First group health plan: participation and contribution rules

To start a small group health plan, most carriers want three things: a minimum share of your eligible employees enrolled, a minimum employer contribution toward employee-only coverage, and at least one enrolled employee who isn’t an owner or an owner’s spouse. The exact minimums vary by carrier and by market, so treat any percentage you hear as one carrier’s rule, not a universal one.

How does the participation minimum work?

Carriers start with your eligible employees, meaning the people your plan will offer coverage to under the rules you set, such as working a minimum number of hours a week. They set aside employees who waive because they have other qualifying coverage. Then comes the percentage. A set share of the remaining employees has to enroll.

Say you have 14 people on payroll. Two work part-time and aren’t eligible under your plan’s rules, so 12 are eligible. Four of those are covered through a spouse’s job and sign waivers, leaving 8. If the carrier you’re quoting asks for 70 percent participation, you need 6 of those 8 enrolled, because 70 percent of 8 is 5.6 and you can’t enroll part of a person.

Employees who decline without having other coverage usually stay in the count. That’s why a group where several people simply don’t want the plan can fall short, even when everyone else signs up. Your contribution is the main lever.

Which waivers count?

A waiver is the form an employee signs to decline your plan. Most carriers accept a waiver as valid when the employee has other qualifying coverage, such as a spouse’s or parent’s job-based plan, Medicare, Medicaid or military coverage. Individual Marketplace plans are a gray area. Carriers treat them differently, so ask. Get a signed waiver from every eligible employee who declines, with the other coverage named on it.

Warn employees about one catch. If your plan counts as affordable for them, they generally can’t get a Marketplace premium tax credit instead, even if they turn your plan down. Our enrollment help pages explain waivers in plain English for the person filling in the form.

How much do you have to contribute?

Carriers also set a minimum employer contribution, usually a percentage of the employee-only premium. Family coverage isn’t the measure. Say the carrier you pick asks for half of the employee-only premium: you can meet that by paying exactly half of each employee’s own premium and nothing toward dependents, and employees who add family members pay the rest through payroll. The actual percentage varies by carrier and market, so confirm it before you set a budget.

How you contribute matters at renewal. A percentage contribution moves with the premium. A fixed dollar amount stays put, leaves employees to absorb any increase, and can slip under the carrier’s minimum percentage when premiums rise, so check it at every renewal.

Why doesn’t an owner-only business qualify?

A group plan needs employees, and owners don’t automatically count. Most carriers look for at least one enrolled employee who isn’t an owner or an owner’s spouse. Under federal rules, a business owned by one person, or by a married couple, with no one else on the payroll generally isn’t treated as having employees for a group plan, and partners aren’t employees of their own partnership for this purpose either. Contractors don’t count. A business like that usually buys individual coverage instead.

That one employee also carries risk. If your only non-owner employee leaves and no one like them is enrolled, the group may no longer qualify, and the carrier can end the plan. A two- or three-person business should know that before it signs up.

When can coverage start?

Pick your start date first. Small group coverage can start on the first of any month. Federal rules set the outer limit: when a carrier receives a complete group enrollment between the 1st and the 15th of a month, coverage has to take effect by the first of the next month, and an enrollment received later in the month has to take effect by the first of the month after that. Carriers set their own paperwork deadlines inside those limits, and the first premium is usually due before the start date.

New hires can have a waiting period before their coverage starts, but federal rules cap it at 90 days. Common choices are the first of the month after the hire date, or after 30 or 60 days.

What if you can’t meet the minimums?

There’s still a way in. Carriers can hold groups that miss their participation or contribution rules to one enrollment period a year, from November 15 through December 15, but they can’t turn a group away for missing those minimums during it. Coverage from that window starts by January 1.

If you can’t meet a carrier’s minimums and it’s already fall, plan around that window. Get your census and waivers together early so the application is complete when it opens.

Is small business health insurance tax deductible?

Generally, yes, for what the business pays. Premiums a business pays toward employees’ coverage are usually a deductible business expense, and employees’ share can often come out of pay before tax through a cafeteria plan. Owners are different, because how your own premiums are treated depends on how the business is taxed. Very small employers with lower average wages can sometimes claim the small business health care tax credit, but only for coverage bought through the SHOP Marketplace and only for two consecutive years. Check all of it with a tax professional before you set your budget.

What should you settle before asking for quotes?

Each of these changes what carriers can offer you:

1. Who is eligible: the hours an employee has to work, and the waiting period for new hires.
2. What you’ll contribute toward employee-only coverage, and whether you’ll pay anything toward dependents.
3. Which employees have other coverage and will sign waivers.
4. Your target start date and the carrier’s paperwork deadline for it.
5. Payroll records showing at least one employee who isn’t an owner or an owner’s spouse.
6. A census with each employee’s date of birth or age, home ZIP code, coverage tier and employment status, plus ages for any dependents who will enroll.

Names aren’t needed for quotes. When your census is ready, you can drop it on our group health page, or start with a few details about your group and send the census after. For the admin work that follows, like open enrollment and compliance deadlines, see what’s included in our Concierge services.