Before the Affordable Care Act (ACA) became law in 2010, more than half of America’s uninsured workers were either self-employed entrepreneurs or employees at small businesses. Being uninsured is stressful for the employee who needs medical care, and it’s nerve-wracking for the employer when someone gets sick or injured. A Glassdoor study also found that the benefits that matter most to workers are health insurance, vacation and paid time off, and retirement plans — and that each has a high correlation to employee satisfaction.
While offering benefits is a good idea, at what point is an employer required to provide health benefits to their team? Let’s break down the health insurance rules for small businesses, as well as the other benefits you might consider to keep your staffers happier, healthier, and more engaged.
Do small businesses have to provide health insurance?
Short answer: it depends. In 2020, small business owners with fewer than 50 employees are not generally required by the ACA to offer health insurance. Employers with more than 50 full time (or full time equivalent) employees are not technically required to offer insurance, but they must pay fines of $3,860 per employee per year in 2020 if they don’t offer a health plan. To avoid fines under this law, coverage must extend to an employees’ dependents too, up until they reach 26 years of age.
Note that the 50-employee threshold is just the ACA’s limit for when for employers must begin offering insurance. It’s also possible for a smaller employer to accidentally stumble into a requirement to offer employee benefits.
For example, if you include benefits as part of an employment offer, you could be held to the terms of that offer if you try to renege. Similarly, if you extend benefits to some employees but not others, a requirement to cover all your employees could arise. If you have any questions about these gray areas, it’s probably best to check with an employment law specialist.
Should you offer health benefits anyway?
Fifty-six percent of employees consider health insurance to be a key factor in determining whether they will stay at their job, according to the Society for Human Resource Management. Aflac’s 2016 Workforces Report also showed that 60% of employees would take a job with lower pay but better benefits.
Offering health insurance can help maintain a productive, healthy, and happy workforce. The Centers for Disease Control and Prevention reports the loss of productivity related to personal and family health problems cost US employers a total of $225.8 billion annually. The CDC also notes that the hidden costs of an unhealthy workforce — things like absenteeism and reduced work output — can ultimately be several times higher than medical costs.
Another hidden cost to employers can come from presenteeism — employees who come to work sick or injured. Beyond the fact that just one sick employee spending only a few hours at work can infect up to 60 percent of office or store common areas, according to one global study, presenteeism also results in the average worker losing almost 54 days worth of productivity every year.
Financial benefits for employers that offer health insurance
Not only do you make your employees happier by offering health insurance, but it benefits you as personally too. First, you can add yourself to the group plan and make sure you’re covered (which is generally much more affordable than any private plan).
In addition, tax credits and deductions can make offering health insurance even more of a win. The Small Business Help Options Program (SHOP) allows for tax credits up to 50% of the contributions paid towards your employee premiums, depending on the size of your company. And, in certain cases, you can deduct health insurance premiums that you pay as the business owner. You should talk to a tax attorney or financial advisor to see if you’re eligible for any savings.
Last but not least, you can withhold insurance premiums as pre-tax deductions, lowering your employees’ taxable income and the related FICA taxes that you both have to pay. It’s a win-win!
How much does health insurance cost for employers?
The Affordable Care Act requires that all health plans provide coverage for essential benefits including things like routine preventive doctor visits, pregnancy and childbirth, and hospital care, among other services. Some additional important factors to consider when evaluating insurance plans include:
- monthly premium and your contribution
- maximum out-of-pocket expenses
- prescription drug coverage
- emergency coverage
But coverage doesn’t come without a cost. In 2016, the average annual premiums for employer-sponsored health insurance were $6,435 for single coverage and $18,142 for a family according to the Kaiser/HRET Survey of Employer-Sponsored Health Benefits. And the costs can vary dramatically from state to state. So it’s important to do your homework and to weigh the expense of insurance for all of your employees and speak with experts who can help you find the right plan options.
The Affordable Care Act also requires that group health plan premiums be affordable for your staffers, which means it should cost no more than 9.78% of an employee’s household income for single coverage. As an example, an employer would be on the hook for $2523 annually for an employee who earns $40,000 a year and whose plan had the average premium.
Which benefits do employees want?
A study from Clutch found that 55% of employees say that health insurance is the most important benefit in terms of their job satisfaction. And in times where unemployment is at record lows, employers that offer benefits packages that include health insurance along with competitive salaries will likely find it easier to recruit candidates and retain current employees. As you consider benefits, you may want to poll your employees about what they’d like most.
When it comes to adding health insurance to your benefits package a health insurance broker — known as your Broker of Record (BOR) — can help you find the right plan. They can communicate with insurance carriers and negotiate the nitty-gritty such as rates, plan options, claim assistance, and more. They’ll also do the legwork to keep you compliant and get all of your employees (and you) set up.
They can also help you identify other benefits to offer — and understand all the requirements.
Consider talking to your payroll provider to find the right health insurance, too. They may be able to provide you with plan options from top insurers, help you combine your payroll and health benefits, and ensure compliance by tracking staff status changes. Most importantly, they’ll make sure your insurance is deducted automatically and correctly every time you run payroll, so the process becomes even simpler.
Offering health coverage and other benefits will help you attract, engage, and retain employees, stand out from your competition, and promote a healthier and happier culture — something that’s becoming more and more important in the tight labor market. It may or may not be required for your company, but it shows a real commitment to the overall well-being of your staff, and you’ll reap the rewards of loyal and productive employees.
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