The Affordable Care Act (ACA) introduced major changes to the way small businesses provide health insurance. For small business owners, understanding the benefits, responsibilities, and available options is crucial for making informed decisions about employee coverage.
This guide breaks down how the ACA affects small businesses, the benefits of offering insurance, and how to navigate compliance requirements.
Does the ACA Require Small Businesses to Offer Health Insurance?
One of the most common questions small business owners ask is: Am I required to provide health insurance to my employees?
The answer depends on the size of your business:
✔ Businesses with fewer than 50 full-time equivalent employees (FTEs) – NOT required to offer health insurance under the ACA.
✔ Businesses with 50 or more FTEs – ARE required to provide ACA-compliant health insurance or face penalties under the Employer Mandate.
What Is a Full-Time Equivalent (FTE) Employee?
- A full-time employee works at least 30 hours per week.
- Part-time employee hours are combined to calculate FTEs (e.g., two employees working 15 hours each = 1 FTE).
Even though small businesses with fewer than 50 FTEs are not required to offer insurance, many still choose to provide coverage because of tax credits, competitive hiring advantages, and employee retention benefits.
Benefits of Offering ACA-Compliant Insurance
Even if not legally required, offering health insurance can benefit small businesses in several ways:
1. Small Business Health Care Tax Credits
The Small Business Health Care Tax Credit helps businesses afford employee health coverage. To qualify, your business must:
✔ Have fewer than 25 FTEs
✔ Pay at least 50% of employee premiums
✔ Have an average annual wage of less than $56,000 per employee (2024)
✔ Purchase coverage through the Small Business Health Options Program (SHOP) Marketplace
💰 How much is the tax credit?
Eligible small businesses can receive a tax credit worth up to 50% of employer-paid premiums (35% for tax-exempt employers).
2. Attracting and Retaining Employees
A strong benefits package can help small businesses compete for top talent. Many workers prioritize health insurance over salary when choosing jobs.
✔ 78% of employees say health insurance is a key factor in accepting a job (KFF).
✔ Offering coverage reduces turnover, saving businesses money on hiring and training.
3. Healthier and More Productive Employees
Employees with health insurance get regular checkups, preventive care, and treatment, reducing absenteeism and increasing workplace productivity.
✔ Preventive services (covered under the ACA) help catch health issues early.
✔ Lower stress from having coverage leads to higher job satisfaction.
How Small Businesses Can Provide ACA-Compliant Insurance
1. Small Business Health Options Program (SHOP) Marketplace
The SHOP Marketplace was created under the ACA to help small businesses purchase affordable, ACA-compliant health insurance.
✔ Available to businesses with 1-50 FTEs
✔ Employers control how much they contribute toward premiums
✔ Employees can choose from different plans (in some states)
📌 How to Enroll:
- Visit HealthCare.gov to find available plans in your state.
- Work with a licensed broker or insurance agent to explore options.
2. Qualified Small Employer Health Reimbursement Arrangement (QSEHRA)
A QSEHRA allows small businesses to reimburse employees for healthcare expenses, including premiums for ACA-compliant plans, without offering a group health plan.
📌 How It Works:
✔ Employers set a fixed amount for reimbursement.
✔ Employees purchase their own health insurance (individual ACA plans).
✔ Reimbursements are tax-free for employees and tax-deductible for employers.
📌 Who Can Use QSEHRA?
- Businesses with fewer than 50 FTEs
- Employers who do NOT offer group health insurance
💡 Why Choose QSEHRA?
- Lower costs than traditional employer-sponsored insurance
- More flexibility for employees to choose their own plan
3. Individual Coverage Health Reimbursement Arrangement (ICHRA)
Similar to QSEHRA, an ICHRA allows businesses to reimburse employees for individual health insurance costs instead of offering a traditional group plan.
📌 Key Differences Between ICHRA and QSEHRA:
✔ ICHRA has no employee size limit (available to businesses of any size).
✔ More flexible—Employers can offer different reimbursement amounts based on employee categories (e.g., full-time vs. part-time).
📌 Why Choose ICHRA?
- Ideal for businesses with a diverse workforce (full-time, part-time, seasonal employees).
- Employees get to pick their own ACA plan while still receiving employer help.
What ACA Compliance Means for Small Businesses
Even if your business is not required to provide insurance, if you choose to, you must follow certain ACA rules:
✔ Essential Health Benefits: Plans must cover preventive care, hospitalization, maternity care, mental health services, and more.
✔ Guaranteed Issue: Employees cannot be denied coverage due to pre-existing conditions.
✔ No Lifetime or Annual Limits: ACA-compliant plans cannot place dollar limits on essential health benefits.
Employer Mandate for Businesses With 50+ Employees
If your business has 50 or more FTEs, the ACA requires you to:
✔ Offer health insurance to at least 95% of full-time employees and their dependents.
✔ Ensure the plan is affordable (employee’s premium share cannot exceed 9.12% of their household income in 2024).
✔ Provide ACA-compliant coverage with essential health benefits.
📌 Penalties for Non-Compliance:
If a large employer fails to offer coverage, they may face penalties:
- $2,970 per employee (after the first 30 employees) if no coverage is offered.
- $4,460 per employee if coverage is offered but deemed unaffordable or inadequate.
📌 Tip: If you’re approaching 50 employees, consult with an insurance advisor to ensure compliance and avoid penalties.
How Small Businesses Can Save on Health Insurance
✔ Compare SHOP plans to find the best pricing.
✔ Use QSEHRA or ICHRA if you prefer reimbursing employees instead of offering a group plan.
✔ Work with an insurance broker to explore small business discounts.
✔ Check eligibility for the Small Business Health Care Tax Credit.
Final Thoughts
The ACA does not require small businesses (under 50 employees) to offer health insurance, but doing so can provide tax benefits, employee retention advantages, and better workforce health.
If your business has 50 or more employees, offering ACA-compliant coverage is mandatory to avoid penalties.
Exploring options like SHOP plans, QSEHRA, or ICHRA can help small businesses provide affordable and flexible healthcare benefits to employees.
To learn more or compare small business health plans, visit HealthCare.gov.
