Group Versus Individual Health Insurance For Small Businesses

The Affordable Care Act requires employers with 50 full-time equivalents or more to provide qualified group health insurance plans to all full-time employees. Otherwise they have to pay significant penalties. But if you are a smaller employer, you still have a choice: You can offer a qualified group health insurance plan to your employees, or you can save on premiums by deciding not to offer health insurance – effectively sending all employees to the individual market for coverage.

Group Insurance 

With group insurance, the business is responsible for paying premiums – and must generally pay at least half of the total premium for the plan to qualify as a group health insurance plan.

While not every small employer is able to pay for health insurance for all employees, there’s no denying that health insurance is an important part of most companies’ employer value proposition. According to a 2013 survey by Metlife, 61 percent of employees who report that they are “very satisfied” with their compensation package at their current employers say that their health insurance benefits were a key component of why they were satisfied. 38 percent of employees surveyed report that their health care benefits were an important part of why they were satisfied with their compensation.

This is, of course, why most large companies offered health insurance to employees even before they were required to by the Affordable Care Act: Quality employees demanded health insurance coverage, and employers had to offer it to recruit and retain the best available talent.

  • Your business may qualify for a tax credit. The tax credit is available to businesses with fewer than 25 full-time employees, with average wages of $50,000 per year or less, provided you pay at least 50 percent of the total premium. The tax credit is worth up to 50 percent of the premiums you pay (35 percent if you are a tax-exempt organization). You must purchase the coverage through the Small Business Health Options Program, or SHOP, to qualify for the tax credit.

 

  • The costs of offering a group health insurance plan are 100 percent deductible to the employer.

 

  • Benefits tend to be richer in group plans than in individual plans, with generally lower deductibles available.

 

  • The employer doesn’t have to pay the entire cost of the plan. Employees can be responsible for part of the premium.

 

  • Group coverage has more enrollment flexibility: You can start a new qualified group at any time. You and your employees will not have to wait until the next open enrollment period to get new coverage in place. Those on the individual insurance market must generally wait until the Affordable Care Act open enrollment period to initiate coverage, unless they qualify for a ‘special enrollment period.’

 

The Individual Market

Alternatively, smaller employers can go without a group health plan for their employees but in order to remain competitive, they must offer compensation in other forms in order to compete for talent. Typically, this takes the form of higher cash compensation. Employees have the option, of course, to use this extra cash to purchase their own health insurance, but employers cannot require them to do so. You also cannot write off sums spent paying individual health insurance premiums on your employees’ behalf.

While every business is different, most businesses soon find that they are better off going with a group insurance plan, rather than leaving employees to the individual market. Individual plans may work well for very small ‘mom and pop’ companies with few employees beyond the owners themselves. But as your hiring needs grow, the balance of the argument shifts swiftly to offering a full-fledged group health insurance plan.

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