Are Small Businesses Required To Provide Health Insurance?

This article reviews the laws employers must follow and the health insurance options small business owners should consider. For more information, visit FindLaw’s Wages and Benefits section or consult a local employment attorney for answers to specific questions about your business.

What Is an Employer’s Legal Requirement Under the Affordable Care Act?

The Affordable Care Act (ACA)’s employer mandate requires businesses with 50 or more full-time employees to provide affordable health insurance coverage to at least 95% of their workers. Noncompliance by applicable large employers can result in significant tax penalties and government fines.

The ACA does not require small business owners with fewer than 50 employees to offer health insurance, but many still want to. After wages, medical expenses are a major concern for employees. Many employers offer healthcare as an incentive if they can afford it.

The Small Business Health Options Program (SHOP) helps small employers provide essential health benefits to their employees. Using SHOP-certified plans lets small companies qualify for the Small Business Health Care Tax Credit, which lowers employer premium costs.

Do States Have Requirements for Employee Health Insurance?

A few states have adopted laws similar to the ACA that may require health insurance for businesses smaller than the federal mandate indicates. For example, Massachusetts requires employers with 11 or more full-time employees to offer a fair and reasonable health insurance plan. Business owners should always verify their specific state laws with an insurance broker or attorney.

Rules for Employers Who Offer Health Insurance

If a small business offers a health plan, it must follow certain state and federal regulations designed to protect employees.

Anti-Discrimination Laws

When employers offer insurance benefits, they must follow the same anti-discrimination laws that apply to all other aspects of employment. Employers cannot base decisions on an employee’s race, religion, gender, age, or national origin.

When offering health insurance policies, employers offer the same type of plan to all eligible employees. They can’t:

• Refuse coverage to older workers or workers who may become pregnant
• Refuse coverage based on an actual or perceived disability or genetic information
• Treat pregnancy-related disabilities differently from other health conditions

Following the Supreme Court’s decision in Dobbs v. Jackson Women’s Health Organization (2022), the legal landscape for insurance coverage of abortion-related healthcare has become highly complex and varies significantly by state. These laws affect what employer-sponsored health plans must or may cover. Because this area of law is rapidly evolving, employers should consult an experienced employment law attorney to understand specific requirements and limitations in their state.

Employee Retirement Income Security Act (ERISA)

Under the Employee Retirement Income Security Act (ERISA), employers who offer health insurance plans must notify employees (plan participants) of eligibility requirements, plan changes, claim procedures, and related information. They’re also required to pay employee premiums and notify employees promptly if the insurer denies their claim

Health Insurance Portability and Accountability Act (HIPAA)

The Health Insurance Portability and Accountability Act (HIPAA) requires that employers offer group health insurance to all similarly situated employees. HIPAA doesn’t require employers to provide insurance to all workers, but all employees within a specific classification must be given the same insurance options.

COBRA Insurance Rights

The Consolidated Omnibus Budget Reconciliation Act (COBRA) lets former employees keep their employer-sponsored health plan for up to 18 months (36 months for dependents) after leaving a job. To keep the plan active, employees must pay the total monthly premiums themselves. COBRA applies to all businesses with 20 or more employees, and employers must offer it to employees who quit, are laid off, or are fired (except in cases of “gross misconduct”).

What Health Insurance Options Exist for Small Businesses?

Small businesses and self-employed individuals that are exempt from the ACA mandate have other options for providing health care benefits, including:

• Health Reimbursement Arrangement (HRA): An HRA lets an employer set aside pre-tax wages for employees to pay for medical costs
• Qualified Small Employer HRA (QSEHRA): Lets employers with fewer than 50 employees set aside a tax-free amount for employees to use on private insurance premiums or other qualified costs
• Group Coverage HRA: A low-cost, high-deductible plan that creates a fund for tax-free reimbursements for employees’ out-of-pocket costs and deductibles
• Association Health Plans: Several small businesses that share either a location or an industry can pool their resources to qualify for a larger group health insurance plan
• Health Savings Account (HSA): A tax-advantaged savings account designed for use with a high-deductible health plan (HDHP) that gives participants tax benefits and allows funds to roll over annually

If you have questions about any of these plans, consider speaking with an employment law attorney for legal guidance.

Legal Help for Employers With Health Benefits

Small businesses may not need to offer their workers a health benefits package. If they do, they must follow all state and federal laws. Contact an experienced employment law attorney in your state to keep your business compliant and provide your workers with the best possible coverage.