another small business owner who offers a health insurance plan. The good news is they have options under the Small Health Options Program (SHOP), which is designed for small employers (1-50 full-time equivalent employees) who choose to provide health and dental coverage.3
You can also enjoy a health care tax credit, better employee retention, stronger productivity levels, and and overall healthier corporate
How can providing health insurance options benefit a small business?
Even if you’re not required to offer health insurance benefits because of the size of your small business, you can enjoy benefits from offering health care coverage. Aside from the health care tax credit allowed by business health care tax law, you can benefit in other ways.
Better employee retention
Businesses that do not have an employer mandate but still offer health benefits are more likely to see higher employee retention rates than their competitors who bypass small business health options. A 2021 Workhuman survey found that 66% of employees waited to review their employer’s new benefit offerings before deciding if they’d stay with the company or seek new employment.4
It’s clear that insurance benefits matter to employees.
Stronger productivity levels
If you offer healthcare coverage to your employees, you’re more likely to see stronger productivity levels. When employees and their dependents address health issues as they arise because they enjoy health insurance coverage, they are less likely to be tardy or take sick days.
Happier corporate culture
Employers who show they are employee-friendly and care about their team members often find that employees show thoughtfulness in return. Ultimately, it results in a happier corporate culture that works together to meet goals and objectives. Essentially, with health insurance not being a worry, employees have less stress to carry over into their work lives.
Bottom line, while small businesses aren’t required to offer health insurance coverage by the federal government, it’s a good idea to plan to include health care in your annual budget. Chances are the benefits will outweigh the costs and you can recoup funds elsewhere due to lower turnover and absenteeism.
Alternatives and options for small businesses
If a traditional group health insurance coverage plan doesn’t work due to healthcare costs or other issues relating to providing health insurance, you do have other options to explore.
Qualified Small Employer Health Reimbursement Arrangement (QSEHRA)
You can still offer health insurance benefits to employees in the form of QSEHRA, which is an employee health insurance reimbursement plan that you design to suit your budget. Funded by you, your staff can receive reimbursement for their healthcare costs from a monthly tax-free healthcare allowance.
Integrated HRA
In this plan, you offer coverage through a group plan in conjunction with a monthly allotment for health care costs. While it is a type of small business health care that comes with a high deductible, it can work for both you and your employees.
Health insurance purchasing co-op
Co-op employee health benefits are regulated at the state or local level, so you’ll have to research your state. How it generally works is that several small businesses join to purchase health insurance as one group, combining resources. For smaller companies unable to afford full health insurance plans to provide health coverage, it’s a great alternative.
Employee health benefits are worth considering
If you can find a way to provide health insurance benefits in some shape or form for your employees, you might find it’s worth the investment. Between tax credits and stronger company culture, you can gain a true competitive advantage.
1 2020 Employer Health Benefits Survey
2 Understanding the Small Business Health Care Credit
