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Small business owners aren’t legally required to provide health insurance to their workers, but there are rules for those who do. With that said, make sure you understand how your state defines a small business, as it will impact what you are required to provide, should you decide to offer health insurance to your employees.
An employer collects health insurance premiums in a self-insured health insurance plan and the business pays the claims rather than a health insurance company. Self-insured plans are more often an option for larger companies. One potential benefit of self-insured plans is that businesses can save money if they collect more premiums than claims paid out. On the other hand, it could cause a problem if claims exceed premiums. A self-insured health plan generally still requires that employers contract with a third party to enroll members, process claims and set up provider networks.
The average annual cost of health insurance for small businesses is $8,722 annually per employee. Of that amount, employers pick up $7,349 on average and employees pay the rest, according to Kaiser Family Foundation’s 2023 Employer Health Benefits Survey. Small businesses pay less for health maintenance organization (HMO) plans than other plans. Small companies spend $6,644 annually on average for HMO coverage per employee compared to $6,970 for a point of service (POS) plan and $7,729 for a preferred provider organization (PPO) plan, according to Kaiser Family Foundation. The Kaiser Family Foundation added that small companies are more likely to pay all employee premiums than larger companies. The report said 30% of covered workers in small firms don’t pay premiums for single coverage for health insurance. That’s compared to just 6% in large companies.
Small businesses don’t have to offer health insurance, but employers with more than 50 full-time employees working at least 30 hours per week must offer coverage or face tax penalties. Small businesses that provide coverage may benefit from tax credits.
Small businesses can buy health coverage for employees on the health insurance marketplace through the Small Health Options Program (SHOP). SHOP lets employers compare plans and the Small Business Health Care Tax Credit can help save money for businesses.
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Deputy Editor, InsuranceLes Masterson is a deputy editor and insurance analyst at Forbes Advisor. He has been a journalist, reporter, editor and content creator for more than 25 years. He has covered insurance for a decade, including auto, home, life and health. Before covering insurance, Les was a news editor and reporter for Patch and Community Newspaper Company and also covered health care, mortgages, credit cards and personal loans for multiple websites.
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