There’s a wide variety of health insurance plans out there today. You have options like Individual or Family plans, group plans offered through work, and even plans sponsored by the government, including Medicare, CHIP, Medicaid (or Medi-Cal in California), and the FEHBP.

As a business owner, you might wonder about your options for providing health insurance to your employees. You might ask, “Is it mandatory to offer group health insurance?” The short answer is “no,” but we’ll dive deeper. Or you might question, “Does the Affordable Care Act (ACA) or the California Mandate require me to pay for employee health insurance?” For the ACA, it varies. Regarding the California Mandate, the answer is also “no.”

Let’s look at how group and individual health insurance differ and expand on the answers.

1: What is group health insurance?

Group health insurance is coverage that employees get through their employers. Typically, the cost of such coverage is shared by the employer and employee. In fact, according to the KFF 2023 Employer Health Benefits Survey, covered workers contributed 17% of the premium for single coverage and 29% of the premium for family coverage. That’s across all group sizes.

Sometimes it’s health insurance only for the employee (no spouse or dependents). It might be family coverage, which covers the employee and dependents.

Under the Affordable Care Act (ACA) Shared Responsibility Provisions, some employers must offer health insurance to employees. This “employer mandate” says businesses with 50 or more full-time and/or full-time equivalent (FTE) employees must offer health insurance. These are Applicable Large Employers (ALEs). Full-time is defined as an employee working 30 hours or more weekly.

The ACA employer mandate says health insurance must be offered to eligible employees and their children (up to age 26). If you don’t offer “affordable” coverage with “minimum value,” you are subject to potential penalties. Minimum value means the plan’s share of the total average cost of covered services is at least 60% — the same as Bronze level coverage.

For guidance on determining if your business is an ALE, use the Full-Time Equivalent Employee Calculator on the HealthCare.gov website.

KFF says almost 153 million Americans got their health insurance through an employer-sponsored plan in 2023. That amounts to a little more than half of employees, or 53%. However, not all groups may be eligible for group coverage because of minimum employer contribution or employee-participation ratios set by insurers.

Another option to consider is a Health Reimbursement Arrangement (HRA). A Qualified Small Employer HRA (QSEHRA) is a controlled-cost alternative for employers with fewer than 50 full-time equivalent employees.

It gives you a fixed cost – with no annual rate hikes. And, if your workers don’t use their full allowance by the end of the year, funds go back to your organization.

2: What is individual health insurance?

In contrast, individual health insurance is coverage typically acquired apart from an employer. The insurance can be purchased directly from an insurance company, through a state or federal exchange (like Covered California), or through a third-party like a broker or private online marketplace.

Individual health coverage that is ACA-compliant is generally more expensive than group health coverage. That is because the buyer is typically not sharing the cost, but instead is paying the premium personally. If coverage is bought through an ACA public exchange, the insured could be eligible for an ACA premium subsidy based on his/her/their income. For information on subsidies, visit the healthinsurance.org website.

3: What’s required by the Affordable Care Act (ACA)?

Whether the ACA requires your business to offer health insurance coverage to employees is based on group size. If your business qualifies as an Applicable Large Employer, not only do you have to offer health coverage to employees, but it must also be affordable and offer minimum value.

In 2024, a job-based health plan is considered “affordable” if your employee’s share of the monthly premium (in the lowest-cost plan offered by the employer) is less than 8.39% of household income.

The plan must also meet the minimum value standard set in the ACA. (This affordability is based on only the premium the employee pays for self-only/individual coverage.) If an employee is offered job-based coverage through a household member’s job, affordability is based on the premium amount to cover everyone in the household. Total household income includes incomes from everybody in the household who’s required to file a tax return.

If the premiums for your plan are not considered affordable, you could be subject to an ACA penalty. For more on minimum value and affordability, visit the IRS website.

4: Does the California Mandate Apply to Employers?

It does not. The California health care mandate has no impact on employers. It only affects individual taxpayers in California. If your business employs fewer than 50 employees, you are not required to offer health insurance – under federal or state regulation. However, there may be other business reasons why you would consider employee benefits for your organization.

These include the tax deductibility of health insurance benefits and increased worker morale. Health insurance and other benefits are also an effective tool in helping you recruit new workers. Not offering benefits can put you at a disadvantage for employee retention.

For tax year 2023 (paid in 2024), if an individual/family does not have an exemption, the penalty is $900 per adult and $450 for dependent children under 18. A family of four earning less than $142,000 without insurance for a full year faces a penalty of $2,700. Those with greater incomes face a possible percentage of family income penalty based on tax-filing status and number of dependents. Visit the State of California Franchise Tax Board web page for more information.

5: How can you learn about options for your group?

Talking with an employee benefits broker is a great way to learn about your options. Using a broker can save you time and money. Your broker can help you narrow your choices if you’re not sure if you want to offer group health insurance. Or whether an HMO, PPO, EPO, or other plan is best for you and your employees. Talking with a broker won’t cost you anything. Your broker can answer your questions about benefits budgeting, provider networks, and more.

If you don’t have a broker, we make it easy to search for one.