Healthcare Options for Small Businesses: A Comprehensive Guide

Rebecca Lake is a journalist with 10+ years of experience reporting on personal finance. She also assists with content strategy for several brands.

Dr. JeFreda R. Brown is a financial consultant, Certified Financial Education Instructor, and researcher who has assisted thousands of clients over a more than two-decade career. She is the CEO of Xaris Financial Enterprises and a course facilitator for Cornell University.

Suzanne is a content marketer, writer, and fact-checker. She holds a Bachelor of Science in Finance degree from Bridgewater State University and helps develop content strategies for financial brands.

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Offering health insurance as a small business owner can yield tangible and intangible benefits. A good healthcare plan can be a strong incentive when attempting to attract top talent to your business. Employees may feel a deeper sense of job satisfaction in knowing they have healthcare benefits if they need to use them. Employers can also benefit in the form of tax breaks.

The challenge is finding the right healthcare option to offer to your employees.

Key Takeaways

• Small businesses face challenges in providing good, affordable healthcare coverage to their employees.
• The Small Business Health Options Program (SHOP) helps small businesses provide health coverage and offers benefits such as plan comparisons.
• Small businesses should consider factors like cost, coverage options, and employee needs when selecting a health insurance plan.
• Employer-sponsored insurance plans cater to the needs of small businesses and offer various benefits and considerations.
• Offering healthcare benefits can help you attract and retain talented employees, improve their satisfaction and productivity, and contribute to your business success.

Are Small Businesses Required to Offer Health Insurance?

Under provisions of the Employer Mandate of the Affordable Care Act (ACA), businesses are required to offer health insurance only if they have 50 or more full-time employees or full-time equivalent (FTE) employees. If you meet that standard, you’re considered a large employer for Internal Revenue Service (IRS) purposes.

• A full-time employee is someone who averages at least 30 hours of service per week during the calendar month, or at least 130 hours during the calendar month.
• Full-time equivalent employees refer to a group of workers who may not all be employed full-time, but whose working hours combined are equivalent to a full-time employee.

Special rules for determining full-time employee status apply to businesses that hire seasonal workers.

Independent contractors are not considered employees, so the ACA rules for health insurance don’t apply to them. A sole proprietor running a small business may be subject to the rules, but only if they meet the 50 or more full-time employees or FTE guidelines. Self-employed business owners with no employees can enroll in healthcare plans through the federal marketplace if they need coverage for themselves or their family members.

How Small Business Health Insurance Works

Small businesses that are required to offer health insurance, or that voluntarily choose to do so, are obligated to offer coverage to 95% of full-time employees and their eligible family members. Again, a full-time employee is defined by thresholds of 30 hours per week or 130 hours per month. Businesses would need to have at least one eligible full-time employee to offer coverage.

Coverage must meet two standards to be aligned with ACA requirements:

• Minimum value. An employer-sponsored plan is determined to offer minimum value if it covers at least 60% of the total allowed cost of care for covered employees, and if its benefits include substantial coverage of physician and inpatient hospital services.
• Affordability. For 2024, workplace health insurance is deemed affordable if employees’ share of monthly premiums in the lowest-cost plan offered is less than 8.39% of household income.

Affordability is based on the premium that would cover all individuals in the employee’s household. Income is calculated based on the earnings of everyone in the household who is required to file a tax return. To qualify for a federal tax credit, employers must pay at least 50% of health insurance premiums for covered employees. Employers can, however, opt to pay a larger share of the premiums so that employees have less to pay out of pocket.

Businesses are required to offer health insurance to employees when they become eligible for it. Employers can impose a waiting period before employees are eligible. The maximum allowed waiting period is 90 days.

Employees can make changes to their plan if they qualify for a special enrollment period, which is triggered by a life change. For example, a covered employee who has a child would qualify for a special enrollment period to add a new baby to their plan. Employers must provide a special enrollment period of at least 30 days to employees who are eligible to change their plans.

