You may be surprised to learn that there are many ways that small business health insurance can help your company operate more strategically, efficiently, and effectively. Not only does a small business health insurance plan benefit employees, but employers might find that there are plenty of ways that a group plan helps them out as well. Keep reading to learn the many reasons to offer health insurance to employees.

The benefits of health insurance for employees

Exploring the advantages of health insurance for employees highlights its crucial role in promoting wellness, financial security, and overall job satisfaction.

Boosts job satisfaction

One big reason to offer small business health insurance is that it may play a significant role in helping maintain or increase employee job satisfaction.

According to a Glassdoor Economic Research survey, out of a list of 54 employee benefits, the following three basic employee benefits displayed the highest correlation with employee satisfaction:

1. Health insurance
2. Vacation/paid time off (PTO)
3. Retirement planning options like 401(k)s and pensions

Health insurance coverage topped the benefits that contribute to employee satisfaction.

Workers who are generally satisfied with their jobs often express this in positive business ways:

• More helpful, enthusiastic, and improved interactions with customers and clients.
• Greater likelihood of effective teamwork within a positive workplace environment.
• Inspiring employees to improve their skill set through further training and education.

Creating a work culture of engagement also contributes to the business’ success and profitability.

Pre-tax benefit for employees

Providing group health insurance frequently means lower monthly premiums for employees, and the amount they contribute toward premiums can generally be paid from their pre-tax salary.

Not only will your employees likely have a lower tax bill; they will also likely appreciate having access to a group health plan which may be more affordable than other coverage options.

Puts affordable health coverage within reach

Some small business owners may decide to offer a group plan in order to help put access to health insurance within reach of their employees.

According to a recent eHealth study, 26 percent of small business owners said they offered health benefits because employees couldn’t afford coverage on their own.

Implementing a group health plan for your business may help some of your employees enroll in an affordable plan they might otherwise not have access to.

Offering health coverage as an employee benefit may help your workforce feel less stressed financially and more confident in their ability to recover from a catastrophic injury or illness.

Overall, a group health plan may contribute to making insurance more affordable to a greater number of employees while also giving them the peace of mind that comes from knowing that they have medical coverage.

Fosters a healthy company culture

Providing small business health insurance can show your employees that their health is important to you. By offering a group health plan as an employee benefit, you can demonstrate that you value your employees and view them as an asset to your organization. This appreciation, in turn, could help to promote a positive and healthy company culture.

Drawing from a variety of studies, a Harvard Business Review article provided evidence of how positive work cultures are more productive for businesses over time. The HBR article discussed the worthwhile outcomes which may come from having a virtuous organizational culture, including:

• Leading to an increase in positive emotion and well-being at companies.
• Improving people’s relationships and amplifying their abilities and creativity.
• Buffering against stress, helping employee resilience, and bolstering employee health.
• Enhancing employee loyalty while bringing out their best strengths.
• Contributing to higher levels of organizational effectiveness, including productivity, financial performance, customer satisfaction, and employee engagement.

The benefits for small businesses

Understanding the benefits of health insurance for small businesses can illuminate how it not only supports employee health but also enhances company culture and financial stability.

Access to lower out-of-pocket costs for employer-sponsored health insurance

From a cost perspective, it may make sense to offer health insurance to employees. Historically, small business health insurance plans had lower per-person costs on average, compared to unsubsidized health insurance offered in the individual market. Generally, this remains true. While ACA individual and family health insurance premiums on average may be lower than the average cost of employer sponsored health insurance, deductibles and similar cost-sharing arrangements have increased significantly.

According to a recent study published by the Kaiser Family Foundation (KFF), in 2023 small firms (defined as businesses with 3 to 199 employees) offering health insurance to employees paid about the same as large employers (200 employees and more) did.

• The average annual premium for single coverage for covered workers in small firms ($8,722) is only slightly higher than the average annual premium for covered workers in large firms ($8,321).
• The average annual premium for family coverage for covered workers in small firms ($23,621) is slightly lower than the average annual premium for covered workers in large firms ($24,104).
• The plan type had a substantive influence on the cost of coverage.

