Understanding Group Health Plans for Small Businesses

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If you're a small business owner, providing healthcare benefits isn't mandatory unless your employee base is larger than 50 employees. Even if you have less than 50 employees, finding options for your small team can be a challenge. Here are a few things you can consider.

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Access to health insurance through work is typically the most sought after benefit among employees. While group health plans are the norm at large firms, small businesses often don’t offer group health plans. The non-profit Kaiser Family Foundation reported that in 2019 less than half of firms with between 3 and 9 employees offered a group health plan. As small businesses add more full-time employees, the benefit becomes more common. Yet, between 30 percent and 40 percent of firms with between 10 and 49 employees doesn’t offer health insurance.

For employers the obvious hurdle here is cost. For employers who want to be able to offer this popular benefit to retain and attract talent, there are strategies that may make it feasible for you to offer this valuable benefit:

Group Health Plan Options for Small Businesses

  • Providing health plans for your employees is optional if you have fewer than 50 employees
  • You can share costs with employees. Don’t be shy about expecting your staff to cover the cost of some of their coverage. Even at large companies, employees are now routinely on the hook for a portion of premiums and copayments. If you decide to offer a group health plan for your small business, it’s logical and acceptable to moderate your cost by having the employee chip in. Keep in mind that participating in a group plan –even with cost-sharing – will typically cost an employee less than if she or he were to purchase coverage directly through the ACA marketplace.

In 2019, the Kaiser Family Foundation reported that among employers with fewer than 200 employees, workers with family coverage covered more than $7,000 of the $20,000 premium cost for their workplace plan. For individual coverage at small firms, workers contributed around $1,000 to the annual $7,200 premium cost.

  • Plan Options Can Contain Cost. Businesses that want to offer a traditional group health insurance plan must choose the types of coverage that are available. While the classic Preferred Provider Option (PPO) remains a popular option, a High Deductible Health Plan (HDHP) is more cost-effective for employers. Based on the research from the Kaiser Family Foundation, in 2019 the average HDHP premium cost for single coverage was $6,400 compared to $7,700 for a PPO. For family coverage, the average premium cost for a HDHP was $19,000 compared to nearly $22,000 for a PPO.

A smart feature to insist on with an HDHP is that it meets the requirements for participants to also contribute to a Health Savings Account (HSA). Employees can contribute pre-tax dollars to their HSA (employers can kick in some money too), which in itself is a valuable benefit. Employees can then use money in their HSA to pay for qualified medical expenses, without having to pay any tax. Moreover, there’s no use-it-or-lose-it feature; money saved in an HSA can be used this year or decades from now.

  • Employer group health care costs are deductible on your federal return. A business’ share of plan premiums is a deductible business expense.
  • You may be able to claim a business health insurance tax credit (for 2 years.) Small businesses with fewer than 25 employees that purchase group health insurance through the ACA marketplace may be eligible for a tax credit in the early going. There are a slew of rules to qualify for a break that can be 50 percent of employer-paid premiums for private business and up to 35 percent for a non-profit. You can learn more from the official healthcare.gov website.

Disclaimer: the content presented in this article are for informational purposes only, and is not, and must not be considered tax, investment, legal, accounting or financial planning advice, nor a recommendation as to a specific course of action. Investors should consult all available information, including fund prospectuses, and consult with appropriate tax, investment, accounting, legal, and accounting professionals, as appropriate, before making any investment or utilizing any financial planning strategy.