The Affordable Care Act (ACA) defines a small business as a group of no more than 50 full-time employees (FTE), though some states define it differently. California, for instance, categorizes small businesses as employers of no more than 100 FTE. Small business owners aren’t legally required to provide health insurance to their workers, but there are rules for those who do.
A small business owner enrolls in a group health insurance plan offered by a private insurance company and then offers their employees the opportunity to enroll in that plan. The employer pays part of their employees’ monthly premiums, and the employees are typically responsible for their deductibles, copays and services not covered by the plan.
Small Business Health Insurance Options
Thanks to the ACA, small business owners can buy health insurance for their employees through approved insurance companies with the Small Business Health Options Program (SHOP). Getting insurance through the SHOP Marketplace allows employers to offer health plans from multiple insurance companies and qualifies them for the Small Business Health Care Tax Credit, which can help with the cost of providing coverage.
Small business owners can also work with an insurance broker who conducts all plan research and comparisons to find the best plan for your business at no additional charge.
Group plans for small businesses are organized by “metal” tiers: bronze, silver, gold and platinum. Each tier features different premiums, deductibles, copays and out-of-pocket limits, catering to people who prefer to pay higher monthly premiums for more extensive coverage and those who’d rather pay a lower monthly premium and risk higher coverage costs in the event that they need to seek care. Employers have flexibility in which type of plans they choose to offer their employees.
Small Business Health Insurance Requirements
Small business owners do not have to provide health insurance benefits to employees. Should they choose to do so, they must meet certain requirements set by the ACA below. These requirements can vary by state.
- Inclusivity: Health insurance must be offered to all employees—not just managers or any other subgroup.
- Coverage of essential health benefits: Under the ACA, a health plan offered by a small business owner must include coverage for basics, such as emergency services, pregnancy-related care and services, maternity and newborn care, outpatient care, prescription drugs and more.
- Minimum contribution: The ACA requires small businesses to contribute at least 50% of the monthly premium cost of the plans they offer to qualify for the Small Business Health Care Tax Credit, says Jugan, and have their own variations of this rule. New Jersey, for instance, requires small business owners to pay at least 10% of the total cost of the plan. “The less an employer pays, the more the employee has to pay,” notes Jugan, which can be a downside for some workers, who may decide to seek another job with a less expensive health plan.
In addition to these rules, states typically require a minimum percentage of employee participation in health insurance plans offered by small businesses, says Jugan. “The reason behind this [rule] is if there are 10 employees in a company and only three enroll, it’s likely that those three are really sick.” To better distribute the costs, total enrollment should be a mix of individuals with varying health statuses.