California Small Business Health Insurance

Small-group health insurance can help California employers attract and retain employees, provide tax-efficient compensation and protect owners, employees and their families from major medical expenses. California’s small-group health insurance market generally serves employers with 1 to 100 employees. Most businesses with fewer than 50 full-time-equivalent employees are not required to offer health insurance, but many voluntarily provide it as an important employee benefit. See the California Department of Insurance small-employer guide and Covered California’s employer-mandate explanation.

A traditional group plan is not automatically the best answer for every business. Eligibility, employer contributions, employee participation, provider networks, tax treatment and possible Covered California subsidies should all be reviewed before selecting coverage. We help California employers compare traditional small-group plans, Covered California for Small Business, ICHRA, QSEHRA and other available approaches.

Get California Small Group Comparisons – Quotes

Why Would a Small Employer Offer Health Insurance?

A small employer may offer health insurance even when the law does not require it. A well-designed benefits package can help the business compete for employees while allowing the employer to decide how much it will contribute toward coverage.

• Recruit qualified employees. Health benefits can make the total compensation package more competitive.
• Retain experienced employees. Employees may be more likely to remain with a company that helps protect them and their families.
• Provide tax-efficient compensation. Employer-paid health coverage is generally excluded from an employee’s taxable income under Internal Revenue Code Section 106. The employer’s qualifying cost may generally be deductible as a business expense under Section 162, subject to the business entity and tax rules.
• Allow employees to contribute pre-tax. Under a properly established Section 125 Premium Only Plan, eligible employee premium contributions may generally be deducted from payroll before federal income taxes are calculated.
• Control the employer’s contribution. The employer can establish a defined contribution toward employee coverage, subject to carrier and participation requirements.
• Offer valuable coverage without medical underwriting. Eligible small groups generally cannot be declined or charged more because an owner or employee has a medical condition.
• Apply during the year. An eligible employer can generally establish small-group coverage without waiting for the individual health insurance open-enrollment period.

Tax treatment differs for sole proprietors, partnerships, corporations and more-than-2% S corporation shareholders. Employers should review the final arrangement with their tax professional.

Benefits for Owners, Employees and Their Families

• Protection from major medical expenses. Coverage helps protect against the cost of hospitalization, surgery, cancer treatment, prescriptions and other covered medical care.
• Negotiated provider rates. Members generally receive the health plan’s negotiated prices when using participating doctors, hospitals and other providers.
• Preventive and routine care. Employees can establish relationships with doctors and obtain covered preventive services before a condition becomes an emergency.
• Coverage for eligible family members. Employees may generally enroll eligible spouses, registered domestic partners and dependent children.
• Additional plan and network choices. Depending on the carrier and location, group coverage may offer HMOs, PPOs or provider networks that differ from those in the individual market.
• Employer help with premiums. The employer may pay part or all of the employee premium and may also contribute toward dependent coverage.
• Peace of mind. Owners and employees know that coverage is in place if someone becomes ill or is injured.

Group insurance is not always less expensive than individual coverage. Employees who qualify for substantial financial assistance through Covered California may pay less through the individual market. An offer of affordable employer coverage may also affect an employee’s eligibility for a Covered California premium tax credit. See our explanation of employer coverage, affordability and family subsidies.

Does Your Business Qualify for Small-Group Coverage?

California regulates small-group health coverage for employers with 1 to 100 employees, but simply owning a business does not automatically make the business eligible. The carrier will review the business structure, employees, payroll and supporting documentation.

• Review the legal definition of an eligible small employer.
• The business generally needs at least one bona fide common-law employee who is not the owner or the owner’s spouse.
• Review which workers qualify as eligible employees.
• Independent contractors receiving Form 1099 generally do not establish group eligibility merely because they perform work for the business.
• An owner-only business or a business covering only an owner and spouse generally does not qualify as a small group without another eligible employee.
• The carrier may require proof that the company is actively in business.
• The carrier may also require proof of business ownership, payroll records, tax documents or state filings.

For Covered California for Small Business, the employer generally must have 100 or fewer full-time-equivalent employees, at least one W-2 employee who is not the owner or the owner’s spouse, and the majority of eligible employees must work in California. See the official Covered California eligibility guidelines.

Employer Contributions, Employee Participation and Enrollment

Most carriers require the employer to contribute toward employee premiums and require a certain percentage of eligible employees to enroll or have other valid coverage. These rules vary by carrier, plan and purchasing arrangement.

• Review the normal participation and employer premium contribution requirements.
• Employees with other qualifying coverage may be able to waive the group plan without counting against the participation requirement.
• Employers can generally apply for eligible small-group coverage throughout the year, although carrier submission deadlines determine the available effective date.
• Employers that cannot meet the normal participation or contribution requirement may have another opportunity during the annual November 15 through December 15 enrollment period.
• Coverage obtained through that annual period generally begins January 1, and the business must still meet all other group eligibility requirements.
• Newly eligible employees may be subject to a waiting period, but the waiting period generally cannot exceed 90 days. See our employee waiting-period explanation.

The November 15 through December 15 annual enrollment opportunity comes from the federal guaranteed-availability rule in 45 CFR 147.104. Covered California for Small Business also explains the rule in its eligibility and enrollment guide.

