Does My Company Need Group Health Insurance?

Does My Company Need Group Health Insurance? Legal Requirements and Competitive Hiring Advantages

Why I Wrote This Guide

If you run a small business, you have probably asked yourself this question: “Does my company need group health insurance?” I have asked it too. It is one of the biggest choices a business owner makes. It touches your budget, your taxes, your hiring, and the people who work for you.

Here is the short answer. If you have fewer than 50 full-time workers, the law doesn’t require you to offer health insurance. If you have 50 or more, you can face big fines if you don’t. But the law is only part of the story. Many small companies offer coverage anyway because it helps them hire and keep good people.

In this guide, I will walk you through everything in plain words. You will learn:

1. What the law says about group health insurance
2. How to count your workers the way the IRS does
3. What the fines look like in 2026
4. Why many small businesses offer health plans even when they don’t have to
5. What group health insurance costs
6. Tax breaks that can lower your bill
7. Cheaper options that work like group health insurance
8. Answers to common questions
9. A simple checklist to help you decide

Let’s start with the question most owners care about first: Am I breaking the law if I don’t offer it?

Does the law require Group Health Insurance?

The rule comes from the Affordable Care Act, which most people call the ACA. The ACA includes something called the employer mandate. You may also hear it called “employer shared responsibility.” It sounds fancy, but the idea is simple.

The rule splits businesses into two groups:

• Small employers have fewer than 50 full-time workers (or full-time equivalents). They do not have to offer health insurance. There is no federal fine for skipping it.
• Applicable large employers (ALEs) have 50 or more full-time workers (or full-time equivalents). They must offer affordable health coverage to at least 95% of their full-time workers and their children. If they don’t, they can owe the IRS a fine.

So if you have 12 people on your team, you can decide. If you have 75, the choice is mostly made for you.

A few more things I want you to know: Under the ACA,

• “Full-time” means 30 hours a week or more. That is lower than many people think. It also works out to 130 hours a month.
• Spouses don’t count for the rule. Large employers must offer coverage to workers’ children up to age 26, but not to spouses.
• State rules can add more. Hawaii, for example, has its own law that makes most employers offer health coverage to people working 20 or more hours a week. A few other places, like Massachusetts, California, New Jersey, Rhode Island, and Washington, D.C., require residents to have health coverage, which can make your workers care more about what you offer. Always check your state.

The tricky part is counting. Many owners think they are “small” when they are not. Let me show you how to count correctly.

How Do I Count My Employees?

The IRS doesn’t just count heads. It counts full-time employees plus full-time equivalents, or FTEs. Part-time hours add up. Here is how I do the math, step by step:

1. Count your full-time workers. These are people who work 30 or more hours a week (130 or more hours a month).
2. Add up all part-time hours for the month. Take every worker who averages under 30 hours a week. Add their monthly hours together. Don’t count more than 120 hours for any one person.
3. Divide that total by 120. This gives you your FTEs. Drop any fraction, so 7.8 becomes 7.
4. Add full-time workers and FTEs. That is your number for the month.
5. Do this for all 12 months of last year. Add the 12 numbers and divide by 12. If the average is 50 or more, you’re a large employer.

A simple example

Let’s say I own a bakery. Last year, each month looked about the same:

• 40 full-time bakers and cashiers
• 20 part-time workers who each worked 72 hours a month

The part-time hours are 20 × 72 = 1,440 hours. Then 1,440 ÷ 120 = 12 FTEs. Add 40 + 12, and I get 52. Even though only 40 people work full time, my bakery is a large employer. I need to offer coverage or face fines.

Watch out for these mistakes.

• Forgetting related companies. If you own more than one business, the IRS may count them together as one employer.
• Ignoring seasonal workers. Seasonal workers have a special rule. If you only go over 50 for 120 days or less in a year, and the extra workers were seasonal, you may still count as small.
• Guessing. Use your payroll records. Your payroll provider can often run this report for you.

What Happens If a Large Employer Doesn’t Offer Coverage?

