Small Business Health Insurance Requirements

small business health insurance requirements

Small Business Owners and entrepreneurs may find it a challenge to keep up with regulations regarding health insurance requirements for their employees. You’re busy growing your business and fulfilling your orders and obligations. You don’t have a huge HR department to keep track of small business health insurance requirements, and you don’t have time to chase insurance regulations.

This article will take a close-but-unbiased look at the current small business health insurance requirements, as of 2021. We will answer frequent questions like “How many employees does a small business have?” “What qualifies as affordable health insurance for employees?” and “Where can I shop for group health insurance plans?”

If you’re hoping to learn about health insurance requirements, and options for small business owners today, read on.

Common Questions about Small Business Health Insurance Requirements

How Many Employees Does a Small Business Have?

To be deemed a small business in the realms of health insurance, you must have exactly 49 full-time employees or less. Full-time staffer number 50 makes your company an “applicable large employer.”

Are Small Businesses Required to Provide Health Insurance to Employees?

No. If your company has fewer than 50 full-time employees — exactly 49 or less —you are not obligated to provide health insurance for them. No federal law, including the Affordable Care Act, also known as ACA or “Obamacare,” makes health insurance compulsory for small companies with 49 or fewer workers.

Still, you might find it’s more affordable than you think, and a worthy perk that lures great employees.

With that said, businesses with 50 or more full-time employees must provide access to minimum essential health insurance that is “affordable” to employees or face penalties come income tax time.

  • Know that larger organizations, those with 50+ full-time workers, are called “applicable large employers” or ALEs.
  • ALEs are absolutely required to offer affordable health insurance to their full-time staff or face penalties at tax time.

But affordability means something different to everyone, so let’s examine that term a little more.

Understand the Term “Affordable Health Insurance”

Now, as a small business owner with 49 full time workers, you don’t need to pay much attention to the definition of “affordable health insurance” because you don’t need to supply it. Yet.

However, if you’re planning to scale in 2021, or even hire that one extra employee, know that the IRS has been expanding the scope of what’s considered affordable.

  • Per the IRS, affordable health insurance should cost no more than 9.83% of an employee’s total household income in 2021.
  • That is marginally higher than the 9.5% of 2010.

“How do I determine an employee’s total household income?”

Many employers find it difficult to determine an employee’s total household income. So, the IRS has given us three “safe harbors” to help employers determine if they have offered affordable coverage. An employer can choose to work under any one of these safe harbors but must apply it consistently to all staff.

The Three Safe Harbors of Health Insurance Affordability per the IRS

In a nutshell, they are:

  1. The Rate of Pay Safe Harbor: An employer’s offer of coverage is considered affordable if the cost for the lowest-level self-only coverage is less than the 9.83% of an amount equal to 130 hours multiplied by the lower of the employee’s hourly pay rate at the start of the plan year.
  2. The W-2 Safe Harbor: Health insurance offered is affordable if the employers share of the cost for the lowest-level self-only coverage is no more than 9.83% of the employee’s reported wages, (box 1 on a W-2).
  3. The Federal Poverty Line Safe Harbor: Coverage is considered affordable if an employee pays no more for the lowest-level self-only coverage than 9.83% of the published mainland federal poverty level ($12,880 in 2021) divided by 12 ($1,073.33.)

Whether you choose to take an average of your employees’ wages at the beginning of the year, use their reported gross earnings, or the federal poverty line of $12,880, the magic number is 9,83% in 2021. And remember, you must use the same safe harbor across all your employees.

Ultimately, if your small business employs a small crew, you don’t need to worry about IRS safe harbors for health insurance affordability. But if you’d still like to offer group health insurance for your team, here are some helpful tips.

Finding Small Business Health Insurance

Group health insurance plans for small businesses are easier to find than ever, thanks to the internet. Still, you’ll want to gather some information before you begin getting quotes. You will need to know:

  • The exact number of full-time employees
  • Their legal names, birth dates and social security numbers
  • The sort of group health insurance plan you have in place already, if you’re shopping around.

There was a time when health insurance providers could deny coverage to certain employees based on their health status. That is no longer the case. Ever since the ACA took effect, insurers must accept all applicants, even if they have pre-existing conditions like pregnancy, asthma, diabetes and so on.

Also, know that health insurance plans are now standardized among all insurers.

Plans are described using metal tiers, from most affordable to most expensive they are:

  • Bronze Plans
  • Silver Plans
  • Gold Plans
  • And Platinum Plans

A Bronze Plan with Insurance Company A will be identical to a Bronze Plan at Company B, but the price might be quite different. We have written about these plans, cost comparisons and deductibles at length here.

Health Insurance for Small Businesses is Expensive. Can We Afford it?

Employers pay at least 50% of a group health insurance plan, and those monthly premiums do add up. We understand!

However, it is a meaningful benefit that many talented employees consider essential. In other words, to hire and retain the best staff, you should get some health insurance quotes and perform a price comparison. After all, employee turnover is expensive. It costs six to nine months of an employee’s wages to replace him or her if they leave. And many employees consider health insurance to be the most vital work-perk, for some it’s even more valuable than their wages.

In short, health benefits foster employee retention, even among small businesses.


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