Benefits of Offering Health Insurance as a Small Business

Offering health insurance to your employees, whether you’re obligated to do so by ACA rules or not, can help your business and your workers in many ways. Here are some of the main advantages of including health insurance as part of an employee benefits package.

• Attract top talent. Job seekers may be more inclined to pursue career opportunities with businesses that offer attractive benefits, including health insurance.
• Increase retention. A good health insurance plan may be an incentive for employees to remain loyal to your business, rather than moving on to another company.
• Qualify for tax breaks. Eligible businesses can qualify for the small business healthcare tax credit, which is worth up to 50% of employer-paid premiums. Tax credits reduce your tax liability dollar-for-dollar.
• Strengthen your business. Offering health insurance to employees could lead to a stronger business overall if workers experience greater job satisfaction, miss fewer days of work because they’re able to get adequate healthcare when they need it, and are more productive while on the job.

Eligible small businesses will need to file IRS Form 8941, Credit for Small Employer Health Insurance Premiums, to qualify for this tax benefit.

Types of Health Insurance for Small Businesses

Small business owners may choose from multiple types of health insurance plans. Understanding how they compare is important when choosing a plan.

• PPO plans: Preferred provider organization (PPO) plans allow covered individuals to pay less out of pocket for care when they use in-network doctors, hospitals, and providers. Employees would still be able to seek care out of the network, but will pay more for it.
• HMO plans: Health maintenance organization (HMO) plans can have lower out-of-pocket costs for covered employees, but are more restrictive regarding which doctors, hospitals, and providers you can visit. HMO plans are often focused on wellness and preventative care.
• EPO plans: Exclusive provider organization (EPO) plans only cover healthcare costs when an employee uses an in-network provider. These plans can allow exceptions for emergencies.
• HSA-qualified plans: HSA-qualified plans or high-deductible health plans carry higher deductibles, but offer employees access to a Health Savings Account (HSA). An HSA offers triple tax benefits to employees in the form of deductible contributions, tax-deferred growth, and tax-free withdrawals when the money is used for eligible healthcare expenses.
• POS plans: Point of service (POS) plans have lower out-of-pocket costs when employees use in-network providers. One key thing to note: These plans require a referral to see a specialist.
• Indemnity plans: Indemnity plans allow covered employees to visit any doctor, hospital, or healthcare provider, with costs covered by the plan once they meet a certain deductible. These are sometimes called fee-for-service plans since they require employees to pay premiums, deductibles, and co-insurance.

Finding Affordable Small Business Health Insurance

Affordability is likely to be a key concern when choosing a health insurance plan for your employees. The plan needs to be affordable for them to meet ACA standards, but it also needs to be affordable for your business if you’ll be paying some of the premium costs.

Here are some tips for finding affordable small business health insurance.

Use the Small Business Health Options Program (SHOP)

The Small Business Health Options Program (SHOP) is designed for small employers who want to provide health and/or dental insurance to their employees. You’ll need to be eligible for SHOP to purchase insurance through the program. You’re eligible if:

• Your business has one to 50 full-time equivalent employees.
• You plan to offer coverage to all full-time employees.
• You anticipate enrolling at least 70% of the employees to whom you offer insurance.
• Your business has an office or employee work site in the state whose SHOP you plan to use.

There are certain benefits associated with using SHOP to find health plans. Business owners can:

• Easily compare pricing and coverage for multiple plans in one place
• Opt to offer more than one plan to employees
• Choose how much to pay toward premiums
• Establish an appropriate waiting period for offering coverage to eligible employees

All of the information you need is centralized, but if you need help making sense of any of it, you can work with a SHOP-registered insurance agent or broker.

Use a PEO Service

A PEO, or professional employer organization, helps small businesses get the insurance they need. Effectively, when you join a PEO, you enter into a co-employment agreement. All of your employees then get access to the health plan options extended to other businesses that have joined the PEO.

