Small businesses, typically employing fewer than 50 individuals, aren’t legally obligated to offer employee health insurance. However, providing health coverage is a highly sought-after job benefit. In fact, about two-thirds of business owners use health insurance as an attractive tool to recruit and retain top talent.
Whether health insurance for employees is mandated by law or chosen as an optional incentive, businesses aiming to provide this benefit should consider various plan options, including those that can tie into your broader estate planning strategy.
Understanding Health Insurance Legal Requirements
Here’s a key piece of information regarding the Patient Protection and Affordable Care Act (ACA), often referred to as Obamacare:
- The ACA necessitates that businesses with 50 or more full-time equivalent employees provide health insurance, known as the employer mandate.
- Failure to comply with the mandate by not offering coverage or offering inadequate coverage can lead to annual penalties.
- ACA regulations mandate that employers provide employees with a Summary of Benefits and Coverage form, with noncompliance resulting in penalties.
- Employers may be required to provide information about the ACA’s Small Business Health Options Program (SHOP) Marketplace plans to their employees, irrespective of whether they offer health insurance.
- The Internal Revenue Service (IRS) also enforces ACA tax provisions, including reporting requirements.
- When an employer sets up a group health plan, they must adhere to other state and federal laws, such as the Employee Retirement Income Security Act of 1974 (ERISA), the Consolidated Omnibus Budget Reconciliation Act (COBRA), and the Health Insurance Portability and Accountability Act (HIPAA).
Health Insurance for a Healthier, More Productive Workforce
Businesses with fewer than 50 employees are not subject to the ACA’s employer mandate. Nevertheless, they may opt to provide health insurance as a discretionary benefit.
An employer-sponsored health plan offers several advantages:
- Helps attract and retain talent.
- Keeps employees healthier and more productive.
- Reduces sick days and workplace injuries or illnesses.
- Boosts employee satisfaction.
- Potentially saves money through ACA tax credits for group health plans.
Regarding tax credits, businesses with fewer than 25 full-time workers that pay at least half of their employees’ health insurance premiums and meet other criteria may qualify for a tax credit covering up to 50 percent of the premiums they pay.
Exploring Group Health Insurance Options
Small business owners interested in obtaining group health insurance typically have two primary avenues: working directly with private insurers or exploring plans through the ACA’s SHOP Marketplace.
- SHOP healthcare plans are often the sole means for companies to qualify for the Small Business Health Care Tax Credit. These plans, offered by private insurance companies, include various types such as Health Maintenance Organization (HMO), Preferred Provider Organization (PPO), Exclusive Provider Organization (EPO), Point of Service (POS), and High Deductible Health Plans (HDHP). Availability may vary by location, with major insurers like Blue Cross Blue Shield, Kaiser Permanente, UnitedHealthcare, and Aetna participating. ACA plan enrollment typically follows specific periods.
- Companies that don’t meet SHOP plan criteria can explore the private health insurance marketplace for group plans. Although these non-SHOP plans may not align with the requirements for the Small Business Health Care Tax Credit, the premiums employers pay may be tax-deductible. Enrollment in private plans is usually available year-round, offering similar group plan types (e.g., HMO, PPO, and EPO).
With group health plans, the costs are typically shared between employers and employees, with employers determining the extent of their contribution. Typically, employees can choose from different plans with varying costs.
For employers seeking the advantages of offering health benefits but are wary of the expenses associated with sponsoring a plan, they might consider a Health Reimbursement Arrangement (HRA), like the qualified small employer HRA (QSEHRA) or Individual Coverage Health Reimbursement Arrangement (ICHRA).
- QSEHRAs and ICHRAs enable employers to maintain fixed healthcare spending while offering employees more flexibility in selecting a plan.
- These arrangements, funded solely by employers, enable businesses to provide health insurance coverage to employees by reimbursing them for premiums on health insurance they purchase independently. Employers set a maximum allowance for disbursement through the arrangement.
- QSEHRAs are available for small businesses with 50 or fewer employees, with the IRS determining annual contribution limits.
- ICHRAs are available to employers of any size, with no contribution limits for fewer than 50 employees.
- Employees submit eligible health plan expenses to their employer, who then reimburses them. Payments made through an HRA arrangement are generally 100 percent tax-deductible for employers and usually tax-free for employees, provided they maintain minimum essential coverage (MEC) as per the ACA.
Make Group Benefits a Group Effort
Navigating health insurance laws can be as intricate as understanding the tax code. It’s crucial to grasp the legal responsibilities of employers and how you can align group health plans with your broader estate planning strategy. Our business attorneys are here to assist you in ensuring your business complies with relevant health insurance laws. Don’t hesitate to contact us to schedule a consultation.