Heath insurance requirements are lined out in the Affordable Care Act.
For small businesses, the health insurance option you choose will depend on your budget, the impact you want to have on your employees and your location. — Getty Images/FatCamera

Many employees choose jobs based on the benefits offered, one being health insurance. While offering a health plan can show you care for your employees, not every company, especially small businesses, can afford health insurance for their employees.

Navigating health insurance may seem daunting, but the requirements are very straightforward. Here is what you need to know about offering benefit plans, as well as alternative health insurance options for small businesses.

Who is required to offer health insurance?

Health insurance requirements are based on the type of business and the number of employees it has. For businesses that are smaller, with under 50 full-time equivalent (FTE) employees, benefit plans are not required to be offered by the employer. They are offered on a voluntary basis.

Technically, no business has to offer health insurance to their employees. However, under the Affordable Care Act (ACA), larger businesses with 50+ FTE employees will receive a tax penalty of $3,860 per employee if they do not offer health insurance.

According to attorney Sachi Barreiro, there are a few reasons a business might actually be required to offer health insurance to their employees:

  • If their employment contract or union agreement guarantees it.
  • If they offer group health insurance, they must offer it to similarly situated employees.
  • If they’re being discriminatory about it.

[Read: Employee Health Insurance: How Much Should the Employer Pay?]

Should I offer health insurance to my employees?

There are a few things to consider before making a decision. Remember, if you’re a larger business, you will receive a tax penalty if you don’t offer health insurance to your employees. This is referred to as the employer mandate under the ACA.

Some employers may find it more affordable to offer an alternative solution, like a Health Reimbursement Arrangement (HRA), instead. However, If you have less than 50 FTE employees, then you are not legally required to provide health insurance and you will not face a tax penalty.

One thing to consider is how you view your employees and what impression you want to make on them. Providing health insurance shows your team that you respect them and shows them that you want them to remain loyal to you. Additionally, if you’re a smaller business offering such benefits, you might be eligible for tax breaks.

[Read: 3 Things You Need to Know About Employee Health Insurance]

Providing health insurance shows your team that you respect them and shows them that you want them to remain loyal to you.

Health insurance options for small businesses

Several health insurance options are available for small/medium businesses (SMBs). Which option you choose will depend on your budget, the impact you want to have on your employees and your location. Each option ranges in cost and benefits, which makes some more cost-effective than the others. However, each offers its own strengths and can provide employees with the health care they need.

The following are a few options of health insurance for SMBs:

  • Qualified small employer health reimbursement arrangements (SQEHRAs). Employees may receive an allowance to purchase their own health care, an insurance policy, or receive a reimbursement for the same amount. The 2019 QSEHRA contributions are capped at $429.17 a month for single employees and $870.83 a month for families.
  • Traditional group health insurance. Employers can pay for a group insurance policy and employees would be responsible for any copays and deductibles. The policies can be purchased from a national corporation or through the Small Business Health Options (SHOP).
  • Health Reimbursement Arrangement (HRA). Employees can be reimbursed up to a certain amount for funds not covered by their health plan. This comes through an additional monthly allowance from employers.
  • Self-funded health insurance. Employers would pay out-of-pocket costs for each claim as it comes up.
  • Association health plans (AHP). SMBs in the same industry or region can all go in together to purchase a large-group coverage plan. However, these types of plans are not protected under the ACA, which means insurers could vary costs because of age, sex or health.

[Read: The ABC’s of Small Business Health Insurance Acronyms: From ACA to SHOP]

Choosing whether or not to provide health insurance can be a difficult task, but it’s important to consider what type of business you are and what you think will benefit both you and your employees in the long run.

CO— aims to bring you inspiration from leading respected experts. However, before making any business decision, you should consult a professional who can advise you based on your individual situation.

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Published May 29, 2020