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How to offer health insurance as a small business

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Employees don’t work for free. They want to be fairly compensated for their work, and that usually involves both wages and employee benefits. Although some small business owners may feel overwhelmed by the prospect of offering health insurance and other benefits, the many advantages can make the effort worthwhile.

ACA Health Coverage Requirements

Under the Affordable Care Act (ACA), employers with at least 50 full-time or full-time equivalent employees are considered Applicable Large Employers, or ALEs. ALEs are subject to certain health care reporting requirements. Additionally, if they do not offer health insurance that provides minimum essential coverage and is affordable, they may have to pay a fee called the employer shared responsibility payment to the IRS.

Employers with fewer than 50 full-time or full-time equivalent employees are not subject to this fee, so they will not face a financial penalty if they decide not to offer health insurance to their employees. However, many small employers decide to offer health insurance anyway.

Why Small Businesses Should Offer Health Benefits

In the U.S., many people expect to access health insurance through work, and most companies offer health benefits.

The U.S. Census Bureau says that 54.3 percent of Americans had employer-based health insurance in 2021, making this the most common type of health insurance.

According to the KFF 2022 Employer Health Benefits Survey, 51 percent of all firms offer health benefits. Larger companies are more likely to offer health insurance than smaller companies, with 91 percent of firms with 50 to 199 workers offering coverage, compared to only 39 percent of firms with three to nine workers. However, even among small companies, the figures show that health insurance is a common offering.

Health insurance matters to employees. It might even matter more than salary. Glassdoor surveyed workers and found that when choosing between a high-paying job and a low-paying job with better benefits, health insurance and flexible hours could spur them to pick the lower-paying job with better benefits. Most job seekers – 88 percent of them – would give better health, dental and vision insurance either some or heavy consideration.

When it comes to talent recruitment and retention, small companies are up against larger companies. Larger companies are offering health insurance, so if small companies want to compete, they need to offer health insurance, too. However, employee recruitment and retention aren’t the only reasons to offer health insurance.

Although it may seem easier to boost wages and forget about employee benefits, due to potential tax breaks, offering health insurance can be a financially sound strategy. A benefits package can also boost your company’s bottom line by supporting a healthy workforce. If you don’t offer health insurance, some workers may secure coverage on their own, but others will simply go without insurance. Bankrate found that 32 percent of U.S. families say they’ve avoided health care – including vaccinations, annual exams and medications – due to the cost. If your workers don’t have insurance, they might not get the medical care they need, and this can have a negative impact on health and result in more sick days and lost productivity.

Health Insurance Company Options for Small Businesses

Small businesses that decide to offer health insurance have several options. They can buy a plan through the Small Business Health Options Program (SHOP), or they can buy a group health plan directly from an insurance company outside of the SHOP marketplace. Alternatively, they can offer an individual coverage health reimbursement arrangement (ICHRA).

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SHOP Plans and the Small Business Health Care Tax Credit

Small businesses that purchase a group health plan through SHOP may qualify for the Small Business Health Care Tax Credit. According to, this tax credit can be worth up to 50 percent of the costs that you pay for your employees’ premiums.

However, to qualify for the tax credit, you must meet all of the following criteria:

  • You have fewer than 25 full-time equivalent employees.
  • Your average annual employee salary is around $56,000 or less.
  • You pay at least 50 percent of your full-time employees’ premium costs.
  • You offer SHOP coverage to all of your full-time employees.

The IRS says the tax credit can be carried back or forward to other tax years if you don’t owe tax for the year in question, and the credit is refundable. These tax breaks make SHOP an attractive option for small business owners that want to offer benefits for their employees while reducing their tax burden. A SHOP-registered insurance agent can help you enroll.

Group Employee Benefit Plans

If you don’t want to use the SHOP marketplace, or if you don’t qualify for the tax credits, you can buy group health insurance from an independent insurance agency. An independent insurance agent has access to several health insurance plans and can shop the market on your behalf and help you find the option that best suits your needs.

An independent agency can also help you create an employee benefits package that includes other options your employees may value, like dental, vision, life and disability insurance. You can choose to pay all or part of the premium, and you can even offer some benefits, like pet insurance, on a voluntary basis so it’s available at an affordable group rate for employees to purchase if they are interested. Voluntary benefits can be offered with little to no out-of-pocket expense to the employer.

The independent insurance agency can also help you facilitate a successful open enrollment period with proactive communication strategies, and they can assist with other supportive functions like COBRA administration and HSA/FSA administration.

Individual Coverage Health Reimbursement Arrangements (ICHRA)

Instead of offering a traditional group health plan, small businesses can offer an ICHRA. According to, this is an account-based health plan that lets employers provide a defined non-taxed reimbursement to employees. Employees can then use this account to pay for qualified health insurance costs and medical expenses, including monthly premiums and out-of-pocket costs. However, to qualify for ICHRA reimbursement, employees must be enrolled in an individual health plan. Many employees with ICHRAs use the ACA Marketplace to buy a health plan.

Rounding Out Your Employee Benefits

Although health insurance may be the most important employee benefit, a strong employee benefits package typically includes other options as well.

  • Dental and vision insurance. If you’re using the SHOP marketplace to buy health insurance for your employees, you can also use it to buy dental insurance. Alternatively, you can buy the products through your independent agency partner or by shopping directly with a carrier.
  • Health Savings Accounts (HSAs) or Flexible Spending Accounts (FSA). Both of these accounts are designed to help people cover out-of-pocket medical costs. HSAs are used in conjunction with high-deductible health plans. These accounts are owned by the employee, and the funds never expire. FSAs can be used with other types of health insurance plans. FSAs are owned by the employer, and the funds may expire if they’re not used by the deadline.
  • Life, disability and critical illness insurance. Other insurance types can help employees manage their finances and relieve financial stress. This may improve employee loyalty and retention. As mentioned earlier, your independent insurance agency partner can assist you with these options.

How Your Small Business Can Offer Health Insurance

Now that you know how to offer health insurance as a small business, what’s stopping you? If you need more guidance, Higginbotham can help. We can build a custom benefits package that meets the needs of your small business while staying within your budget requirements. Learn more.

Not sure where to start? Talk to someone who wants to listen.

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