The Affordable Care Act (ACA)’s employer mandate requires applicable large employers (ALEs) to provide health insurance for all full-time employees or face steep penalties from the IRS. However, the law makes an exception for small employers with fewer than 50 full-time equivalent employees (FTEs).
Even though there’s no legal requirement, small employers still need to provide a robust health benefit package to recruit and retain top talent. Many small organizations try to make their benefits packages more attractive by adding a group health plan.
However, group health insurance requirements are often complex, especially for small employers. In addition to the costly premiums, small organizations often struggle to meet group coverage participation requirements.
In this blog, we’ll discuss the nuances of group health insurance, including common questions such as:
- How many employees do you need to qualify for group health insurance?
- Do small businesses have to provide health insurance to employees?
- What are the participation requirements for a group health insurance plan?
- How can employers supplement their group health insurance plan?
- What are small business alternatives to group health insurance?
How many employees do you need to qualify for group health insurance?
Group health insurance is a single policy issued to a group of people and their dependents. Because group health coverage is typically associated with large organizations, many small organizations wonder whether they are eligible for group coverage.
Luckily, there’s group coverage that’s specifically designed for small employers, known as small group health insurance. To be eligible for small group health insurance, a company must have between two and 50 FTEs.
One of the employees on the group health plan can be the employer or owner. However, at least one other FTE who isn’t the small business owner must enroll in the group health plan.
The other employee must be someone who is:
- Not an owner or employer
- Not the spouse of an owner or employer
- Not a family member of the owner or employer
- Not a partner of the owner or employer
- Not a seasonal worker, even if the person works full-time during that period
- Usually not a contractor of the owner or employer
If you’re an employer with 50+ FTEs, you are considered an ALE and don’t qualify for small group health insurance. You will need to apply for large group coverage, meet group health coverage reporting requirements, and meet group health insurance standards, like offering insurance that meets minimum essential coverage (MEC).
Do small businesses have to provide health insurance to employees?
While employers with less than 50 full-time employees aren’t legally required to offer health insurance, many still choose to do so. Offering health benefits is a great way to improve recruitment and retention, which is essential for an employer of any size.
The Society of Human Resource Management (SHRM) reported that 92% of employees say benefits are essential to their overall job satisfaction. In fact, a Fractl survey found that 84% of employees put health insurance at the top of their most desired benefit list.
This data proves that health benefits contribute positively to talent acquisition and retention. Happy and healthy employees tend to be loyal, productive, and satisfied with your business.
While it’s true that a health insurance plan can be costly, with so many small businesses offering health insurance benefits, can you really afford not to while still staying competitive?
What are the participation requirements for a group health insurance plan?
To ensure they don’t lose money, an insurance company may require organizations to meet minimum participation requirements to purchase a group health insurance policy. Participation is defined as the percentage of full-time employees who enroll in the group plan. The rate varies by state and insurer, but it’s often about 70%.
This requirement is designed to prevent “adverse selection,” meaning only those that are frequently sick sign up for coverage, creating a group of high-risk individuals. By requiring a specific percentage of eligible employees to sign up for the health plan, insurers broaden the coverage pool and avoid mainly high-risk groups.
It’s vital that an employer enrolls at least 70% of their uninsured, full-time employees. If some of your employees have individual health coverage or are covered on their spouse’s insurance, they don’t count toward the 70% requirement.
There is an exception if you’re looking for a way around the 70% rule. If you enroll in small business group health insurance during the open enrollment period, the 70% participation rule doesn’t apply.
Applying for small business group health insurance during this period may be advantageous if you are concerned that one or more eligible employees will refuse health insurance coverage and disqualify the company from getting group health insurance.
How can employers supplement their group health insurance plan?
Sometimes the rising cost of small business health insurance leaves employers feeling like they have to settle for a reasonably priced but less comprehensive policy. However, the good news is that employers can supplement that coverage with a group coverage health reimbursement arrangement (GCHRA) or a health stipend.
Let’s dive into each option in more detail.
