Insurance 101: What Is Small Group Health Insurance?

Small-group health insurance is medical insurance purchased by businesses with 50 or fewer full-time equivalent employees.  

In California, Colorado, New York, and Vermont, small group plans are sold to businesses with up to 100 employees.  

It’s worth noting that not all small-business owners are required by federal law to provide medical coverage for employees. For example, businesses with fewer than 50 full-time equivalent employees are exempt from the Affordable Care Act’s (ACA) employer mandate. This means that employers are not required to offer health insurance coverage; however, many employers chose to do so to attract and retain a more talented workforce and enjoy tax benefits.

How Do Businesses Obtain Small Group Health Insurance?

Businesses that qualify for small group health insurance can buy plans at any time of the year directly from an insurance company via a broker or private exchange. To qualify for a small group health insurance plan, a business must:  

• Have 50 or fewer full time equivalent (FTE) employees except for in the previously mentioned states
• Meet employee participation requirements
• Employer contribution (non-payroll deducted) levels must match requirements  

Are Small Employers Required to Offer Health Coverage?

As previously stated, unless a business employs more than 50 full-time equivalent employees, they are not required to provide coverage. The ACA’s employer mandate requires businesses with 50 or more employees to offer health insurance coverage for full-time employees.

How Much Do Employers Have to Pay?

This varies from employer to employer and depends on the benefit package selected. Of course, the better the benefits, the more expensive the coverage.

The ACA offers small businesses tax credits to help offset the cost of insurance, so businesses are encouraged to provide health benefits to their employees.

For a business to qualify for a tax credit of up to 50% of premium expenses for any two years, small business owners must pay at least half of total healthcare premium (meaning the employee cannot pay more than 50% of the cost) and have fewer than 25 FTE employees who earn an average of $50,000 or less per year.

To find the right coverage and determine your options and costs, a business should consult a local insurance broker or agent.

What Are Some Trends in Small Group Insurance?

Many industry experts and political figures argued that the small group market would decline after the ACA went into effect, predicting that employers would discontinue their plans and let employees buy from the government exchanges. However, the small group market has held relatively stable.

Health insurance coverage decreased by just 2.6 percentage points from 2013 to 2020 for qualifying employers compared to a 10.6 percent point decrease from 2002 to 2012. Many believe this better-than-expected adoption reflects employers’ desire to attract a more talented workforce–a decision that demands coverage and reduced health insurance costs from ACA reforms.  

Another trend worth noting is the similar rise in annual premium rates for companies of all sizes. Since the ACA’s implementation, premiums for single coverage grew by an average of 3.2 percent per year in the small group market and by 3.7 percent in both the medium and large group markets. These findings indicate that small group insurance employees saw a reduced cost per month compared to their peers at larger companies.  

Connect With a Broker to Learn More  

Mployer Advisor connects researching employers to top-rated insurance brokers and advisors to provide employees with the best possible benefits at competitive prices. We use best-in-class data, thousands of broker customer reviews, and the industry's first brokerage rating–the M Score–to help companies reduce costs and improve their employees’ lives.  

Find an insurance broker today to learn more about small group health coverage.  

Craving more exclusive content? Check out the latest news on the Mployer Advisor blog, and be to check out other segments in our Insurance 101 series on voluntary benefit plans, work-from-home benefits, and long-term disability insurance.  

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