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How to Plan Your Small Business Health Insurance When Employees Have Different Types of Coverage

Written by: PeopleKeep Team
September 21, 2016 at 11:00 AM

It can be confusing to plan your small business health insurance budget if you have employees with different types of coverage. For example, you may have employees who are on their spouse’s insurance, on a parent’s policy, or have an individual policy they purchased on their own. In these FAQs, we answer common questions about small business health insurance options when employees have multiple coverage options.Small Business Health Insurance FAQs - When Employees Have Multiple Coverage Options

Who is Responsible for Providing Health Insurance?

Unlike larger employers, small employers (with fewer than 50 employees) are not mandated to offer health insurance coverage to employees.

In other words, smaller employers are not responsible for providing health insurance to employees. And yet, there is a requirement for all Americans to have coverage (or pay a fee tax time).

As a small employer, what you are responsible for is communicating your small business health benefits program (or lack there-of) to your employees.

If you do not provide health insurance coverage, employees often appreciate you pointing them to resources to purchase their own coverage, such as healthcare.gov.

What are My Options for Health Benefits as a Small Employer?

As a small business employer, you have a couple of options. 

The first option is to provide a traditional group health insurance policy. In this case, most employers work with a licensed broker, who communicates options to you from multiple insurance providers. If you already have an existing health insurance policy, you will have a designated representative you can call with questions. 

The second option is to use a defined contribution health plan (DCHP) to provide a meaningful benefit to your employees without carrying health coverage. For example, you can set up a healthcare reimbursement plan (HRP) to reimburse employees for individually-purchased premiums and empowers employees to choose a plan that is best suited for their families. This allows employees with different types of coverage to be reimbursed from the company, so long as the premiums are eligible for tax-free reimbursement (see this article for a list of eligible premiums).

Can I Exclude Employees From My Small Business Health Benefit Plan?

It depends on what type of benefit you offer.

With a group health insurance policy, you generally cannot exclude employees if they are considered full-time equivalents (FTEs). However, you can design eligibility to be dependent on access to other benefits. For example, many employers refuse coverage to spouses if the spouse’s employer offers insurance.

With defined contribution health plans, many plans allow you to exclude (or include) employees based on bone-a-fide job criteria such as job role, location, or hours worked weekly. This allows employers more flexibility to include, or exclude, certain groups of employees from the health benefits.

Am I Allowed to Discuss Benefits and Coverage Options with Employees?

Yes! In fact, you should discuss the particulars of the health plan with your employees - especially if they are currently covered under other types of insurance. Many times, we hear from small businesses that employees like their current insurance and would appreciate a way for their employer to contribute to their premium - instead of having to switch insurance plans.

Just remember, there are questions you may not ask. You may not ask any questions regarding their medical history, as Health Insurance Portability and Accountability Act (HIPAA) regulations are designed to protect patient privacy and forbid such exchanges of information.


As a small business owner, considering how employees currently receive health insurance coverage - and how you can help support their health insurance costs - is an important decision. For employers with employees who already have coverage, reimbursing insurance premiums, rather than offering a specific health insurance policy, may be beneficial to the small business and employees alike.

The Comprehensive Guide to the Small Business HRA

What questions do you have about small business health insurance? Leave them in the comments below. We’ll answer them!

Topics: Small Business