How does premium cost for small business group health coverage compare to premium costs for consumers who purchase unsubsidized individual plans?

According to eHealth’s study of ACA plans, in 2021 the national average monthly health insurance premium for an ACA silver plan without premium tax credits was $450 for an individual plan. Family plan costs vary based on family size, of course. A family of four paid an average of $1,437 for an unsubsidized family plan.

However, deductibles increased for the second year in a row and averaged $4,490 annually for individual coverage and $8,620 annually for family coverage. In contrast the average annual deductibles for employer sponsored group health coverage were $2,379 for individual coverage and $4,705 for family coverage.

In sum, offering health insurance to employees through a group health plan may be the most affordable insurance option for the employer and the employee. An Individual Coverage Health Reimbursement Arrangement, ICHRA may be an alternative to offering employees access to health insurance they purchase. The employer reimburses employees the monthly premium cost or portion thereof up to the maximum amount established by the plan. Learn more about ICHRA.

Employee loyalty and retention

Employee loyalty is often an important consideration for a small business, and offering health insurance to employees may be an effective way to help retain your company’s quality workers.

If you adopt transparency in disclosing the cost of health insurance for employees and the amount your business contributes to paying the total premium cost, your actions communicate the value you place on your employees. Genuine, concrete appreciation can also encourage your workers to stay with your company long term.

The value of employee loyalty

Offering group health insurance coverage employee benefits may be a key component to your employee retention strategy.

Salary increases are not the only way to retain your current employees. According to a 2015 Glassdoor survey, nearly 4 in 5 (or 79 percent) of employees would prefer benefits or perks more than a pay raise, with 40 percent valuing health insurance benefits higher than a raise.

Turnover costs are a significant expense for small businesses

Given the time and cost required to train new employees, as well as the challenge of finding workers who are the right fit for your business, it may be worthwhile to prioritize employee loyalty in order to help your business run smoothly and efficiently.

According to an article by a leading human resources (HR) analyst at the accounting firm Deloitte, the “total costs” of losing an employee to turnover can be considerable, including the:

• Cost of hiring, onboarding, and training new workers
• Loss of productivity and engagement
• Possibility of customer service errors
• Often negative cultural impact to the organization

Employers often deal with significant expenses as a result of employee turnover. For instance, a Center for American Progress report estimates businesses spend about one-fifth (or about 21 percent) of a worker’s annual salary to replace that employee.

A survey of U.S. workers by Willis Towers Watson, a multinational insurance advisory company, found that:

• 46 percent of worker respondents agreed that health benefits were an important factor in their decision to work for their employer.
• 55 percent of worker respondents considered the health benefits they were offered a good reason to keep working for their employer.

Healthier, more productive employees

When employees have group health insurance, they gain greater access to medical resources. The results often include:

• Reduced workplace absenteeism – According to a study by the Journal of Occupational and Environmental Medicine, having health insurance any time throughout the year is significantly associated with a lower likelihood and reduced number of missed workdays.
• More productive workplaces – Generally, healthy employees tend to work more effectively and efficiently than employees who are ill. A working paper about the manufacturing industry by researchers from the Center for Economic Studies (part of the U.S. Census Bureau) provided evidence that health insurance may be positively associated with labor productivity.
• Reduced labor costs – According to an article from the peer-reviewed healthcare journal Milbank Quarterly, another benefit to employers from having healthier workers may also be lower labor costs: unhealthy workers may retire or quit early, which could lead to expensive employee turnover.

Additionally, providing group health insurance may contribute to faster recovery time and return to work due to greater employee access to medical care and health resources.

Benefit from tax incentives

Another financial advantage of providing small business health insurance are the tax benefits to the employer that come with a group plan.

There are several ways that a group health plan can result in tax advantages for your business:

• Generally, employers can deduct 100 percent of the cost of monthly premiums they pay on qualifying group health plans from their federal business taxes.
• Offering health insurance coverage to workers as part of their compensation package could also potentially mean that a business may benefit from reduced payroll taxes.
• Employers can usually deduct HSA contributions from their small business taxes.

