For many small employers, offering business health insurance plans to employees can be a real challenge. This is especially true when they feel pressured to compete with larger competitors in their industry that can offer higher salaries and even more robust 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 health insurance coverage for your employees, there are options specifically designed with small employers in mind. One of these is small group health insurance.
This article will explain everything you need to know about small group health insurance, including what it covers, how to enroll, how much it costs, and other alternatives for your small business.
Looking to offer a personalized health benefit to your employees? Learn more about health reimbursement arrangements (HRAs) in our free guide
What is small group health insurance?
Small group health insurance is exactly 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 so that they can better compete with larger companies.
To qualify for a small group health insurance plan, you must:
- Have between 2 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 insurance company
- Most insurance companies require at least 75% of your employees to be enrolled in the policy
What does a small group health insurance plan cover?
While every type of plan is different, small group plans 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 kind of 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 insurance 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 be able to 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 mandating when you need to enroll. That means you're free to start a plan whenever you're ready to sign up for one.
However, 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, but your premium will stay the same until the plan year is up.
After that year, it will be time for you to either 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 with a large group health insurance plan, small group health insurance requires that employers cover a certain portion of their employees' health insurance premium. 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' premium while their employees will cover the rest. If you choose, most plans will allow you to cover a higher percentage and 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, a 2021 KFF survey2 found that the average group health insurance policy totaled $7,739 a year for each employee for single coverage and $22,221 a 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 no matter how “high-risk” your employees are, or even if they have pre-existing conditions, your monthly premium won't be affected.
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 a minimum value of health coverage. However, this mandate only applies to employers with more than 50 employees, so if you qualify for a small group health plan, you aren't legally required to offer a certain level of coverage.
However, even if it's not legally required, employees generally expect health coverage from their employer. According to the Society for Human Resource Management3, health insurance consistently ranks as the top most requested employee benefit.
PeopleKeep's 2022 Employee Benefits Survey Report also found that 87% of employees value health benefits, while 92% of employers offer a health benefit.
Alternatives to small group plans
Small group health insurance isn't the only option for small employers. If a small group plan doesn't seem like a good fit for your organization, there are more affordable and flexible health benefits you can offer your employees, such as a health reimbursement arrangement (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 complete control over your budget.
You can also offer your employees a taxable health stipend as a small employer. This can work similar to an HRA, where you can reimburse employees for their healthcare expenses. However, it has fewer regulations on which expenses qualify for reimbursement, 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 won't satisfy the ACA's employer mandate once you have 50 full-time equivalent employees on staff. This makes an HRA a better option if you see your business expanding 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 their benefits for some organizations, such as those that employ 1099 contractors or international employees. It also allows employees who receive advance premium tax credits (APTC) to take advantage of their credits and their stipend without becoming ineligible.
Offering health benefits for the first time is an impressive milestone for any organization, but it's not without its challenges. Investing the time to explore and understand your insurance options, including traditional group plans and unique reimbursement models, is essential for finding the right plan that meets your employees' unique healthcare needs.
If you're ready to offer your employees a health benefit, PeopleKeep can help! Our personalized benefits administration software allows you to easily set up and manage your HRA and employee stipends.
Schedule a call with a personalized benefits advisor today to see how HRAs and health stipends can work with your organization
This blog article was originally published on June 2, 2021. It was last updated on August 23, 2022.