Buying insurance for your small business (group coverage) has different rules than buying just for yourself or your family (individual coverage). The good news is that coverage for small businesses provides advantages that may not be offered to individuals until 2014, when the Patient Protection and Affordable Care Act (federal healthcare reform) is fully implemented. Below, we outline the basics behind group coverage.
What Is Group Coverage?
Group medical coverage refers to a single policy issued to a group (typically a business with employees, although there are other kinds of groups that can get coverage) that covers all eligible employees and sometimes their dependents. Individual medical coverage, on the other hand, is a single policy issued to a single person or family.
The rules are quite different for group coverage versus individual coverage, in large part because the insurer’s risk is calculated differently. With individual coverage, the insurer has historically based its premium rates (or denied coverage) on the detailed medical history of the person or family. (The Affordable Care Act will bring important changes to the individual market, including eliminating the ability of insurers to deny coverage based on preexisting conditions.)
With groups such as small businesses, the insurer determines a premium price based on risk factors balanced over the entire group, using general information on members of the group, such as age or gender. Insurers are required by law to offer coverage to small groups.
Is Insurance Required?
While there is no law requiring small business owners to provide health insurance, the Affordable Care Act makes substantial changes that small business owners should be aware of when deciding whether to purchase insurance for their employees. If you do choose to offer coverage, there are regulations you will have to follow—the most important of which we explain on this site.
Though large companies may face penalties in 2015 if they do not offer coverage under the Affordable Care Act, small businesses with fewer than 50 full-time-equivalent employees will not be penalized if they do not provide coverage. If you have at least 50 full-time-equivalent employees but none receive an individual premium tax credit or cost-sharing reductions (both based on income), there’s no penalty—whether or not you offer health insurance.
To learn more about what the Affordable Care Act requires of small business and to find out how penalties are calculated see “Shared Responsibility Requirement.”
Is Your Business Eligible for Group Coverage?
Under federal law, small employers are guaranteed group coverage should they choose to purchase it, regardless of the employees’ health status. A “small employer” is defined as a business with 2 to 50 full-time employees. Owners are generally counted as employees, so sole proprietorships with one employee usually fall into this category, as do partnerships without any employees (by definition partnerships have two or more partners). Some states define the self-employed as “groups of one” and require insurers to guarantee issue them coverage in the small group market.
Who Is Eligible for Coverage?
The general rule is that if an employer offers group health coverage to any full-time employees, the employer must offer coverage to all full-time employees.
The employer has the option to offer coverage to part-time employees (defined as those working fewer than 30 hours per week). If the employer offers coverage to any part-time employees, all of them must be offered coverage.
These rules apply regardless of the medical condition of the employees. In other words, any eligible employee can’t be denied coverage based on previous medical problems, known as preexisting conditions.
In addition, any dependents of eligible employees are generally eligible for coverage under a group plan. Dependents include spouses, children, and in some cases, unmarried domestic partners. Dependents cannot enroll for coverage unless the employee has enrolled.
Under the Affordable Care Act, group insurance plans are required to extend coverage to adult dependents through age 26. This only applies in cases where the adult dependent’s employer does not offer coverage. In 2014, the provision applies to all people under 26, whether or not their employer offers coverage.
We’ll cover more essential details in Part Two: Getting Covered.
What Do Employers Have to Pay?
Some employers who decide to offer coverage choose to pay the full premium, while others require employees to pay a portion. When considering what portion of the premium to pay, employers should be aware that the Affordable Care Act offers small businesses tax credits to help offset the cost of insurance.
The small business healthcare tax credits have been available since the 2010 tax year. To qualify for a tax credit of up to 35% now and 50% in 2014, small business owners must pay at least half of employees’ healthcare premiums and have fewer than 25 full-time-equivalent employees who earn an average of $50,000 or less per year.
Talk with a broker or agent to find out about all your options on premium costs.