What is the minimum number of employees for group health insurance?

The question comes up most often from businesses of two or three people: are we big enough for a group plan? Usually the answer is yes, as long as at least one of you is a genuine employee rather than an owner.

The one-employee rule

Group health insurance exists to cover employees. In most states, a small group plan needs at least one eligible employee on payroll who is not an owner, partner or the spouse of one. A sole proprietor with no staff, or two spouses who own the business together, usually cannot buy a small group plan and would look at individual cover instead.

Healthcare.gov puts the SHOP Marketplace rule this way: an employer qualifies if it has 50 or fewer full-time equivalent employees and offers cover to all full-time employees, and at least one common-law employee must be enrolled. Carriers selling outside SHOP generally follow similar lines, with some state differences.

Who counts as an employee

Rules vary by carrier and state, but as a guide:

• W-2 employees working the carrier’s minimum hours (often 30 a week) count.
• Owners can usually join the plan, but do not count towards the one-employee minimum.
• 1099 contractors are not employees and generally cannot be covered.
• Part-time staff may be offered cover at the employer’s choice, but often do not count for participation.

Participation: the second minimum

Once you are eligible, the carrier will ask what share of your eligible employees will enroll. This is the participation requirement, and it stops a plan from covering only the people who expect to use it.

Many carriers look for around 70% of eligible employees, though the figure varies. Employees who decline because they have other cover, such as a spouse’s plan, Medicare or Medicaid, are often treated as valid waivers and left out of the count. A broker can tell you how each carrier counts.

There is one useful exception. Each year, from November 15 to December 15, small employers can enroll in a SHOP plan without meeting the minimum participation rate, according to CMS. That window can help a very small team where one person already has cover elsewhere.

What changes as you grow

The minimum gets you in. After that, the federal rules that apply depend on headcount:

Sources: Department of Labor on COBRA, IRS tax credit page and IRS on applicable large employers. Each rule counts employees in its own way, so ask an accountant to check your numbers. Our homepage has a headcount table that sets the rules side by side.

Full-time equivalents

For the ACA employer rules, part-time hours are added up and converted into full-time equivalents. A business with 40 full-time staff and 30 part-timers working 60 hours a month each could reach 50 on that measure. The tax credit uses a different conversion (2,080 hours a year per full-time equivalent). It is worth doing the sums before you reach either line.

What a very small business can do instead

If you do not meet the minimum, or the participation rule is hard to meet, a few alternatives exist:

• Individual plans for each owner, bought on the Marketplace.
• A QSEHRA, which lets an employer with fewer than 50 full-time employees and no group plan reimburse employees’ individual premiums tax-free, up to an annual limit.
• An ICHRA, a similar arrangement with no size limit and no cap on the allowance.
• A PEO, which can put small employers into a larger pooled plan. We compare that route in PEO vs broker.

The short version for a business of two to five

If you have at least one employee who is not an owner, you can probably buy a small group plan. Expect the carrier to ask most eligible staff to enroll, or to waive with a reason. Think about what you want to contribute, because many carriers ask the employer to pay at least half of employee-only cover. Then ask a licensed broker to check the carriers in your state; our small group health insurance page explains how those plans are rated.

This is general information, not insurance, tax or legal advice. A licensed broker can confirm what applies to your business, and the form below will get you a name.