The Affordable Care Act requires employers to provide health insurance for all full-time employees or face steep penalties from the IRS. This is known as the employer mandate.
The law makes an exception for small employers—specifically, those with fewer than 50 full-time equivalent (FTE) employees.
Even so, most small employers still want to provide health benefits. Offering a good health benefits package helps organizations recruit and retain talent, and many employers simply want to take care of their employees’ health.
But meeting group health insurance requirements is often difficult. In addition to the costly premiums, small organizations often struggle to meet group coverage participation requirements.
This post discusses what “group” health insurance is, as well as alternative approaches to providing health 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 organizations, many small organizations wonder whether they are eligible for group coverage.
Under federal law, insurers are required to provide small organizations with group coverage should they choose to purchase it, regardless of size. That means that even employers with just 2 and 50 full-time employees can still have a group health insurance plan.
Because owners are generally counted as employees, even partnerships or sole proprietorships with one employee qualify for group coverage.
Additionally, some states consider self-employed individuals to be “groups” of one. In these cases, self-employed individuals can purchase group coverage.
Group health insurance options for groups of one
The ACA requires all group and individual health plans to “guarantee issue” policies to all applicants—meaning insurers must issue coverage regardless of health status or other factors.
However, this does not mean sole proprietorships can get group coverage. In fact, the IRS does not consider self-employed individuals to be qualified for group coverage. Even so, as mentioned above, some states consider those who are self-employed to be a group of one. Following are those states:
- New Hampshire
- New York
- North Carolina
- Rhode Island
Does my organization have to meet any participation requirements?
To ensure they’re not losing money, many insurers require organizations to meet minimum participation requirements to purchase a group health insurance plan. Participation is the percentage of full-time employees who enroll in the group plan or have coverage from another source—like a spouse’s group policy, Medicare, or a personal insurance plan. These requirements vary by state and insurer, but In most states, it is at least 70%.
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%
HealthCare.gov’s SHOP Marketplace has a Minimum Participation Rate Calculator that can give you the exact number of employees who must enroll or have other coverage to offer a group policy.
What are the alternatives to group health insurance?
Between cost and minimum participation requirements, many small organizations struggle to offer group health insurance.
With an HRA, employers reimburse employees, tax-free, for premiums for individual health insurance, as well as out-of-pocket medical expenses, like copays and prescriptions. The qualified small employer HRA (QSEHRA) and individual coverage HRA (ICHRA) are two popular examples. The ICHRA requires that employees have coverage that meets the requirements for Minimum Essential Coverage (MEC) and therefore satisfies the employer mandate.
These benefits allow small employers to set their own budget for benefits that provide value to all employees. There are no minimum contribution or minimum participation requirements attached.
In most states, you must have at least two employees and a 70 percent participation rate to offer a group health insurance policy. For organizations that struggle with these requirements, HRAs are a great alternative.
This post was originally published February 23, 2018. It was last updated November 9, 2020.