Tips for California Small Businesses on Providing Health Insurance for Employees
Providing health insurance for your employees is a necessity for attracting top talent. Learn what regulations you need to know.
Business owners in California are well aware of the challenges that come with doing business in the Golden State. Ensuring compliance with a system of complex regulations and even paying high taxes are just somewhat a common hurdle that falls on the shoulders of California business owners -- the state has tax rates known to be among the highest in the United States.
California has a complex yet dynamic regulatory landscape, and this ties in with the state’s willingness to rely on legislation enactment in taking charge of various business activities across industries. However, this effort makes compliance a rather difficult business-objective to achieve, with some considering the effort as a double-edged sword. It places California at the forefront of policy formulation and reform while it creates a situation where business owners are frequently on a lookout for new regulations that have come down the pipeline.
In just 2019 alone, business owners across the Golden State saw a deluge of new California’s employment laws emerging. From increasing the minimum wage to even necessitating the provision of lactation accommodations by employers, these new laws would further strengthen employees’ rights, requiring covered employers to make necessary amendments to their existing operational systems and procedures.
This shifting regulatory landscape casts a cloud of doubt over what regulations businesses are obligated to comply with from time to time. Particularly, confusion often arises when it comes to employees’ rights to health insurance benefits. The state’s healthcare system adds another level of complexity to what is an already-complicated regulatory framework that governs the welfare of Californian individuals and employees.
Whenever there is an altercation in the state’s healthcare policy, small businesses most bear the brunt of the after-effects. Although being more nimble and flexible in times of change - in comparison with large businesses, many of these businesses have fewer resources to throw at tweaking their business operations to ensure compliance. However, quickly knowing what the up-to-date regulations are and the ways to capitalize on any resulting opportunity, small businesses can remain quite resilient to policy changes - especially the ones related to healthcare insurance.
Health insurance for small business employees
As of today, there is no regulation that mandates employers to contribute to their employees’ health insurance. However, whether or not a business is affected by the healthcare laws boils down to the number of full-time employees that the business has. The state and federal laws classify small businesses as businesses having at least one but not more than a hundred full-time employees. For the purpose of regulating health insurance in the state, this classification affects all sorts of businesses - from restaurants to even outsourcing companies. For example, security service companies like Fire Watch Security have to follow the same guidelines and laws as other employers.
Small business owners with less than 50 full-time employees are not required to provide their employees with group health insurance. However, if a small business that falls under this category decides to offer health coverage to its employees, the insurance policy must comply with the ACA’s minimum standards and requirements and the business may be eligible for a health tax credit -- only if it meets the relevant requirements.
Whereas, small businesses having 50 or more than full-time employees are required to offer health coverage to their employees, and the health coverage has to meet certain minimum standards set forth under the Affordable Care Act. Otherwise, they may be subject to a financial penalty.
What is group health insurance?
A group health insurance policy covers a group of people, and it is quite often the insurance plan small business employers opt for to provide their employees with health coverage. There are several types of group insurance policies that registered insurance companies in California offer, and some of the most common ones are Self-Insurance, Small Business Health Options Program (SHOP), and Qualified Small Employer Health Reimbursement Arrangement (QSEHRA).
Self-insurance is a type of insurance arrangement whereby employers essentially acts as an insurance company offering health coverage to their employees but at the expense of the employers. Many small and medium-sized businesses adopt self-insurance, and employers can protect themselves with an additional health policy known as stop-loss insurance against expensive insurance claims by their employees.
Small businesses having between one and 50 full-time employees can opt for getting their employees insured through SHOP. Under SHOP, employers must offer health coverage to all of their full-time employees and 70-percent of them must apply to be part of the plan. SHOP allows employers to offer different coverage options to their employees -- older workers may need more coverage than younger ones.
QSEHRA is not a type of conventional group health insurance. Rather, it is suitable for small business owners that do not provide their employees with health coverage. With QSEHRA, employers contribute to their employees’ health insurance, providing them with non-taxed reimbursement of certain types of healthcare expenses. Unlike SHOP, QSEHRA has no participation requirement.
Why offer health insurance to your employee(s)?
Many small business owners having less than 50 full-time employees provide -- although not required by the law -- their workforce with health coverage. If you run a small business, offering health insurance to your employees helps you maintain and retain a workforce that is loyal to you.
Moreover, small businesses that purchase health insurance through Covered California for Small Business and meet certain requirements are eligible for a federal tax credit. Some other insurance plans also provide tax-reduction benefits, such as Health Saving Accounts (HSAs) and Flexible Spending Arrangement (FSAs).
A Health Saving Account is like a personal savings account that allows the member -- or the employer -- to contribute money to the account while the money is set aside to help the member pay for some approved medical expenses. The biggest advantage that comes with HSAs is that the money saved is essentially tax-free.
Whereas, a Flexible Spending Arrangement works like a HSA but it is set up by an employer for an employee. Employers and employees can both contribute money to the same account, and like HSA, funds saved in FSAs are also tax-free.
Last but not least, employer-paid insurance premiums are exempt from payroll and federal income taxes, helping employers reduce their tax liabilities. If you are planning to offer health coverage to your employees, you should compare all the available plans -- offered by both Covered California and a third-party insurance broker, establish a tax-reduction strategy and find the one that most suits your business needs.