Omar Bennett
Group health insurance is a single policy issued to a group of people and their dependents. It is often less expensive than individual plans that offer the same benefits and coverage options. However, not everyone qualifies for group coverage plans. The number of employees required to qualify for group health insurance varies depending on the type of plan and the state in which the business is located. In most states, small businesses with between one and 50 employees can qualify for small group health insurance. However, in California, Colorado, New York, and Vermont, small businesses can offer small group coverage if they have fewer than 100 employees. Large businesses, generally defined as those with 50 or more employees, qualify for large group coverage and must meet minimum large group health insurance standards and coverage reporting requirements.
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What You'll Learn
- Small businesses with 2-50 employees can qualify for group insurance
- Large businesses with over 50 employees need large group coverage
- Small businesses must have at least one employee besides the owner
- Applicable Large Employers (ALEs) must cover 95% of full-time employees
- Group insurance is often less expensive than individual plans
Small businesses with 2-50 employees can qualify for group insurance
As a small business owner, you need at least one employee besides yourself to qualify for small business health insurance. This means that your workers must be full-time or full-time equivalent employees. Full-time employees work at least 30 hours per week, and full-time equivalent employees are non-full-time employees who, in combination, are the equivalent of a full-time employee. For instance, three employees working 10 hours per week each are equivalent to one full-time employee.
Small businesses can acquire affordable and quality group health insurance for their employees, but it requires effort, research, and perseverance to identify and develop a platform that meets the needs of the business and its employees. Small businesses can purchase traditional small group health insurance through a health insurance broker or their state-run Small Business Health Options Program (SHOP) marketplace. Premium and plan options vary between states and insurance providers.
There are several types of group insurance plans that small businesses can choose from, such as Health Maintenance Organization (HMO) and Preferred Provider Organization (PPO) plans, which are the two most popular. Employers can also opt for self-funded plans, where employees pay their premiums to the employer, who then assumes the financial responsibility of all health care claims after the employee's deductible and out-of-pocket maximum are reached. Small businesses can also consider pre-tax savings health accounts like Health Savings Accounts (HSAs) or Flexible Spending Accounts (FSAs) to help employees manage healthcare costs while offering tax advantages.
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Large businesses with over 50 employees need large group coverage
Large businesses with over 50 employees need to apply for large group coverage. This is because the federal government considers employers with 50 or more full-time employees to be applicable large employers (ALEs). While employers with fewer than 50 full-time employees aren't legally required to offer health insurance, most businesses would like to provide health insurance to their employees. This is because health benefits are a critical part of an employer's employee value proposition and can help attract and retain top talent in any job market.
Group health insurance is a single policy issued to a group of people and their dependents. It is often less expensive than individual plans that offer the same benefits and coverage options. However, it can be challenging for small employers to meet the requirements for group coverage. Large businesses, on the other hand, generally have an easier time acquiring traditional group health insurance plans for their employees. They can easily meet group health insurance qualification requirements and have more bargaining power when it comes to negotiating plan pricing and options.
There are various types of group insurance plans available, and employers can typically find a plan that meets their needs in terms of benefits and budget. For example, a health maintenance organization (HMO) and a preferred provider organization (PPO) are two of the most popular plans. Employers can also opt for self-funded plans, where employees pay their premiums to the employer, or level-funded plans, which offer small businesses the flexibility to manage premiums while receiving potential refunds if claims are lower than expected. Large businesses can also create tailored benefits packages with diverse plan types, allowing employees to select the coverage that best suits their needs.
In addition to traditional group health insurance, there are other options available to employers. For example, the individual coverage health reimbursement arrangement (ICHRA) allows all businesses, regardless of size, to reimburse employees for their healthcare expenses. Employees can choose their own health insurance plan, and employers can reimburse them tax-free for premiums and qualified healthcare costs up to a defined amount. This gives employers more flexibility and control over their budgets, as there are no unpredictable costs associated with small business group health insurance.
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Small businesses must have at least one employee besides the owner
Small businesses must have at least one employee who is not the owner to qualify for small business health insurance. This is the case for companies with between one and 50 employees. One of the employees on the group health insurance plan can be the owner or employer. However, to qualify for small group coverage, at least one other employee who is not an owner must enrol in the group health plan. These employees must be full-time or full-time equivalent, working at least 30 hours per week.
There are several options for small businesses when it comes to selecting a group health insurance plan. For example, a Multiple Employer Welfare Arrangement (MEWA) allows multiple employers to band together to leverage purchasing power as a group. Businesses with 1-50 employees, including sole proprietors and self-employed individuals, can join a MEWA. A level-funded plan is another option for small businesses with 2-49 employees. This type of plan offers flexibility in managing premiums while also providing potential refunds if claims are lower than expected.