If you are a large employer and you skip coverage, the IRS can charge you a fine. Fines increased significantly for 2026. There are two kinds, often called Penalty A and Penalty B.

Source: IRS 2026 adjustments via Thomson Reuters

What does Penalty A look like in real life?

Go back to my bakery with 40 full-time workers. If I offer no plan and even one worker gets a Marketplace tax credit, the math is:

(40 − 30) × $3,340 = $33,400 for the year.

Notice the fine is based on all full-time workers (minus 30), not just the one who got the tax credit. That is why people call it the “sledgehammer.”

What counts as “affordable” in 2026?

For 2026, coverage is affordable if the worker’s share of the cheapest single plan is no more than 9.96% of their household income. Since you don’t know a worker’s household income, most employers use a “safe harbor.” The simplest one is to keep the worker’s cost under 9.96% of their W-2 pay or their hourly rate times 130 hours.

A quick heads-up for 2027

The fines keep climbing. For plan years starting in 2027, Penalty A rises to $3,780 a year. If you are near 50 workers, plan now.

7 Reasons Small Businesses Offer Health Insurance Anyway

This surprises a lot of owners. Even though small companies don’t have to offer coverage, many do. In KFF’s 2025 survey, 59% of firms with 10 to 199 workers offered health benefits. Here is why I think so many owners say yes.

1. It helps you hire. Good workers have choices. When two jobs pay about the same, the one with health insurance usually wins. If your competitors offer it and you don’t, you may lose great people before you even meet them.
2. It helps you keep people. Hiring and training a new worker costs a lot of time and money. People are less likely to leave a job that covers their doctor visits and their kids’ checkups.
3. Healthy workers do better work. When people can see a doctor early, small problems stay small. That means fewer sick days and less stress about medical bills.
4. It’s a tax break. The money you pay toward your workers’ premiums is usually a business expense you can deduct. And your workers don’t pay income tax on it. A $500 raise gets taxed; $500 toward health insurance usually doesn’t.
5. Group plans can be easier for your workers. Your team doesn’t have to shop for plans on their own. Many find the Marketplace confusing. A group plan makes it simple.
6. It covers you, too. As the owner, you can join the plan. That can help a lot if you are buying your own coverage now.
7. It shows you care. This one is hard to measure, but it matters. Offering health insurance tells your team you want them to be okay, at work and at home.

Are there downsides?

Yes, and I want to be honest about them:

• Cost. Premiums go up most years. You need room in your budget.
• Paperwork. You’ll handle enrollment, changes, and some forms. A good broker helps a lot.
• Participation rules. Many insurers want a set share of eligible workers, often around 70%, to sign up. Ask your insurer what theirs is.
• Hard to take back. Once you offer a benefit, cutting it can hurt morale.

How Much Does Group Health Insurance Cost?

This is the big question for most of us. The best numbers come from KFF’s yearly survey of employers. Its newest results cover 2025. Here is what a year of coverage costs, on average, at firms with 10 to 199 workers:

Source: KFF 2025 Employer Health Benefits Survey

That is the total premium. You and your workers split it. Across all firms, workers paid about 16% of single premiums and 26% of family premiums. At small firms, workers with family coverage paid about $8,889 a year on average.

There is good news, too. You get to choose how much you pay. Some owners pay 100% of the worker’s share. Others pay 50%. The insurer usually sets a minimum, often 50% of the single premium.

What changes the price?

Your quote depends on a few things:

• Where you are. Health care costs more in some cities and states.
• Your workers’ ages. Older workers cost more to cover.
• The type of plan. PPOs cost more. HMOs and high-deductible plans cost less.
• The deductible. A higher deductible means a lower premium, but workers pay more when they get care. At small firms, the average single deductible was $2,631 in 2025.
• How many people join? Covering families costs much more than covering only workers.

