Health Insurance for Small Business Employees

Brad Dorsey

4 min read ·


The labor market is intensely competitive now—for every industry, any level of the job. As a small business owner, you could be struggling to find the right people to add to your team. Offering health insurance for small business employees can help. This article outlines the benefits, as well as how it all works so you can get started.

You may be reluctant to take on the expense of offering health insurance to your small business employees. Yet, offering this benefit to your team can help you remain competitive in a tight labor market. 

According to the Kaiser Family Foundation’s 2020 Employer Health Benefits Survey: “Of businesses with fewer than 50 employees, which are not legally required to offer health insurance, 53% offered health insurance in 2020. Among businesses with three to nine employees, 48% did.” Why? Healthy employees are more productive employees.

Health insurance also helps you to retain employees. By showing your employees you care about their health and wellbeing, you are building a culture of respect. In fact, in a Glassdoor survey, health insurance was the number one benefit employees wanted.

Additionally, if you offer health insurance coverage to employees, you may qualify for the Small Business Health Care Tax Credit. To be eligible for the credit, you must have less than 25 full-time equivalent employees, your employees’ average wage must be less than $51,600 per year, and you must pay at least 50 percent of the employees’ health insurance premium.

Now that you’re aware of some of the benefits of health insurance for small business employees, we’ll provide the basics you need to know:

  • How insuring your employees works
  • Types of health insurance for small business employees
  • The costs for your business
  • Where to find insurance plans


How Insuring Your Employees Works

How Insuring Your Employees Works

With small business health insurance, you group employees together in a pool for insurers to assess risk. This helps lower premiums compared to what an individual employee might be able to get otherwise.

Small business health insurance is available as long as you have at least one employee on your payroll. In some states, the business owner qualifies as an employee. Small business owners can also shop for coverage at any time of the year and are not limited to a specific enrollment period. However, you will typically be locked into a plan for at least a year once you make your selection.

Small business health insurance will cost you both budget and time. Someone will have to search for an insurance provider, educate employees about the plan, and ensure its maintenance.

Your employees will be looking at costs in terms of premiums, deductions, and out-of-pocket costs. As a business owner, you’ll need to offer affordable care. According to Cigna, “Coverage is considered ‘affordable’ if employee contributions for employee-only coverage do not exceed a certain percentage of an employee’s household income (9.83% in 2021).”


Types of Health Insurance for Small Business Employees

Small business health insurance plans come in four main types:

  • Preferred Provider Organization (PPO) plans—Employees can choose either in-network or out-of-network doctors or hospitals, but going with an in-network provider sees the insurer covering a larger percentage.
  • Health Maintenance Organization (HMO) plans—With an HMO, employees select from service providers who have agreed with the insurer to provide lower-cost care to plan members. 
  • HSA-qualified plans—Paired with PPO plans, HSAs allow participants to bank money to pay for their medical expenses with pretax dollars.
  • Indemnity plans—This coverage is tied to particular incidents. Unlike with a comprehensive plan, the employee would apply for reimbursement from the insurance company after a qualifying event (e.g., an illness or accident).


The Costs for Your Business

According to a 2020 Kaiser Family Foundation report, small firms (those with three to 199 employees) were paying: 

  • $7,483 for single coverage, of which employers contributed $6,297, or 84%.
  • $20,438 for family coverage, of which employers contributed $13,618, or 67%.

Costs of small-group insurance will consider your employee profiles and the type of plan you pick. While premiums won’t reflect employees’ medical history and pre-existing conditions, where they live, whether they use tobacco, their age, and their dependents will be factors. 

Under the Affordable Care Act, there are four tiers of plan ranging from bronze (least expensive) through silver and gold up to platinum (most expensive). The tiers don’t impact the quality of care; they reflect how much the insurer contributes.


Where To Find Insurance Plans

Where To Find Insurance Plans

There are many ways to find health insurance for your small business employees. The most obvious is to contact insurance providers working in your state. It might be easier, though, to approach a small business health insurance broker. These brokers will do the shopping around for you and come back with tailored insurance plan options. You may even be able to buy health insurance through brokers on your payroll product platform (e.g., Gusto or QuickBooks Payroll).

Another option is using the Small Business Health Options Program (SHOP). This is the federal insurance marketplace offering options for businesses with fewer than 50 full-time employees. 

You might also use a Professional Employer Organization (PEO). This sees another company administer benefits on your behalf by becoming a co-employer to your employees. PEOs provide this service to multiple businesses to build up a large employee pool and get more competitive prices.

Ultimately, insuring your small business employees may not be mandatory, but it can help your business succeed. For information about other ways to grow your entrepreneurial effort, review our resources. 

Brad Dorsey