Employer Health Insurance Laws

Businesses today need ways to attract and keep employees. One way is to offer health insurance. No state or federal laws require a specific type of health insurance. Employers who provide health benefits must follow laws related to discrimination and recordkeeping.

Small business owners may be caught between wanting to give their workers a health insurance plan and premium costs a smaller company cannot afford. There are ways for small businesses to provide group health coverage for their workers while keeping costs low.

This article reviews some laws employers must follow, and some health insurance options for small business owners to consider.

FindLaw's Wages and Benefits section has more information about health insurance and employee benefits.

The Affordable Care Act

The Affordable Care Act (ACA) requires employers with more than 50 full-time employees to provide health insurance coverage for at least 95% of their workers. The penalties for non-compliance are severe, both in tax penalties and government-related fines.

Most employers provide some type of health care for their workers if they can afford to. After wages, medical expenses are one of the main concerns for employees in today's job market.

Small business owners with fewer than 50 employees are not required to offer health insurance, but many want to. The Small Business Health Options Program (SHOP) helps small employers enroll qualified employees in affordable health plans. 

Enrollment through SHOP lets small companies qualify for the Small Business Health Care Tax Credit. This lowers premium costs and makes the insurance more affordable for the employer.

Forty-six states and the District of Columbia have adopted laws like the ACA. The laws may require health insurance for businesses smaller than those indicated by the ACA. Business owners should verify their state laws with their insurance broker or attorney.

Anti-Discrimination in Employment Health Benefits

When employers offer insurance benefits to their employees, they must follow the same anti-discrimination laws that apply to employment. Employers may not base decisions on employees' race, religion, gender, age, or national origin.

When offering health insurance policies, there are other things employers cannot do. Employers must offer the same type of plan to all employees who are eligible for coverage. Employers cannot:

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

Employee Health Insurance and Abortion

Since the U.S. Supreme Court's decision in Dobbs v. Jackson Women's Health Organization (2022), state laws on what insurance companies can and cannot cover related to termination of pregnancy have changed.

As of 2024, at least 33 states and the District of Columbia have laws restricting Medicare, Medicaid, and ACA Marketplace insurance from including abortion coverage. Only six states have laws that specifically allow ACA Marketplace insurance providers to cover abortion-related health care costs.

COBRA Insurance Rights

The Consolidated Omnibus Budget Reconciliation Act (COBRA) allows former employees to maintain their employer-sponsored health plan options for up to 18 months (36 months for dependents). Employees must pay the total monthly premiums to keep their plan active.

Employers must offer COBRA options to all employees who quit, are laid off, or are fired for cause. COBRA applies to all businesses with 20 or more employees.

ERISA and HIPAA

Employers who offer health insurance plans must operate them according to two federal laws designed to protect employee rights. Under the Employee Retirement Income Security Act (ERISA), employers must:

• Notify employees (plan participants) of eligibility requirements, changes to the plan, claim procedures, and related information
• Pay employee premiums and notify employees promptly if the insurer denies their claim

The Health Insurance Portability and Accountability Act (HIPAA) requires that employers offer group health insurance to all similarly situated employees.

HIPAA does not require employers to provide insurance to all workers. Employers may limit insurance to full-time or full-time equivalent employees. However, all employees within a classification must have the same insurance options.

Small Business Health Insurance Options

Small businesses that fall below the number of employees for the ACA mandate have other options for health care coverage. Self-employed individuals can also use these alternative methods.

• Health reimbursement arrangement: An HRA lets an employer set aside part of an employee's pre-tax wages to pay for medical costs. Some HRAs, known as "qualified" HRAs, let the employer set aside a tax-free sum for employees' copays or private insurance premiums.
• Group coverage HRA: An employer can get a low-cost, high-deductible plan and create a fund for tax-free reimbursements for out-of-pocket costs and deductibles.
• Association health plans: With this system, several small businesses that share either location or industry can pool their resources and qualify for a larger group health insurance plan.
• Health savings account: An HSA is a savings account designed for use with a preferred provider organization (PPO )insurance plan. An HSA is a separate bank account that gives participants tax benefits and annual rollover protection.

Legal Help for Employers With Health Benefits

Small businesses may not need to offer their workers a health benefits package. If they do, there are state and federal laws to follow. Contact an experienced employment attorney in your state to ensure you follow all regulations and give your workers the best coverage possible.