A quick budget example

Say I have 10 workers, all on single coverage, and I pay 75% of a $9,211 premium. That’s about $6,908 per worker, or $69,080 a year. Premiums also tend to rise each year, so I plan for increases. I always get real quotes, because my numbers could be much higher or lower than the average.

Tax Breaks That Can Lower Your Cost

The sticker price of group health insurance is not what you really pay. Tax breaks can take a big bite out of it. Here are the main ones I look at.

1. Premiums are a business deduction

The part of the premium your company pays is usually a deductible business expense. That lowers your taxable profit. Your workers’ share can often be paid with pre-tax money, too, through a simple “Section 125” plan. That saves both of you on payroll taxes.

2. The Small Business Health Care Tax Credit

This is a credit, not just a deduction, so it cuts your tax bill dollar for dollar. Here are the basics for 2026, based on healthinsurance.org’s summary of IRS rules:

• Up to 50% of what you pay toward premiums (35% for nonprofits)
• Fewer than 25 full-time equivalent workers
• Average yearly wages under $68,200 in 2026
• The biggest credit goes to firms with 10 or fewer FTEs and average wages of $34,100 or less
• You pay at least half of the premium for single coverage
• You buy through SHOP, the Small Business Health Options Program
• You can claim it for two years in a row, and that’s it

There’s a catch I need to mention. SHOP plans aren’t sold in much of the country anymore. If there’s no SHOP plan where you are, you may not be able to claim the credit. Check HealthCare.gov or your state’s Marketplace before you count on it. You claim the credit on IRS Form 8941.

3. HSAs for high-deductible marketplace plans

If you choose a high-deductible health plan, you and your workers can contribute to a Health Savings Account (HSA). The money goes in tax-free, grows tax-free, and comes out tax-free for medical costs. Your contributions are deductible, too.

I am not a tax professional, and tax rules change. Talk with your accountant before you count on any of these savings.

Alternatives to a Traditional Group Plan

Maybe a full group plan feels like too much right now. That’s okay. You have other ways to help your team pay for health care. Here are the ones I’d look at first.

1. QSEHRA (for businesses under 50)

A QSEHRA (people say “Q-Sarah”) lets you give each worker a set amount of money each month. They buy their own health plan, and you pay them back tax-free. You pick the amount, up to these 2026 limits:

• $6,450 a year for a worker on their own ($537.50 a month)
• $13,100 a year for a worker with a family

Source: WEX summary of IRS 2026 limits

This works well when you want a fixed, predictable cost. One thing to know: the money you give may lower a worker’s Marketplace tax credit.

2. ICHRA (for any size business)

An ICHRA (“Ick-ra”) works a lot like a QSEHRA, but there’s no dollar cap. Any size business can use it. You can also give different amounts to different groups of workers, like full-time and part-time. For large employers, an ICHRA can count as an offer of coverage under the ACA if it’s set up to be affordable.

3. A health stipend

You can add money to paychecks for health costs. It’s easy, but the money is taxed like normal pay. It also doesn’t count as offering coverage for large employers.

4. A PEO

A Professional Employer Organization (PEO) handles HR and payroll for many small companies at once. Because they pool lots of workers together, they can sometimes get you big-company health plans at better prices.

5. Level-funded plans

These are a middle ground between a regular plan and paying claims yourself. You pay a set monthly amount. If your team has a healthy year, you may get some money back. They’re getting more popular with small businesses.

Which one fits?

Frequently Asked Questions

These are the questions I hear most from business owners.

Do I need group health insurance if I have fewer than 50 employees?

No. Under federal law, you don’t have to offer it. Just be sure you count full-time equivalents, not just full-time workers. Also check your state’s rules.

Can I offer health insurance to some workers but not others?

Yes, within limits. You can set fair, job-based rules, like covering full-time workers but not part-time workers. You can’t pick and choose based on someone’s health, and many plans don’t let you favor owners or higher-paid workers. Large employers must still cover at least 95% of full-time workers.

What is the smallest company that can get group health insurance?

