If you own a small business, you’ve probably wondered, “Do US small businesses have to offer health insurance?”
The answer isn’t always straightforward—it depends on the size of your business, the number of full-time employees, and your goals as an employer. In this guide, we’ll break down what the law requires, what’s optional, and the health insurance options available so you can make the best decision for your business and your team.
Do US small businesses have to offer health insurance?
Small business health insurance requirements are dependent on the size of your business, specifically the number of employees you have. According to the Affordable Care Act (ACA) regulations, if you have 50 or more full-time employees, you are required by law to provide health insurance. However, if you have fewer than 50 full-time employees, this benefit becomes optional.
Even though you may not be legally required to offer health insurance, it can be an effective and worthwhile benefit to offer. In the competitive workforce, this benefit has proven to attract and retain top talent. In fact, research shows that 50% of employees state health insurance as a key reason why they stay with their employers—reducing turnover by 26%.
A benefits advisor who specializes in health benefits for small businesses can walk you through the pros and cons of offering coverage and help you evaluate affordable options.
What are the health insurance options for US small businesses?
If you choose to offer health insurance to your employees, there are a few options you can choose from. An experienced benefits advisor can compare these choices side-by-side and guide you to the plan type that aligns with your finances and workforce needs.
Small Group Health Insurance Plans
Traditional group plans for businesses with fewer than 50 employees (up to 100 in some states) leverage group purchasing power for more affordable coverage. Employers pay fixed premiums and can share costs with employees, making this option more economical than individual plans.
Individual Coverage Health Reimbursement Arrangement (ICHRA)
ICHRA allows employers to reimburse employees tax-free for individual health insurance premiums and qualified medical expenses. This flexible option lets employees choose their own plans while giving employers budget control, with no participation requirements for any size business.
Qualified Small Employer Health Reimbursement Arrangement (QSEHRA)
Designed for businesses with under 50 full-time employees, QSEHRA provides tax-free reimbursement for medical expenses and individual premiums. While it has IRS-set contribution limits, it offers a simpler alternative to traditional group plans without complex administration.
Self-Funded Health Insurance
Employers pay medical claims directly rather than fixed premiums, potentially saving costs with healthy workforces. However, this approach carries financial risk, often requiring stop-loss insurance to protect against large claims.
Health Stipends
Fixed, taxable payments give employees maximum flexibility to spend on any healthcare expenses with minimal employer administration. The downside is that stipends are taxable income without the tax advantages of other health benefit options.
Association Health Plans (AHPs)
Small businesses join together by industry or location to purchase insurance as a larger group, potentially securing better rates and coverage options. However, AHPs may not include all ACA consumer protections, requiring careful review before participation.
Health Savings Accounts (HSAs) & Flexible Spending Accounts (FSAs)
While not insurance themselves, these accounts let employees use pre-tax dollars for medical expenses. HSAs pair with high-deductible plans and allow funds to roll over annually, while FSAs typically operate on a "use-it-or-lose-it" basis with traditional health plans.
Are there options other than health insurance?
If you’re not legally required and cannot afford to offer health insurance, there are many other benefits and wellness initiatives that can attract and retain employees while demonstrating your commitment to their well-being. These alternatives can be particularly valuable for small businesses looking to compete for talent without the expense of traditional health insurance plans.
Employee Wellness Programs
Providing health insurance isn’t the only way to prioritize the health of your employees. Employee wellness programs can have a positive impact on your employees’ health and lower absenteeism while increasing productivity. These initiatives are often low-cost and small, but they build up and support your employees. For example, you could:
- Provide health education via newsletters, online resources, or workshops covering stress management, nutrition, and fitness topics.
- Improve the workplace environment with ergonomic equipment like standing desks, supportive chairs, or desk bikes that encourage movement and reduce strain.
- Stock offices with healthy snacks such as fruits and nuts instead of typical vending options, and consider wellness challenges like step-count competitions or hydration goals with small rewards to boost participation and team camaraderie.
- Offer to cover health club or gym memberships for employees.
Work-Life Balance Benefits
Flexible work arrangements represent one of the most valued benefits that often cost nothing to implement. Offer remote work options, flexible scheduling, or compressed workweeks to help employees better manage their personal and professional responsibilities. Additionally, create a culture that actively encourages regular breaks for walks, stretches, or mental resets.
Professional Development Benefits
Investing in employee growth demonstrates a long-term commitment to your workforce and can significantly improve retention. Provide access to training opportunities, conference attendance, or online course subscriptions that help employees develop new skills and advance their careers.
Additional Low-Cost Benefits
Simple, thoughtful perks can greatly enhance workplace culture without straining budgets. Organize regular social activities like team lunches, happy hours, or team-building events that strengthen relationships and create a more collaborative work environment. Consider offering transportation support through parking stipends, public transit subsidies, or bike-to-work incentives that help reduce employees' commuting costs while demonstrating your commitment to their daily needs and environmental sustainability.
At the end of the day, the question “Do US small businesses have to offer health insurance?” comes down to your company’s size and priorities. While not every small business is legally required to provide coverage, offering health benefits can help you attract talent, improve employee satisfaction, and build long-term loyalty. Partnering with an employee benefits advisor who specializes in small business health insurance ensures you understand the rules, explore every option, and implement a plan that truly works for your business.
Please let us know if you have any questions. We understand that local companies have unique needs that most national firms don’t consider or struggle to identify. This leaves your people with a less effective, one-size-fits-all benefits plan. However, our ability to cater to the needs of our clients comes from decades of client partnerships. This perspective allows us to fully address unique needs and generate creative benefits plans.
You shouldn’t have to worry about just being a number, offering a generic plan, or getting the unique support you need. Call us today.
This Benefits Insights is not intended to be exhaustive nor should any discussion or opinions be construed as professional advice.