While group plans already tend to be more affordable than individual plans, the tax advantages from offering small business health insurance can further help your company to provide this valued employee benefit.

Certain employers may qualify for the small business health care tax credit

Some small employers may benefit from the small business health care tax credit. Created by the Affordable Care Act (ACA), the tax credit is meant to encourage small business owners to offer group health insurance to their employees.

To qualify for the tax credit, a small business must meet all of the following requirements:

• Your small business must have fewer than 25 full-time or full-time equivalent employees (to receive the maximum tax credit, your business must have fewer than 10 employees).
• Your company must pay average wages of less than $50,000 annually per employee (adjusted for inflation).
• You as the employer must pay at least 50 percent of your qualified employees’ health insurance premiums.
• You must purchase your group health insurance coverage through the Small Business Health Options Program (SHOP) Marketplace or through a licensed health insurance agent who can enroll your business in a SHOP plan.

As of 2018, SHOP plans can be directly written through the carrier with the help of certified insurance brokers. eHealth’s licensed and SHOP-certified agents can enroll employers who qualify for the small business health care tax credit, conveniently allowing you to complete all the necessary steps through eHealth.

The small business health care tax credit may be an  incentive to qualified employers to offer health coverage. The tax credit is available for two consecutive taxable years; it may also help your small business in keeping and attracting high-quality employees.

Improve your hiring and recruitment strategy

Deciding to offer small business health insurance can serve as an essential part of an effective hiring strategy, and can help a company stand out as an employer of choice.

According to a recent eHealth study, 66 percent of small business owner survey respondents said that they offer medical employee benefits in order to help them hire and retain the best employees.

Employee benefits may help small businesses stand out from competitors

According to the Bureau of Labor Statistics, 58 percent of private industry employees in small businesses with fewer than 100 employees were offered medical care employee benefits.

By offering health insurance to employees when competing employers don’t, you can substantially differentiate your business by demonstrating that you prioritize the well-being of your employees and recognize them as valuable assets to your company.

Ultimately, making health insurance part of employee compensation may help to create a robust and compelling employee benefits package that can have broad and lasting appeal to future hires and current employees alike.

FAQs: Why offer health insurance to employees?

Do small businesses have to offer health insurance?

Small businesses with fewer than 50 full-time equivalent employees are not legally required to provide health insurance under the Affordable Care Act (ACA). However, those with 50 or more full-time employees must offer health insurance or risk paying a penalty. This mandate is designed to ensure that larger firms contribute to the health coverage of their workforce.

What are the health insurance plan options for small businesses?

Small businesses have several options when it comes to providing health insurance. They can choose from traditional group health insurance plans, which are often purchased through insurance brokers or directly from providers. Small businesses can also participate in the Small Business Health Options Program (SHOP), which is part of the health insurance marketplace created by the ACA and offers various plans tailored to small business needs. Additionally, Health Reimbursement Arrangements (HRAs) are available, allowing employers to reimburse employees tax-free for individual health insurance premiums.

Find the right group health insurance for your small business

For all the right reasons, eHealth makes it easy to find group health insurance for your business. We let you quickly find and compare free small business health insurance quotes. Once you provide some information, including zip code and number of employees (including yourself), you instantly get access to a great selection of group health plans offered by multiple insurance companies.

eHealth is committed to helping you achieve your health coverage goals as a small business. Once you find a plan that works for you, our licensed insurance agents can guide you toward the next steps for implementing and enrolling in a group health plan, all with no broker fees.

After enrolling in your new small business health insurance plan, eHealth will still be available to help answer your questions for the entire time you have your plan, at no additional cost to you. eHealth will also be your advocate when you need to resolve questions with the insurance company.

For all your small business health insurance needs, visit eHealth.com or speak with one of our expert health insurance brokers today.

This article is for general information and may not be updated after publication. Consult your own tax, accounting, or legal advisor instead of relying on this article as tax, accounting, or legal advice.