An integrated HRA, or a group coverage HRA (GCHRA), is an arrangement between an employer and employee designed to reimburse employees for medical costs that their group health insurance plan doesn’t fully cover.
An integrated HRA supplements the group health plan by helping to pay for healthcare expenses only. This means employees can’t request reimbursement for group insurance premiums. Instead, employees can use the HRA’s allowance toward their deductibles, coinsurance, copayments, and qualified out-of-pocket medical expenses.
Employers can set their own cost-saving rules regarding minimum deductibles, cost-sharing, explanation of benefits, and the expenses the GCHRA can reimburse to make the health benefit even more budget-friendly. And like excepted benefit HRAs (EBHRAs), employers set different eligible employee classes.
Employee classes separate employees into groups by job-based criteria, such as full- and part-time status. Employees in different classes can be offered a benefit with different allowance amounts to save the employer money further.
With a health stipend, a small business offers a fixed amount of money to their employees to help them pay for deductibles and out-of-pocket medical expenses outside their group plan. The amounts can be administered weekly, monthly, or annually and are usually added to employees’ paychecks as added income.
However, with this employee benefit, it’s up to your employees on how they want to spend the money. Even if the stipend amount is designed for healthcare, employers can’t dictate its use.
It’s also important to note that the money for the stipend is treated as taxable income for the employee, and employers must pay payroll taxes on the amount as well. But because stipends are taxable non-wage income, they can be offered to employees who qualify for a premium tax credit, which is a significant advantage for your business.
What are small business alternatives to group health insurance?
We know employer-sponsored health insurance plays a major role in recruiting and retaining great staff, but not every small business can offer group health insurance coverage. Thankfully, there are other options. Instead of offering traditional group benefits, a growing number of employers are choosing a stand-alone HRA.
An HRA is a popular alternative to traditional group health plans. They are increasing in popularity as businesses of all sizes consider them more accessible, flexible, and easy to use. Employers reimburse employees tax-free for individual health insurance premiums and out-of-pocket medical expenses with an HRA.
A QSEHRA lets a small business reimburse their employees, tax-free, for qualified medical expenses, including insurance premiums, copayments, and coinsurance.
To offer a QSEHRA, you must:
- Have fewer than 50 full-time employees
- Not offer a group health insurance plan, including coverage through the Small Business Health Options Program (SHOP), or a flexible spending account
- Provide the HRA on the same terms to all full-time employees
You can decide how much QSEHRA allowance to give, up to the annual contribution limit. To qualify for tax-free reimbursements, employees must have an individual plan that meets MEC. If employees don’t have MEC, any reimbursements they receive will be taxable.
If a QSEHRA isn’t right for your small business, you can instead offer an ICHRA. Employers of any group size can offer an ICHRA and make contributions of any size, too—no minimum or maximum allowance amount applies.
Employees must be enrolled in individual health insurance coverage or Medicare to use the allowance funds. Similar to the QSEHRA, this means that reimbursements are tax-free as long as their policy meets MEC.
Similar to the GCHRA, employers can design their ICHRA benefit based on 11 employee classes, making it more flexible and customizable than the QSEHRA. You can vary the amount of reimbursement you offer to each class you set. However, you must provide the same terms to all employees within the same class.
No matter which one you choose, QSEHRAs and ICHRAs allow employers to set their own budget for a health benefit that provides value to all employees with no minimum contributions or participation requirements attached.
Group health insurance is typically what employers want for their organization. However, not everyone qualifies for group coverage plans. If you have a small business, you first should determine whether you are eligible for group health insurance before applying for coverage.
For organizations struggling to meet the group health insurance requirements, HRAs are a great solution. Whether you’re looking to supplement your existing group health plan with a GCHRA or want a group health alternative like a QSEHRA or ICHRA, PeopleKeep can help. Schedule a call with a personalized benefit advisor, and we’ll get you set up with your perfect HRA match.
This post was originally published on November 12, 2020. It was last updated on March 11, 2022.