Can Your New Business Offer Group Health Insurance?
Hiring your first employees is an exciting milestone. It may also leave you wondering when your business becomes eligible to establish a group health plan.
The rules vary by carrier, but most new businesses need to satisfy a few basic requirements.
Common eligibility pitfall: A business generally needs at least one eligible W-2 employee besides the owner or the owner’s spouse. Independent contractors paid on a 1099 typically do not count. An owner-only business, or one consisting only of an owner and spouse, will generally need to use the individual health insurance market instead.
You generally need at least one eligible employee
The employee who establishes the business’s group eligibility generally must be:
Paid through payroll as a W-2 employee
Working enough hours to satisfy the plan’s eligibility rules
Someone other than an owner, partner, independent contractor, or owner’s spouse
For an early-stage company, simply hiring help may not be enough. The nature of the employment relationship matters.
Coverage must be offered consistently
Many small-group health plans use 30 hours per week as the threshold for employee eligibility, although the available options vary by carrier and state.
Once the business establishes an eligible class, it generally needs to offer coverage consistently to everyone in that class.
For example, an employer should not offer coverage to one full-time technician while excluding other employees doing similar work under similar conditions.
Employee age does not change this obligation. An employee under age 26 may choose to remain on a parent’s plan, but the employer should still offer coverage if that employee meets the plan’s eligibility rules.
Not every eligible employee must enroll
Offering coverage and enrolling in coverage are two different things.
Some employees may waive the employer’s plan because they already have coverage through:
A spouse’s employer
A parent’s health plan
Medicare
Medicaid or another qualifying source
These are commonly referred to as valid waivers. Depending on the carrier, employees with valid waivers generally do not count against the business’s minimum participation requirement.
That distinction can be important for a very small company. For example, an employee declining the plan because they have coverage through a spouse is usually treated differently from an employee declining without other qualifying coverage.
Carriers calculate participation differently, so the expected enrollments and waivers should be reviewed before selecting a plan.
The employer may need to contribute
Some carriers require the employer to pay a minimum portion of the employee’s premium. A common starting point is 50% of the employee-only cost, although requirements vary.
An employer could contribute:
A percentage of the employee-only premium
A fixed monthly amount
The full employee premium
A portion of dependent coverage
The right approach should fit the company’s budget while making the plan attractive enough for employees to participate.
Be prepared to document the business and its employees
The carrier will usually ask for documentation showing that the business is active and that the people applying for coverage are legitimate employees.
This may include:
Business formation documents
Payroll records
A quarterly wage and tax report
W-2 or W-3 forms
Employee hire dates and scheduled hours
Ownership information
A new business that has not filed its first quarterly wage report may still have options, but the carrier will likely request alternative payroll documentation.
You can establish a plan during the year
Small businesses generally do not need to wait for an annual open enrollment period to establish group coverage.
The business will need time to confirm eligibility, collect employee information, compare plans, enroll employees, and receive carrier approval. Beginning the process approximately 30 to 60 days before the desired effective date is a reasonable goal.
Start by answering four questions
Before requesting quotes, a new business should determine:
Do we have at least one eligible W-2 employee besides the owner or owner’s spouse?
Which employees must be offered coverage?
Who expects to enroll, and who has other qualifying coverage?
How much can the business sustainably contribute?
Answering these questions will show whether the business is ready to establish a plan and identify any issues that need to be addressed first.
That is where Business Tree Benefits can help. We work with new and growing businesses to confirm eligibility, understand carrier requirements, and compare the available options. Even if your company is not ready today, we can help you build a clear path toward offering coverage as you hire and grow.
Want to know whether your business qualifies? Schedule a conversation with Business Tree Benefits.
Eligibility and carrier requirements vary by state, insurance company, business structure, and plan. This article provides general educational information and should not be considered legal or tax advice.
