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Do Small Businesses Have to Offer Health Insurance? A Guide to Employee Health Benefits

November 4, 2024

The health insurance mandates of the Affordable Care Act (ACA) have changed since President Donald Trump took office. Many small business owners are confused and have questions about whether or not they have to offer health insurance to their employees. In 2018, small businesses with fewer than fifty full-time equivalent employees are not required by law to provide health insurance to their workers.

These topics will show you how to determine if you need to provide health insurance and walk you through your health benefits options:

Do Small Businesses Need to Offer Health Insurance?

What Is an Applicable Large Employer?

What Health Benefit Options Are Available for Small Businesses?

Why Should Businesses Offer Health Insurance?

Do Small Businesses Need to Offer Health Insurance?

Small businesses don’t need to offer health insurance to employees under the ACA. In fact, no business is forced to pay insurance in the US; instead, large businesses that don’t comply with insurance coverage stipulations in the ACA have to pay a no-coverage penalty to the IRS on their tax filing.

In 2018, only businesses with fifty or more employees are required to provide full-time equivalent employees and their family members or other dependents with minimum essential health care coverage. Of the services covered, it’s the employer’s responsibility to pay for at least 60 percent of the insurance coverage.

Small Business Health Care Tax Credit

Small businesses, on the other hand, have no requirements to offer any health insurance coverage to employees. However, if a small business opts to offer health insurance coverage to employees, it may qualify for the Small Business Health Care Tax Credit. To be eligible for the credit, your small business has to meet the following criteria:

You must have less than 25 full-time equivalent employees
The average wage you pay employees must be less than $51,600 per year
You have to pay at least 50 percent of the cost of the employees’ health insurance premium.

Small businesses can apply for the tax credit when filing their income taxes.

What Is an Applicable Large Employer?

Under the ACA, an applicable large employer (ALE) is defined as any business that employed fifty or more full-time equivalent employees for six months or longer in 2017.

To determine if your business meets the criteria of an ALE, you need to count your full-time employees as well as the full-time equivalent of your part-time employees.

Full-time employees: Are defined as working an average of at least 30 hours per week in a given month. You’ll need to count up all your full-time employees.
Full-time equivalents: To calculate the full-time equivalent of all your part-time workers, add up the total number of hours worked by part-time employees in a given month, then divide the total by 120.

If the combined total of full-time employees and full-time equivalents is fifty or more, your business is considered an applicable large employer.

What Health Benefit Options Are Available for Small Businesses?

Although small businesses don’t need to offer health insurance, many opt to do so to keep their employees happy and healthy and to attract new workers. Here are some of the most popular health benefits options available to small businesses:

Traditional group health insurance: The federal government offers SHOP, the Small Business Health Options Program, which gives small employers the option to provide health and dental coverage to their employees.
QSEHRA: The Qualified Small Employer Health Reimbursement Arrangement is a health benefit plan funded by employers that reimburses employees for their health care expenses from a monthly tax-free health care allowance. It allows businesses to set their own budgets but still offer coverage.
Integrated HRA: With an integrated HRA, small businesses offer employees a group plan in combination with a monthly allowance for health care expenses. The group plan for an integrated HRA usually involves a high-deductible policy.
Health insurance purchasing co-op: Health insurance purchasing co-ops are regulated at the state or local level. These co-ops allow small businesses to come together and collectively purchase health insurance for their employees. The regulation and availability of purchasing co-ops varies from state to state.

Why Should Small Businesses Offer Health Insurance?

Small businesses may choose to offer health insurance to employees because it offers benefits both to workers and the company. Here are some of the top benefits to offering health insurance as a small business:

It Keeps Employees Happy

Offering health insurance benefits to your employees can keep them happy and help with employee retention. It can also help attract new employees to your company. According to a recent survey by Glassdoor, health insurance coverage is the most important benefit for employee satisfaction, ahead of vacation and pension plans.

It Boosts Employee Productivity

Worrying about healthcare coverage and neglecting preventative care because of healthcare costs can lead to stress and illness, both of which lower employee productivity at work. According to the Center for Disease Control, healthier employees are more productive and are less likely to call in sick for work. Offering health care coverage to employees can reduce stress levels and encourage workers to get the care they need to maintain their health and stay productive.

It Saves You Money At Tax Time

Employer health-care premiums are tax exempt, which can greatly reduce or even erase your tax obligations. Your contributions are also tax deductible, meaning you can write off the cost of employer-sponsored contributions during tax season. By offering employee health insurance, you may also qualify for the Small Business Health Care Tax Credit.

It Gives More Choice

Group health insurance often offers access to hospitals and doctors that aren’t available to people with individual health plans. These hospitals and doctors are often more in demand and considered better than those available through individual plans.