While the Affordable Care Act (ACA) does not require small businesses to offer health insurance to employees, it is still a good practice to follow. Group health benefits are a critical part of an employer's employee value proposition and can help attract and retain top talent. Employees across all generations continue to report medical coverage as a top-tier benefit they consider when searching for jobs, so offering health benefits can improve recruitment and retention.
In addition to traditional group health insurance plans, small businesses can also consider other options such as Individual Coverage Health Reimbursement Arrangements (ICHRAs). ICHRAs allow all businesses, regardless of size, to reimburse employees for their healthcare expenses. Employees can choose a health insurance plan that works best for them, and the business can then reimburse them tax-free for premiums and qualified healthcare costs up to a defined amount. This provides flexibility and tax benefits for employees while also allowing businesses to set their own budgets for health benefits without any minimum participation requirements.
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Applicable Large Employers (ALEs) must cover 95% of full-time employees
The Affordable Care Act (ACA) mandates that Applicable Large Employers (ALEs) must provide health insurance coverage to at least 95% of their full-time employees. This is to avoid steep IRS penalties. However, this mandate does not apply to small employers with fewer than 50 full-time equivalent employees (FTEs).
To be considered an ALE, an employer must have at least 50 full-time employees, including full-time equivalent employees, on average during the prior year. This means that employers with fewer than 50 FTEs are not legally required to offer health insurance to their employees.
ALEs must offer their full-time employees and their dependents a health insurance plan with minimum essential coverage (MEC) that is both affordable and provides minimum value. This means that the policy must cover at least 60% of the average costs for a standard population. The affordability of a health plan is calculated using an employee's household income and the share they must pay toward their monthly health insurance premium. For 2025, the IRS considers an employer-sponsored health plan affordable as long as the premium for the lowest-cost self-only coverage does not exceed 9.02% of an employee's annual household income.
There are two potential penalties that may be accessed to an ALE that does not comply with the mandate. The first penalty is for ALEs that do not offer MEC to at least 95% of their full-time employees and their dependents. For the 2024 tax year, this penalty amount is $2,970 per employee, per year. The second type of penalty is for ALEs that do not offer affordable coverage to their full-time employees and their dependents. If any employee receives a premium tax credit from the Health Insurance Marketplace because the employer does not provide affordable healthcare coverage, the employer will be penalized $4,460 per employee, per year.
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Group insurance is often less expensive than individual plans
Group health insurance is often less expensive than individual plans, although this is not always the case. Firstly, it is important to note that group insurance is typically associated with large employers, and there are different rules for small businesses. Small group health insurance is available for companies with between two and 50 full-time equivalent employees (FTEs). In California, Colorado, New York, and Vermont, companies with fewer than 100 employees can offer small group coverage.
Small group health insurance plans can have a lower per-person cost than individual plans. The average deductible for small business health insurance is 31% lower than the average deductible on an individual plan. However, it is important to note that each plan has its own terms and limitations, and business owners should compare the costs of small business health insurance versus individual rates on a case-by-case basis.
There are several reasons why group insurance plans may be cheaper than individual plans. Firstly, employers often cover at least half of the premium, reducing the premium cost for individual employees. Secondly, employees usually pay their portion of the premium with pre-tax money, resulting in significant savings. Thirdly, employers may deduct the amount they pay for employees' premiums from their business taxes and may even receive special tax credits.
Another advantage of group insurance is the risk pool benefit. In a larger pool, the high cost of one insured person who is higher risk has a smaller effect, lowering overall costs. This is in contrast to individual plans, where the cost of an insured person who is higher risk is not offset by lower-risk individuals.
While group insurance can be less expensive than individual plans, it is important to consider other factors when choosing health insurance. For example, individual plans are not tied to employment, so an individual can keep the same policy even if they change jobs. Additionally, premium tax credits and other cost-saving government subsidies are available on public exchanges for those who qualify based on income.
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Frequently asked questions
In most states, a company must have between two and 50 full-time equivalent employees (FTEs) to qualify for small group health insurance. However, organisations in California, Colorado, New York, and Vermont can offer small group coverage if they have fewer than 100 employees.
If you have more than 50 employees, you qualify for group insurance but will need to apply for traditional large group coverage. You will need to meet the minimum large group health insurance standards and coverage reporting requirements.
Group health insurance can be a powerful tool for attracting and retaining top talent in any job market. It also helps to reduce employee stress and increase work productivity. Additionally, it can help your company stay competitive in the job market.
