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Small Business Employee Benefits and HR Blog

What Constitutes a Group for Health Insurance?

February 23, 2018

When the Affordable Care Act passed in 2010, U.S. businesses received a new federal requirement: provide health insurance to all full-time employees or face steep penalties from the IRS. This is known as the employer mandate.

The new law made an exception, though. Small businesses with fewer than 50 employees weren’t subject to the employer mandate. This is still the case today.

Most small businesses still want to provide health benefits, though. Offering a good health benefits package helps businesses hire and keep talented workers, and many businesses feel they have a duty to provide for their employees.

But meeting group health insurance requirements is often difficult. In addition to the costly premiums, small businesses question whether they’re large enough to qualify for group coverage and if they must meet any participation requirements.

In this post, we’ll answer these questions as well as discuss some group health insurance alternatives for businesses interested in other approaches to benefits.

What do insurers consider a “group” for group health insurance?

Group health insurance is a single policy issued to a group of people and sometimes their dependents. Because group coverage is often associated with large businesses, though, many small businesses wonder whether their business is eligible for group coverage.

Under federal law, insurers are required to provide small businesses with group coverage should the business choose to purchase it—regardless of size. That means that even businesses with between just 2 and 50 full-time employees can find coverage.

Because owners are generally counted as employees, partnerships or sole proprietorships with one employee also qualify for group coverage.

Additionally, some states consider self-employed individuals to be “groups” of one. In these cases, self-employed individuals can also purchase group coverage. This group coverage may or may not be guaranteed issue on the small group market.

Definitions of “group” health insurance and guaranteed issue requirements by state

Though all states are required to guarantee issue coverage to small groups of 2 to 50, some extend coverage to groups of 1.

Here’s a chart explaining how each state defines “group” health insurance as well as the guaranteed issue requirements for self-employed groups of one.

   Definition of small group Guaranteed issue for self-employed groups of one?
 Alabama  2 to 50  No
Alaska   2 to 50  No
Arizona    2 to 50   No 
Arkansas   2 to 50  No 
California   2 to 50   No 
Colorado   1 to 50   Yes 
Connecticut  1 to 50   Yes 
Delaware  1 to 50   Yes 
District of Columbia  2 to 50   No 
Florida  1 to 50   Yes 
Georgia  2 to 50   No 
Hawaii  1 to 50   Yes 
Idaho  2 to 50   No 
Illinois  2 to 50   No 
Indiana  2 to 50   No 
Iowa  1 to 50  No 
Kansas  2 to 50   No 
Kentucky  2 to 50   No 
Louisiana  1 to 50   No 
Maine  1 to 50   Yes 
Maryland  2 to 50   No 
Massachusetts  1 to 50   Yes 
Michigan  2 to 50   Yes 
Minnesota  2 to 50   No 
Mississippi  1 to 50   Yes 
Missouri  2 to 50   No 
Montana  2 to 50   No 
Nebraska  2 to 50  No 
Nevada  2 to 50   No 
New Hampshire  1 to 50   Yes 
New Jersey  2 to 50   No 
New Mexico  2 to 50   No 
New York  1 to 50   No 
North Carolina  2 to 50   Yes 
North Dakota  2 to 50   No 
Ohio  2 to 50   No 
Oklahoma  2 to 50   No 
Oregon  2 to 50   No 
Pennsylvania  2 to 50   No 
Rhode Island  1 to 50   Yes 
South Carolina  2 to 50   No 
South Dakota  2 to 50   No 
Tennessee  2 to 50   No 
Texas  2 to 50   No 
Utah  2 to 50   No 
Vermont  1 to 50   Yes 
Virginia  2 to 50   No 
Washington  1 to 50   Yes 
West Virginia  2 to 50   No 
Wisconsin  2 to 50   No 
Wyoming  2 to 50   No 

Source: Kaiser Family Foundation

Does my business have to meet any participation requirements?

To ensure they’re not losing money, many insurers require businesses to meet minimum participation requirements to offer a group health insurance policy.

In most states, at least 70 percent of employees offered group coverage must either enroll or have coverage from another source—like a spouse’s group policy, Medicare, or a personal insurance plan.

Some states have higher or lower minimum participation requirements, though. These include:

  • Iowa: 75%
  • Kentucky: 75%
  • Mississippi: 0%
  • Nevada: 75%
  • New Hampshire: 75%
  • New Jersey: 75%
  • South Dakota: 75%
  • Tennessee: 50%
  • Texas: 75%
  • Utah: 75%

Businesses can use HealthCare.gov’s SHOP Marketplace Minimum Participation Rate Calculator to get an exact number of employees who must enroll or have other coverage to offer a group policy.

Does my small business have other benefits options besides group health insurance?

Between cost and minimum participation requirements, many small businesses struggle to offer group health insurance.

Thankfully, there are other options. Instead of offering traditional group benefits, an increasing number of small businesses are choosing personalized health benefits for employees.

With personalized health benefits, small businesses give employees tax-free money to spend on the health care products and services they want most. Health savings accounts (HSAs) and the qualified small employer health reimbursement arrangement (QSEHRA) are two examples of popular personalized health benefits that have succeeded in recent years.

These benefits allow small businesses to set their own budget for benefits that provide value to all employees. There are no minimum contribution or minimum participation requirements attached.

Conclusion

In most states, you must have at least two employees and a 70 percent participation rate to offer a group health insurance policy.

For businesses that struggle with these requirements, personalized health benefits are a great alternative.

To learn more about personalized benefits, check out:

Group health insurance exceeding your budget?
There's a better option: a health reimbursement arrangement.
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