Today, employers are not required to offer workers or their dependents medical insurance. Several federal and state laws govern various aspects of how businesses must handle insurance issues. Which laws apply to your business depends on how many employees you have and the type of coverage you provide.
Small business owners, defined as those with fewer than 50 employees, have the option of buying a group health insurance plan that may offer several advantages such as eligibility for tax credits and the ability to attract and maintain highly skilled employees.
At a Glance
Click on the following for more information:
- Advantages of Offering a Group Health Plan
- Requirements for Group Coverage
- Requirements to Offer Continuation of Coverage
- Determining Eligibility of Employees and Dependents
- Comparing Group Health Plans
- Additional Resources
Advantages of a Group Health Plan
Group Health Plans for small businesses offer several advantages including:
Effective April 2010, the Affordable Care Act offers small businesses with fewer than 25 employees a small business tax credit of up to 35% (up to 25% for non-profits) to offset the cost of your insurance. For more information go to Business Deductions and Tax Credits on this website.
Lower Hiring Costs:
Looking for, hiring, and training new employees takes time and costs money. Having group insurance may help you to recruit and retain talented employees. Employees may accept slightly lower wages if those wages come with health insurance. In addition, employees can benefit tax-wise and in convenience by paying premiums right from their paychecks.
Reduced Absenteeism and Injury:
When employees don't have health insurance, they wait longer to seek treatment, which can lead to increased illness or disability. Healthy employees are less likely to injure themselves and more likely to do their jobs well.
No Exclusions due to Family History:
Group health plan applications differ from individual health plan applications in that the insurance company is not allowed exclude an employee from coverage due to pre-existing conditions. The group health plan may not ask about the family history or genetic test results of eligible employees (including owners) and their dependents.[i] This difference allows employees to focus on doing their job without worrying about testing and qualifying for health coverage.
Requirements for Group Coverage
California state law AB1672 says that small employers cannot be denied coverage as long as they:
- Pay their premiums
- Have been in business longer than two months
- Offer medical insurance coverage to all eligible full- and part-time employees
- Comply with insurer requirements regarding employer contribution and employee participation
- Have not committed fraud against the insurer
Under California law AB1672, small employers (2 to 50 full-time employees) are guaranteed group coverage should they choose to purchase it, regardless of the employees' health status. Insurance companies are not allowed to ask about the family history or genetic test results of eligible employees and their dependents during the application process. Under no circumstances can employers be turned down or charged more because of the genetic information or family history of someone in the group. And under no circumstances may a health plan cancel coverage if your employees have high healthcare expenses.
Owners are generally counted as employees, so sole proprietorships with one employee fall into this category, as do partnerships without any employees (by definition partnerships have two or more partners).
The insurer can require that a minimum percentage of eligible employees participate in the small group health plan. They can also require the employer to pay a minimum share of the employees’ premiums. On the other hand, employers have no obligation to pay for premiums for dependents and are free to require employees to pay for the full premium cost for covered dependents.
When a small business owner purchases a group health insurance plan, they must determine if part-time employees will be eligible for coverage. This decision is guided by certain legal requirements such as:
- If an employer offers group health coverage to any full-time employees, then it must be offered to all full-time employees (defined as those working 30 or more hours per week).
- If the employer offers coverage to any part-time employees, then it must be offered to all part-time employees (defined as those working 20 to 29 hours per week)
Generally speaking, if you purchase a group plan to cover your employees then the dependents of eligible employees are also eligible for coverage under that group plan. Dependents include spouses, children, and in some cases, unmarried domestic partners. Dependents cannot enroll for coverage unless the employee has enrolled.[iii]
Requirements to Offer Employees Coverage
At the time of termination, or under certain other circumstances, an employee may be eligible for the continuation of health care benefits as recognized under federal and state law, referred to respectively as COBRA and Cal-COBRA. In many significant respects, the requirements of Cal-COBRA are the same as those under COBRA. However, under federal law an employer must normally employ more than 20 employees (both full-time and part-time employees count) to be subject to COBRA requirements. Pursuant to Cal-COBRA, if the employer has an insured plan, as few as two employees will trigger obligations to continue medical benefits.[iv]
For more information, go to the section on this website entitled, COBRA.
Comparing Group Health Plans
Health plans are complex. They're often loaded with so many details that it can be difficult to focus on the issues that are most important. Generally speaking, you should evaluate and compare plans on three dimensions: benefits, choice, and cost.[v]
You'll want to make sure the plan benefits include the services most important to you and your employees. Also keep in mind that, typically, the more that's covered, the more the plan will cost.
Managed care plans typically limit participants to a network of providers, and charge more if participants visit providers outside the network. You will want to know the physicians and hospitals that are considered “in network.” The California Department of Insurance offers an interactive checklist to use to compare health plans. Go to the health plan comparison and checklist.
Besides the monthly premium, many plans involve what's known as "cost-sharing," in which participants pay a fee at the time of service (a copayment) or a percentage of the total cost (called co-insurance). You can compare pricing and benefit information for individual policies available in your area in a number of ways:
- Use the Health and Human Services’ Insurance Finder tool.
- Contact a licensed insurance broker. Be sure to use the License Name Search offered by the California Department of Insurance to find out if a broker is licensed and to see a list of the companies they are authorized to represent.
- Search for privately funded internet resources such as e health insurance.
Healthcare.gov – Insurance Finder Tool
Health Law Guide for Business
[i] Georgetown University Health Policy Institute, . (2009, July). California consumer guide. Retrieved from http://healthinsuranceinfo.net/statecoverageguides/CaliforniaHealthInsuranceGuide.pdf
[iii] California HealthCare Foundation, . (n.d.). Health coverage guide – who is eligible for coverage?: part 1 - getting started. Retrieved from http://www.healthcoverageguide.org/guidepartone/how-to-evaluate-plans.aspx
[iv] Georgetown University Health Policy Institute, . (2009, July). California consumer guide. Retrieved from http://healthinsuranceinfo.net/statecoverageguides/CaliforniaHealthInsuranceGuide.pdf
[v] California HealthCare Foundation, . (n.d.). Health coverage guide - evaluating plans: part 1 - getting started. Retrieved from http://www.healthcoverageguide.org/guidepartone/how-to-evaluate-plans.aspx