You don’t give up any control over the running of your business, but joining a PEO makes that company the employer of record for your employees. Joining a PEO could offer your employees a wider range of plans to choose from, and it can take the guesswork out of trying to choose a plan on your own.

Partner with Purchasing Alliances

Purchasing alliances or cooperatives comprise multiple businesses that come together to purchase insurance collectively. Joining an alliance not only may offer more possibilities in terms of the types of coverage and plans you’ll have access to, but also could save money if you’re able to get access to affordable health insurance that isn’t available elsewhere.

One of the most important things to consider about joining a purchasing alliance is the types of businesses it serves. The more similar that member businesses are in terms of structure and number of employees, the more likely that the plans offered will reflect the needs of the member group as a whole.

Choosing the Right Health Insurance Plan for Your Small Business

Finding the right health insurance plan can be challenging, as there are a multitude of factors to consider, the first being where to buy coverage. Small businesses with fewer than 50 employees can look for options through SHOP or get help from a SHOP-registered broker or agent. Larger businesses can shop for plans with the help of an agent or PEO, or contact insurance companies directly.

When comparing small business health insurance plans, it’s important to consider:

• Premium costs
• Coverage options
• Network providers
• Employee needs

Business owners who are looking for plans through SHOP can easily compare coverage and prices for plans available in their area. All you’ll need to do is enter your ZIP code to see what options you might have.

As you look at SHOP plans, here are some other considerations to keep in mind:

• Will you offer one plan or a choice of plans?
• Will coverage be limited to medical only, or will you add dental coverage?
• How much of employee premiums do you plan to pay?
• Will you offer coverage to full-time employees only or include part-time workers?
• When will the coverage begin?
• What waiting period will you impose before employees can become eligible for coverage?

There are four types of plans offered through SHOP: bronze, silver, gold, and platinum. The amount employees pay depends on the plan, with the highest employee contribution at the bronze level and the lowest at the platinum level. Once you choose a plan and are ready to enroll, you can do so through a registered SHOP agent or broker, or the insurance company.

Some states have their own websites for SHOP enrollment, which you’ll need to use to choose a plan.

Resources and Support for Small Businesses

Navigating healthcare rules and coverage options can be confusing for new and seasoned business owners alike. If you’re interested in getting more information about what’s required under the ACA or how to find health coverage as a small business owner, you might find these resources helpful:

• Health insurance for your business and employees (HealthCare.gov)
• How to enroll in SHOP insurance (HealthCare.gov)
• Small Business Healthcare Tax Credit and the SHOP Marketplace (IRS.gov)
• Employer Shared Responsibility Provisions (IRS.gov)
• Small Business—Get Answers Page (HealthCare.gov)

Which Businesses Are Eligible for the Small Business Health Options Program (SHOP)?

Small businesses are eligible for SHOP insurance plans if they have one to 50 employees. If you’re eligible, you don’t need to wait for an open enrollment period to start offering coverage to your employees.

How Can Small Businesses Find the Right Health Insurance Plan?

Small business owners can find the best health plan by first understanding what they and their employees may need. Businesses that are SHOP-eligible may look to the federal marketplace first to compare plans. Alternatively, businesses of any size may consult a private insurance agent or broker to help them make sense of the different health plan options that are available.

How Much Does Health Insurance Cost on Average for a Small Business Per Employee?

On average, the annual premium for single coverage for covered employees at small firms was $8,722 in 2023. The average premium cost was slightly lower for covered employees at large firms: $8,321. The average premium was $23,621 for family coverage at small firms and $24,104 for covered employees at large firms.

The Bottom Line

Health insurance is a requirement for some small business owners, but it may be optional for others. Offering health insurance, whether you’re required to do so or choose to, could help your employees and your business thrive.

When searching for coverage, it’s important to shop around to find the best health plan options for small businesses so that you can make an informed decision for your business.