According to 2019 Census data, almost half of Americans receive their health insurance via large group plans that their employers provide. Group health insurance provides people with access to coverage that may be more expensive if they take out an individual policy. Furthermore, group policies can be added to an employer’s benefits package, which makes their company more attractive to potential recruits.
However, group health insurance is not available to every type of business. There are several group health insurance rules your business must follow to be eligible for coverage. Furthermore, employees must meet certain group health plan requirements to be eligible to become part of a company’s policy.
In this article, we dig into the requirements that employers and employees must meet to be eligible for group health insurance.
Also called employer-based coverage, group health insurance refers to a healthcare plan offered by employers that covers multiple employees. The members of these plans typically receive several healthcare benefits with lower premiums because the risk related to the policy is spread out across multiple people.
These plans offer several benefits beyond their lower costs. They provide employees with access to affordable, or even free, healthcare. Furthermore, many group plans allow employees to add their spouses and dependents to the policy. As such, an employer can offer a plan that covers an employee’s entire family, which relieves a large financial burden on the family and allows the employer to benefit from a happier and more motivated employee.
Group health insurance also comes with several tax benefits. As an employer, any money you pay toward monthly premiums is tax-deductible, which means you can write it off your company’s annual tax bill. If employees pay part or all of the premiums, they can do so from their pre-tax earnings. This means they can lower their total taxable income. In some cases, an employer may also qualify for a small business health care tax credit, which covers some of the cost of the premiums they pay. This will be explained later in the article.
Setting up group health insurance requires your business to follow many of the same processes you would follow when setting up an individual plan. You need to consider what you want the policy to include, research different providers, and gather quotes. You can also use external services, such as insurance aggregation websites and professional brokers, to gather these quotes.
The key difference lies in the eligibility requirements you need to meet.
When setting up an individual health plan, you’re often required to undergo a medical exam. This allows the insurer to determine if you have any conditions that may affect your policy. But when setting up a group health insurance plan, medical exams are often not required. This is because the nature of the plan spread the risk an insurer absorbs among multiple people. However, you need to meet a variety of other eligibility conditions before your business and its people can access group health insurance.
Before we get into the group health insurance eligibility requirements, it’s important to note that any qualifying small business is guaranteed to receive group insurance if it chooses to buy. According to the Affordable Care Act (ACA), no insurer can deny group insurance to a business if it meets the following requirements. This includes any refusals based on the health of your employees. As long as your business enrolls in an ACA-approved plan, any existing employee health issues do not factor into whether or not you can get group health insurance.
There are two core requirements your business must satisfy to be eligible for group health insurance:
This second requirement is interesting because the exact definition of a full-time employee may vary depending on what state your business operates in. However, the IRS generally considers a full-time employee to be anybody who works 30 hours per week. Use that as your baseline, but research your state’s definition before applying for group health insurance.
Group health insurance laws dictate that your business must have a minimum number of employees before you can access a policy. This may cause small businesses to worry that they can’t get insurance. That is not the case. As mentioned, group health cover is protected by the ACA. The minimum employees for group health insurance is one.
However, the rules get a little more complicated than that.
Group health insurance for small businesses is only available to companies that have between two and 50 full-time employees. The first full-time employee is you, as the business owner. Two through to 50 are people that you hire to work your state’s minimum number of hours per week to be considered full-time.
Digging deeper into what constitutes a full-time employee, the individual must be somebody who:
Furthermore, any contractors you hire are typically not considered full-time employees.
If your company has more than 50 full-time employees, it no longer meets the group health insurance requirements for small businesses. That’s because the business is classed as an applicable large employer (ALE) according to the ACA.
If you own an ALE, you need to apply for large group coverage. This comes with added conditions, such as meeting certain reporting requirements. Your business also needs to meet more stringent group insurance standards, such as guaranteeing minimum essential coverage (MEC) to its employees. Happily, most employer-sponsored coverage, which includes group health insurance, is classed as MCE. However, MCE can also include individual coverage an employee buys on their own or cover they receive as part of a government-sponsored program.
