For many small employers, offering health insurance plans to employees can be a real challenge. They have to navigate unique challenges like having less bargaining power with health insurers, having smaller budgets, and often not having access to a dedicated HR professional to manage their employee benefits packages.
If this is the case for your organization, you're not alone. Research from the Kaiser Family Foundation1 (KFF) finds that the smaller the organization, the less likely employees are to receive employer-provided health benefits.
Luckily, when it comes to providing health coverage to employees, there are options specifically designed with small employers in mind. This article will explain everything you need to know about small group health insurance, including what it covers, how to enroll, and other alternatives for your small business.
What is small group health insurance?
Small group health insurance is what it sounds like—a medical insurance plan that small employers can collectively offer to all their employees. These coverage options are specifically designed for small organizations and startups looking to attract and retain top talent to better compete with larger companies.
To qualify for a small group health insurance plan, you must:
- Have between two and 50 full-time employees
- Depending on the state, employers with one employee or as many as 100 may also qualify
- Pay a portion of your employees' premiums
- Ensure you meet the minimum participation requirements set forth by the health insurance company
- Most insurance companies require at least 75% of your eligible employees to enroll in the policy
What does a small group health insurance plan cover?
While plan types vary, all small group plans have to comply with the Affordable Care Act's (ACA) health coverage requirement. That means they must fit into one of the four metal levels of coverage (bronze, silver, gold, or platinum) and cover the ACA's essential health benefits.
This includes ten major health benefits:
- Ambulatory services
- Including visits to doctors and other healthcare professionals and outpatient hospital care
- Emergency services
- Maternity and newborn care
- Services to treat mental health disorders and problems with substance abuse
- Prescription drugs
- Lab tests
- Preventive services
- Pediatric services for children, including dental and vision care
- Rehabilitative and “habilitative” services
Small group health plans won't include any coverage for vision or dental care for adults. If this is something your employees value, these are often offered as “benefit riders” that you can add to your group plan for an additional fee.
You can also offer vision and dental coverage separately from your small group health insurance policy. These are known as ancillary benefits.
How do I enroll in a small group health insurance plan?
There are a few different ways you can purchase a small group health insurance plan:
- Directly from an insurance company
- Through a broker, licensed agent, or private exchange
- From the Small Business Health Option Program (SHOP), also known as SHOP insurance
If you have fewer than 25 employees, purchasing a plan through SHOP has a special perk. You may qualify for the small business health care tax credit, which can help you pay for your contributions to health insurance premiums.
When can I enroll in a small group health insurance plan?
Unlike personal insurance for individuals and family health insurance plans, there's no set open enrollment period for group health insurance plans. That means you can start a plan whenever you're ready to sign up for one.
Once enrolled in a plan, your premiums are generally locked in for a year. You're welcome to add or drop employees and dependents anytime within that year. However, your premium payments will stay the same until the plan year is up.
After that year, you’ll either have to renew your current plan or shop for a new one. With the start of a new plan year comes renewed premium rates, and group health plans almost always see annual rate hikes from year to year—even if you don't make any changes to the plan.
How much does a small group health insurance plan cost?
Like large group health insurance plans, small group health insurance requires employers to cover a certain portion of their employees' health insurance premiums. However, the minimum employer contribution will differ from state to state and from one insurance company to the next.
Generally speaking, a small employer can expect a required contribution of at least 50% of their employees' premiums while their employees cover the rest. Most plans allow you to cover a higher percentage. You can also contribute to a portion of the premium costs for an employee's dependents.
To give you an idea of what that contribution might look like in dollars, KFF found that the average group health insurance policy totaled $7,911 per year for each employee for single coverage and $22,463 per year for family coverage.
It's important to note that, as part of the ACA, the overall health of your employees no longer impacts group health insurance rates. So your monthly premium won't be affected no matter how “high-risk” your employees are, their health status, or if they have pre-existing conditions.
Do I have to offer a small group health insurance plan?
Effective in 2014, the ACA established the employer mandate, requiring many employers to offer their employees health coverage that meets minimum value and affordability requirements. However, this mandate only applies to employers with more than 50 employees.
However, even if it's not legally required, employees generally expect health coverage from their employer. According to the Society for Human Resource Management2, health insurance consistently ranks as the most important employee benefit an employer can offer.
PeopleKeep's 2022 Employee Benefits Survey Report also found that 87% of employees value health benefits, while 92% of employers offer some kind of health benefit.
Alternatives to small group plans
Small group health insurance isn't the only option for small employers. You can offer your employees other affordable and flexible health benefits, like health reimbursement arrangements (HRA) and health stipends.
Health reimbursement arrangements (HRAs)
An HRA is a formal, IRS-approved, employer-funded health benefit that allows you to reimburse employees for their qualifying medical expenses, including individual health insurance premiums and out-of-pocket expenses.
While there are multiple HRAs to choose from, a qualified small employer HRA (QSEHRA), also known as the small business HRA, is an HRA specifically designed for employers with fewer than 50 full-time equivalent employees (FTEs).
With a QSEHRA, employees can purchase a plan that fits their individual health needs. This allows them to choose the best plan for them and see their preferred doctors and healthcare professionals. Employers have complete cost predictability without minimum or maximum participation requirements or yearly price increases, giving you total control over your budget.
As a small employer, you can also offer your employees a taxable health stipend. This can work similarly to an HRA, where you can reimburse employees for their healthcare expenses. However, it’s not considered a formal health benefit, , allowing you to expand the benefit to cover various out-of-pocket expenses, such as mental health coverage.
Since a stipend isn't a formal health benefit, it doesn’t come with any tax advantages and won't satisfy the ACA's employer mandate once you have 50 FTEs on staff. This makes an HRA a better option if your business expands within the next year. However, small employers can use a stipend as a cost-effective alternative to group health insurance.
Because employee stipends are taxable, you must report any reimbursements on your employees' W-2s as additional wages.
Health stipends have advantages for some organizations. If you employ 1099 contractors or international employees, you can offer them a health stipend. It also allows employees receiving premium tax credits (PTC) to take advantage of their stipend without becoming ineligible for their tax credits.
Offering health benefits for the first time is an impressive milestone for any organization, but it's not without challenges. Investing the time to explore and understand your health insurance options, including traditional group plans and unique reimbursement models, is essential for finding the right plan that meets your employees' unique medical care needs.
If you're ready to offer your employees a health benefit, PeopleKeep can help! Our personalized benefits administration software lets you easily set up and manage your HRA and employee stipends.
This blog article was originally published on June 2, 2021. It was last updated on June 20, 2023.