In many states, a business with just one worker who isn’t the owner or the owner’s spouse can buy a small group plan. Rules vary by state and insurer, so ask a broker.

Do I have to cover my workers’ families?

Small employers don’t have to. Large employers must offer coverage to workers’ children up to age 26. Neither has to cover spouses, though many do.

Can my workers turn down the coverage?

Yes. A worker can say no, maybe because they’re on a spouse’s plan. But remember, many insurers require a minimum share of workers to enroll.

When can I start a group health plan?

Small businesses can usually start a group plan at any time of year. Many insurers ease their sign-up rules from November 15 to December 15 each year. That makes late fall a great time to start.

Does offering group health insurance affect my workers’ Marketplace tax credits?

It can. If you offer affordable coverage that meets minimum value, your workers usually can’t get Marketplace tax credits. That’s normal.

Is it cheaper to give workers a raise instead?

Often not. A raise is taxed for both you and the worker. Money you put toward health premiums usually isn’t. So $1 toward insurance often goes further than $1 in pay.

A Simple Checklist to Help You Decide

When I help an owner decide, I walk through these steps in order:

• Count your workers the IRS way. Add full-time workers and FTEs for each month of last year, then average them.
• If you’re at 50 or more, plan to offer affordable, minimum-value coverage to at least 95% of full-time workers and their kids.
• If you’re under 50, decide if you want to offer coverage to hire and keep good people.
• Check your state’s rules, especially if you’re in Hawaii.
• Set a budget. Decide how much you can pay per worker each month.
• Ask your team what they want. A quick survey can save you from buying a plan nobody uses.
• Get quotes for a group plan, a QSEHRA or ICHRA, and a PEO if you’re curious.
• Ask your accountant about deductions and the Small Business Health Care Tax Credit.
• Talk to a licensed broker. Most don’t charge you, because the insurer pays them.
• Pick a start date and tell your team early.

The Bottom Line

So, does my company need group health insurance? Here is how I’d sum it up:

• If you have 50 or more full-time workers (counting FTEs): Yes, you basically need to offer affordable coverage. Skipping it could cost you $3,340 per full-time worker in 2026, minus the first 30.
• If you have fewer than 50: No, the law doesn’t require it. But it may still be one of the smartest moves you can make for your business.

Health insurance is one of the strongest tools you have to attract and keep great people. It also comes with real tax savings. And if a full group plan is too much right now, options like a QSEHRA or ICHRA let you start small.

My advice? Don’t decide based on fear or guesswork. Count your workers, know your budget, and get real quotes. Then pick the option that’s best for your team and your business.

Why choose Steve Turner Insurance Specialist?

Because I’m an “Insurance Specialist.” An “insurance specialist” is a broad term that includes insurance agents and insurance brokers, but the key difference is who the agent represents versus who the broker represents.

An “insurance agent” works directly for an insurance company and sells its specific policies to clients.

An “insurance broker” acts as an independent intermediary, comparing policies from multiple companies to find the best fit for their client’s needs, essentially representing the client rather than the insurance company.

I am both a licensed Insurance Agent and a licensed Insurance Broker.

My number one goal in life is to help people and ensure, without a shadow of a doubt, that you and your family are secure and protected. I will always be by your side, helping you mitigate risk by providing the industry’s best and most affordable insurance solutions.

I will find insurance plans for the entire family to help cover whatever life throws at you. I can help you save on severe medical emergencies, find a health insurance plan with low- or no-cost doctor visits and affordable prescription medications, and protect your family in the event of an unexpected accident or illness.

Best of all, it doesn’t cost you anything extra to use an experienced Insurance Agent and Broker like me to help you find the Insurance Plans that fit your individual, family, or business needs.

The companies that sell the insurance plans “you choose“ pay me – you don’t pay me. Calling any big insurance company directly won’t get you a lower price, as they will forward your call to the next available insurance agent on their list. You won’t have had any opportunity to learn about the insurance agent you’re speaking with in advance, understand their qualifications or experience level, or make an informed choice about who you want to work with.

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