Compare the Different Ways to Provide Health Benefits

Traditional small-group insurance is only one way to help employees obtain health coverage. The right approach depends on the business structure, employee needs, budget, available provider networks and tax treatment.

Tax Treatment of Employer Health Insurance

• The most broadly useful tax advantage of employer health insurance is not the limited small-business tax credit. It is the normal tax treatment of employer-sponsored health benefits under Sections 106, 162 and 125 of the Internal Revenue Code.
• Section 106 — Employee Income Exclusion
  • Employer contributions toward qualifying accident and health coverage are generally excluded from an employee’s gross income under Internal Revenue Code Section 106. In other words, the employer-paid premium generally is not treated like ordinary taxable wages to the employee. The IRS explains that reporting employer-sponsored coverage on Form W-2 does not make the coverage taxable. See the IRS explanation of employer-sponsored health coverage.
• Section 162 — Employer Business Deduction
  • Qualifying employer-paid health insurance costs may generally be deducted as an ordinary business expense under Section 162. The precise deduction and reporting method depends on whether the business is a corporation, partnership, sole proprietorship or another entity.
• Section 125 — Pre-Tax Employee Contributions
  • A properly established Section 125 Premium Only Plan may allow eligible employees to pay their portion of group health premiums with pre-tax payroll deductions. Section 125 requires a written plan and proper administration.
• Special Rules for Business Owners
  • More-than-2% S corporation shareholders have special W-2 and deduction rules. See our S corporation health insurance deduction page.
  • Partners and partnership members have separate reporting rules. See our partnership health insurance deduction page.
  • Sole proprietors and Schedule C business owners should review our Schedule C and self-employed health insurance page.

• Limited SHOP Tax Credit for Certain Small Employers — Section 45R
•  
• A separate federal tax credit may be available to a limited group of smaller, lower-wage employers that purchase qualifying coverage through SHOP, which in California is Covered California for Small Business.
• The Section 45R Small Business Health Care Tax Credit is not available to every small employer. General requirements include:
  • Fewer than 25 full-time-equivalent employees.
  • Average employee wages below the annually adjusted IRS limit.
  • The employer generally pays at least 50% of the employee-only premium.
  • The qualifying coverage is purchased through SHOP.
• The credit is generally limited to two consecutive taxable years.
• The maximum credit may be up to 50% of qualifying employer premium payments for an eligible taxable employer and up to 35% for an eligible tax-exempt employer, but the actual credit is reduced as employee count and average wages increase. Review the official IRS Section 45R guidance with your tax professional.
• Tax disclaimer: We explain the health insurance rules and available plan arrangements, but we are not tax accountants. Employers should confirm deductions, exclusions, credits and owner reporting with their CPA or tax adviser.

Compare California Small-Group Insurance Companies

The lowest premium is not always the best plan. The right carrier depends on the employer’s location, employee ZIP codes, employee ages, desired doctors and hospitals, prescriptions, HMO or PPO preference and the amount the employer wants to contribute.

Start with our California small-group carrier comparison, or review individual company information:

• Aetna
• Anthem Blue Cross
• Blue Shield of California
• CaliforniaChoice
• Health Net
• Kaiser Permanente
• Sharp Health Plan
• UnitedHealthcare
• Covered California for Small Business

Carrier and plan availability can change by ZIP code and rating area. Always verify that important doctors, medical groups, hospitals and prescriptions are covered before enrolling.

Compare Small-Group Plans

Popular California Small-Employer Questions

Small-group eligibility and tax treatment often depend on the business structure and employee situation. Use the following guides to find the issue that applies to your business.

View the Complete Website Sitemap

How the Small-Group Quote Process Works

Why Work With Steve Shorr Insurance?

• California licensed insurance broker with more than 50 years of insurance experience.
• Authorized to represent multiple California small-group insurance companies.
• Comparison of premiums, benefits, contribution strategies and provider networks.
• Assistance with eligibility, enrollment, administration and annual renewals.
• No additional charge for our normal broker services when we are appointed as the broker of record.
• Email and Zoom consultations are available, so you do not have to understand every rule before contacting us.

Learn More About Steve Shorr Insurance
|
Schedule a Zoom Meeting

California Small-Group Health Insurance FAQs

Click any question below to go directly to the page with more information.

• How many employees are needed for a California small-group health plan?
  
  See the rules for what qualifies as a California small employer and when a business is eligible for group coverage.
• Can a business owned only by a husband and wife obtain group coverage?
  
  Learn why an owner-and-spouse-only business generally needs at least one eligible common-law employee to qualify.
• Must the employer pay part of the employee premium?
  
  Review the normal employer contribution and employee participation requirements for small-group plans.
• Can employees select different health plans?
  
  See how employers may be able to offer different plan choices to owners and employees.
• Can a company start group coverage at any time of year?
  
  Read about year-round enrollment for eligible groups and the special annual November 15 through December 15 enrollment period.
• Is small-group insurance less expensive than Covered California?
  
  Compare traditional group coverage with Covered California for Small Business and other available options.
• Are medical questions asked when applying?
  
  ACA-compliant small-group plans are generally guaranteed issue and do not use medical underwriting.
• What information is needed to obtain quotes?
  
  Go to the quote page to see the census and business information typically needed for small-group proposals.

Get California Small Group Quotes

Questions about your particular business? Email
[email protected]