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Do Small Businesses Have to Provide Health Insurance?

small-business-insuranceGiven the ongoing decline in employer-sponsored health coverage and soaring healthcare costs, many cash-strapped small business owners ask, “Do small businesses have to provide health insurance?”

Read on to learn whether or not you’re legally required to provide healthcare coverage for your employees. Plus, why you might want to offer it if you have the budget.

Do employers have to offer health insurance?

Under the employer shared responsibility provision of the Affordable Care Act (ACA), which still applies as of 2018, some, but not all, businesses must offer their employees basic health insurance or pay a penalty. So the answer to the question “Do small businesses have to provide health insurance?” in your specific case depends on whether or not the government classifies your business as an applicable large employer (ALE).

Keep it separate. What's the law on employers providing health insurance?

The law sets forth different employer-provided health insurance requirements for ALEs and non-ALEs. The definition of an ALE is an employer with 50 or more full-time equivalent employees (FTE). An FTE is someone who worked or whom you expect to work 30 hours or more a week for 120 days or more a year. If like most small businesses, you have fewer than 50 full-time equivalent employees, your business is not classified as an ALE. Ahead, we take a closer look at what the law requires from small businesses in either of these scenarios.

  • If your business is an ALE: You are subject to the shared responsibility provision of the ACA. Employers are subject to an Employer Shared Responsibility Payment if provisions are not met. Which means offering some type of health insurance coverage, or a plan that meets the minimum requirements, or is affordable. The business is subject to a penalty if at least one full-time employee receives a premium tax credit for buying insurance through the individual marketplace. Also, reporting rules require you to send health information both to your employees and to the IRS.
  • If your business is not an ALE: You are not subject to the shared responsibility provision of the ACA. And therefore, not legally required to provide your employees with healthcare insurance. However, you can still offer your employees the benefit if you choose.

Why should I provide health insurance to employees?

If you’re not legally bound to provide employees with health insurance, you might ask, “Why bother to offer it?” After all, only half of all small businesses with three to 49 employees provided their employees with health insurance in 2017, according to the Kaiser Family Foundation.

Basically, the answer is employee attraction and retention, which refers to a business’s ability to recruit and keep its employees. In a study by America’s Health Insurance Plans (AHIP), 46 percent said that health insurance was the deciding factor. Accordingly, having or not having health benefits played a huge role in their job choice. Another 56 percent said their healthcare plan was a deciding factor in whether to stay or leave their current role.

Given the costs associated with employee turnover and the hiring and training of their replacements, it pays to keep your employees healthy and happy and provide them with at least basic health insurance coverage if you have the budget. The higher the quality of the insurance you provide, the more incentive prospective employees have to join your business. Which also gives less incentive to existing employees thinking about jumping ship.


Posted by Scott Boyar CPA


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