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When offering group Insurance makes sense

If you're a small employer, should you offer your employees health insurance? There's no right answer—it really depends on your recruitment and retention needs and the composition of your workforce. Consider these factors to help guide your decision.

Employers with less than 50 full-time employees are not required to provide health insurance. The government defines full-time employees as those who worked on average at least 30 hours a week for more than 120 days in a year—or the number of employees you expect to work those hours.1

The Affordable Care Act allows employees to obtain health insurance on government-run public exchanges. These healthcare marketplaces enable individuals to purchase individual and family insurance, sometimes with income-based subsidies. But that doesn't mean employer-sponsored insurance isn't a sound option for your company. In some cases, it's a definite plus.

The Benefits of Offering Insurance

In a competitive job market with stagnant wages, offering benefits can be a great way to both attract and retain workers.2 In fact, a study found that employees consider health insurance more important than any other benefit.3

The Affordable Care Act offers small businesses healthcare tax credits to help offset insurance costs, and knowing that employees are insured also gives employers peace of mind. 4 Sick workers who don't seek treatment suffer, their work suffers as they try to muddle through, and morale can suffer too and colleagues step in to pick up the slack. That can cost companies valuable time and money.

Consider Workforce Demographics and Needs

For companies with workers on the low or high end of the age scale, employees may fare better with individual coverage.

More people are continuing to work past age 65, which means they're eligible for Medicare benefits and don't need an employer-sponsored plan. For higher-income workers Medicare premiums are adjusted upward, but they're still able to obtain the insurance.5 On the opposite end of the scale, young workers often net lower premium rates on a public exchange, where they can choose a plan that best fits their needs and their pocketbooks. Income also makes a difference. Low-wage workers can qualify for subsidies for monthly premiums on a public exchange, and may get a better deal there than they would from an employer-sponsored plan.6

However, employer-sponsored insurance is an important competitive benefit for highly-skilled workers who are in great demand. These workers are hard to find, and once you spend your resources finding them and training them, you don't want to risk losing them. Replacement costs are high—entry-level employees, they average 30 to 50 percent of employee salary. For mid- and senior-level workers, the replacement cost zooms to 150 percent or more.7

Planning Ahead Prevents Problems

Employers should assess their growth when considering health insurance options, especially those with close to 50 employees—the magic number when employers need to start providing insurance. So ask, how do you plan to grow in the coming months, year -- or years? Will you be bringing on additional staff, or hiring for positions that are more difficult to fill? In other words, should you start insurance shopping now? (Don't worry about seasonal workers throwing you over the limit—the government makes an exception for them as long as they work for 120 days or less per year.)

Assess the Needs of the Business and Employees

Employer-sponsored coverage might not make sense for all small businesses, but for some, it can offer a significant competitive advantage. Making a decision requires a careful assessment of the needs of both your business and your employees. And don't forget to factor in intangibles—offering insurance will be seen by employees as good will on your part, even if they ultimately decide not to take advantage of it.

Talk to your accountant.

1 “Questions and Answers on Employer Shared Responsibility Provisions Under the Affordable Care Act"; IRS; May 20, 2015.

2 “Benefits Take on New Importance in Recruiting and Retaining Employees, SHRM Survey Finds"; Society for Human Resource Management (SHRM); October 15, 2015.

3 “What Employee Benefits Matter Most to Job Seekers?”; Monster Insights; 2015,

4 “Reasons to Purchase Group Coverage"; Small Business Majority; 2015.

5 “Medicare Premiums: Rules for Higher-Income Beneficiaries"; Social Security Administration; 2015.

6 Sprung, Andrew; “Cost-Shifting to Cost-Sharing: Small Business Health Maneuvers"; Society for Human Resource Management; April 1, 2015.

7 Borysenk, Karlyn; “What Was Management Thinking? The High Cost of Employee Turnover"; ERE Media; April 22, 2015.

This material is for informational purposes only. It is not intended or written to be used, and it cannot be used, as legal advice or a legal opinion. It should not be relied upon in lieu of consultation with your own legal advisors. Insurance and tax laws and interpretations of those laws are complex and subject to change. None of the information herein is intended or written to be used, and it cannot be used, for the purpose of avoiding taxes or penalties that may be imposed.

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