Are Small Business Owners Obligated to Offer Health Insurance to Employees?
As a small business owner, you're incentivized to cut costs wherever possible so you can remain profitable and operational. At the same time, you want to keep your employees happy so you can retain your top talent.
Do small businesses need to provide health insurance?
Health Insurance Requirements for Business Owners
The Affordable Care Act (the ACA, sometimes called "Obamacare) requires applicable large employers (ALEs) with 50 or more full-time equivalent employees (FTEs) to provide health benefits with coverage at or higher than minimum essential coverage (MEC) at an affordable rate. If ALEs don't provide this coverage, they face a no-coverage penalty.
Businesses with fewer than 50 full-time equivalent employees aren't subject to this rule. In other words, small businesses and businesses that don't qualify as an ALE aren't legally obligated to provide health insurance coverage. Even so, there are many reasons to offer health insurance to your employees.
The Benefits of Health Benefits
Health insurance for employees can be expensive – though not as expensive as you might think. Even though health insurance coverage isn't required of small business owners, there are some massive benefits to providing this affordable coverage, including:
· Talent acquisition. One of the greatest perks of offering health benefits to employees is better talent acquisition. The most talented and experienced employees in the market are looking for lucrative opportunities with ample stability; offering health insurance makes your positions more attractive to them and shows that you're willing to invest in your team. That doesn't mean health insurance is going to be your gateway to rock-star hires and perfect culture fits, but it's a useful tool in making your business more attractive.
· Employee retention. Higher employee retention benefits your business in many ways. You'll spend less time and money recruiting new employees. You won't need to train new people all the time. Morale will stay higher. And you'll have more opportunities to build true camaraderie between team members. Offering health insurance is one of the easiest and most straightforward ways you can boost retention.
· Competitive differentiation. Not every small business offers health insurance to its employees, so providing health benefits is a great way to differentiate your business. If you're having trouble standing out in your niche, consider offering these or other perks.
· Employee morale. Employees don't tap into their health insurance coverage every day. And realistically, on a daily basis, they may take their health benefits for granted. But when they think about their job and their total compensation package, or when they do tap into those health benefits, they're going to be grateful for what they have. Offering health insurance is, therefore, a way to boost employee morale – and it's even more effective when used in combination with other benefits and reward strategies.
· Health and productivity. Don't forget that the primary purpose of health insurance is to provide better healthcare to your employees. When employees feel comfortable visiting the doctor, and when their preventative screenings are mostly covered, they're much more likely to get the care they need. That means your employees will stay healthier and happier, and they'll be much more productive when they're at work. On top of that, in the long term, your employees will likely have fewer sick days.
· Tax advantages. There are also some tax advantages to providing health insurance to your employees. You won't be able to subsidize the full costs to you as an employer, but you can mitigate those expenses.
· Reasonable affordability. If your business has fewer than 50 employees, you'll likely qualify for small group health insurance, which you can purchase through an insurance company or through a Small Business Health Options Program (SHOP) exchange. These types of policies are usually very affordable, since they're designed to be accessible to small business owners. If you're willing to shop around and compare prices, you can likely find a very good deal.
· Flexible options. Standard health insurance isn't your only option for providing health benefits to employees. For example, you may choose to offer employees health reimbursement arrangements (HRAs) or health stipends. HRAs are less expensive for employers; they allow employees to choose their own health insurance and receive fax-free reimbursements for their qualified premiums and expenses. Health stipends function similarly, but they're subject to fewer restrictions and regulations. You can decide how you want to subsidize employee health insurance costs.
Strictly speaking, small businesses don't need to provide health insurance to their employees. But if you want to make your business more competitive, more attractive to talented candidates, and a more productive environment overall, it's worth considering. Health insurance is easier to buy and more affordable than many small business owners think, so do your due diligence before you make a final decision.
