Basics Of Small Business Health Insurance Plans

Buying health insurance for your small business (group health coverage) has different rules than buying just for yourself or your family (individual coverage). Below, we outline the basics behind small business health insurance coverage.

What is a small business health insurance plan?

A small business health insurance plan refers to a single policy issued to a group (typically a business with employees, although there are other kinds of groups that can get coverage) that covers all eligible employees and sometimes their dependents. Individual medical coverage, on the other hand, is a single policy issued to a single person or family.

The rules are quite different for small business health insurance versus individual health insurance plans, in large part because the insurer’s risk is calculated differently. With individual coverage, the insurer has historically based its premium rates (or denied coverage) on the detailed medical history of the person or family. (The Affordable Care Act brought important changes to the individual market, including eliminating the ability of insurers to deny coverage based on preexisting conditions.)

With groups such as small businesses, the insurer determines a premium price based on risk factors balanced over the entire group population, not individuals of any company or business. While some states do allow differences for gender, age bands, or smoker status, Insurers are required by law to offer coverage to small groups.

Is Insurance Required For My Small Business?

While there is no law requiring small business owners to provide health insurance, the Affordable Care Act makes substantial changes that small business owners should be aware of when deciding whether to purchase insurance for their employees. If you do choose to offer coverage, there are regulations you will have to follow.

Though large companies may face penalties if they do not offer coverage under the Affordable Care Act, small businesses with fewer than 50 full-time-equivalent employees will not be penalized if they do not provide coverage. If you have at least 50 full-time-equivalent employees but none receive an individual premium tax credit or cost-sharing reductions (both based on income), there’s no penalty—whether you offer health insurance or not.

Is Your Small Business Eligible For Group Health Insurance?

Under federal law, small employers are guaranteed group coverage should they choose to purchase it, regardless of the employees’ health status. A “small employer” is defined as a business with 1 to 50 full-time employees (in NY it is 1-100 full-time employees). Owners can be counted as employees, but there are strict rules when only the owner or the owner’s spouse are enrolled ( called Owner Only rules).

Who Is Eligible for Coverage Under A Small Business Health Insurance Plan?

The general rule is that if an employer offers group health insurance coverage to any full-time employees, the employer must offer coverage to all full-time employees. An employer can also limit coverage to certain ‘classes’ of employees, such as management or salaried employees only as examples.

The employer has the option to offer coverage to employees working between 20-40 hours per week (hours decided by the employer at enrollment).  All employees who meet the hourly and, if applicable, Class definitions are eligible to join the group health plan.

These rules apply regardless of the medical condition of the employees. In other words, no eligible employee can be denied coverage based on previous medical problems, known as preexisting conditions.

In addition, any dependents of eligible employees are generally eligible for coverage under a group plan. Dependents include spouses, children, and in some cases, unmarried domestic partners. Dependents cannot enroll for coverage unless the employee has enrolled. Under the Affordable Care Act, group insurance plans are required to extend coverage to adult dependents through age 26.