Though group health insurance laws, such as the ACA, compel insurers to provide group coverage to qualifying businesses, many have participation requirements. These requirements ask employers to guarantee that a minimum percentage of their full-time employees will take part in the group insurance policy. The percentage can vary between insurers, though most ask for 70%.
For example, let’s say that your business has 40 full-time employees. This means that 28 of the 40 need to commit to signing up for your company’s group plan before an insurer provides access to it.
Why do insurers have participation rules?
As mentioned previously, insurers offer lower premiums on group policies than they provide for individual cover. This is because group policies cover a larger number of people, which spreads risk and allows the insurer to make more money per month from a single policy. Insurers also take measures to avoid the risk of “adverse selection” occurring.
Adverse selection happens when an employer creates a group health policy and only includes employees who are frequently ill. As a result, the policy is full of high-risk individuals, meaning the insurer needs to pay out more regularly on it. By having participation requirements, insurers guard themselves against adverse selection by compelling employers to broaden their selection pools.
There is an exception to these participation rules.
When the ACA was instituted, it included provisos for an open enrollment period. This is a dedicated time for all Americans to enroll, alter, or renew their insurance policies. Open enrollment also applies to businesses. If you apply for small business group insurance during the open enrollment period, your business doesn’t have to meet the 70% requirement.
The times for open enrollment vary by state. Most begin open enrollment in early November and carry it over to mid-December. But some states institute open enrollment until January or February. If you want to avoid the 70% participation requirement, research your state’s open enrollment period and encourage your employees to enroll in your company’s group health insurance within it.
In most group plans, employees are automatically enrolled once they meet the requirements for base coverage. These requirements may vary between employers, though they generally relate to how many hours the employee works per week and how long the employee has been with the company. Some sub-policies may be available to employees who are married or participate in other company plans.
Employees do not have to go through the underwriting process when being enrolled in a group plan. This means they face no invasive medical tests. Their physical health does not determine if they’re eligible for the plan as long as the employer meets the insurer’s small group health insurance requirements.
This changes if the employee wishes to purchase supplemental coverage.
For example, let’s assume your group policy only covers your employees. If one of your employees has a child, they may want to include their new child in their policy. This means they require supplemental coverage. Assuming you’re willing to provide this coverage via your company’s group policy, the employee will likely need to go through an underwriting process. This process usually involves answering some basic questions, rather than a full medical exam. The insurer then chooses whether to offer the coverage or not. Assuming they do, they’ll provide a price for the supplemental coverage. As the business owner, you can choose whether to cover this cost or have your employee pay for any extra coverage beyond what your base policy provides.
If you recall the two core eligibility requirements for small group health insurance, the first is that the applying company must be a legal business entity. However, some legal business entities will not qualify for group health cover in certain circumstances. This occurs in the following cases.
Though a sole proprietorship is a legal business entity, it is not eligible for group health cover if it has no full-time employees. That’s because it does not meet the group insurance minimum number employees requirements. The restriction applies even if you use contractors who work full-time for your sole proprietorship. Contractors are technically self-employed, meaning you can’t class them as full-time employees because they’re not part of your business.
Thankfully, owning a sole proprietorship with no employees does not prevent you from accessing health insurance. You can still apply for an individual policy.
Family businesses are not eligible for small group health cover if they only employ family members. This comes back to the regulations related to full-time employees mentioned earlier. A business owner’s spouse or family members are not considered full-time employees for the purposes of group cover. Your business must have at least one full-time employee who is not a member of your family.
Interestingly, your spouse can enroll in your company’s group health plan if you have other employees who are not members of your family. They just can’t be the sole full-time employee needed to make your business eligible.
Now that you know how to qualify for group health insurance, your next step is to find a plan that’s appropriate for your business. That means looking beyond questions like how many employees do you need to qualify for group health insurance and shifting your focus to the type of plan and level of coverage you wish to offer.
How do you do that?
With the help of a professional insurance broker, you can find a group health plan that benefits your employees and your company. At Taylor Benefits Insurance Agency, we specialize in helping business owners find appropriate group health insurance plans. We provide access to all major insurance carriers in the United States and can help you find a policy that provides solid cover at a low cost. Call us at 800-903-6066 or contact us online to find out how we can help you.
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