Frequently Asked Questions (FAQ)

Over 50 years of experience

Benefits Cafe offers comprehensive answers to frequently asked questions that small business owners and their human resources staff confront when evaluating which group health insurance plan and level of coverage is appropriate.

With over 50 years of experience in helping small businesses attain group medical insurance for their employees, we are on your side to help you with your questions, empowering you to decide on the best health insurance plan option for your small business. Give us a call: (800) 746-0045.

To qualify, you must have at least one non-owner W-2 employee for at least 50 percent of the preceding quarter. For example, if you want to start a group health plan April 1 — the start of the 2nd quarter — then your company must have had one W-2 employee no later than February 15 of the same year. This is the midway point of the 1st quarter. Also, the business cannot be formed primarily for the purpose of buying health coverage. See current small business health insurance requirements for more info.

No. A 1099 employee is a self-employed independent contractor who works for you and can work for other employers. Therefore, no employer-employee relationship exists and they are not eligible for your group health insurance plan. Your 1099 employees can seek options for self-employed health insurance.

No. California state law considers any W-2 employee averaging 30 hours (or more) per week within the course of a month to be eligible for the group health insurance plan. This means you can’t be more restrictive and, for example, only offer coverage to employees who work 32 hours per week — such a restriction would violate California State law (see: California Health and Safety Code Section 1357.500(c)(1)). On the other hand, you can be less restrictive and offer coverage to part-time employees who work as few as 20 hours per week.

No. California state law considers any W-2 employee averaging 30 hours (or more) per week within the course of a month to be eligible for the group health insurance plan. This means you can’t be more restrictive and, for example, only offer coverage to employees who work 32 hours per week — such a restriction would violate California State law (see: California Health and Safety Code Section 1357.500(c)(1)). On the other hand, you can be less restrictive and offer coverage to part-time employees who work as few as 20 hours per week.

Most California medical insurance companies require at least 70 percent of eligible employees enroll in their employer’s medical insurance plan. Aetna and United Health Care require more at 75 percent. This requirement is called “participation” and ensures that the majority of employees — healthy and unhealthy — enroll. This prevents what’s called “adverse selection,” where only people more prone to using coverage sign up. Adverse selection causes the premium to increase for everyone, so the participation requirement prevents this problem. For more California health insurance laws for employers, please see our small business health insurance requirements (PDF).

The guidelines for California small group health insurance allow an employer to omit certain employees from the participation calculation. Specifically, an insurance company allows employees to “waive” coverage if they obtain health insurance through a different source, such as:

  1. A spouse or parent’s group health plan through their employer.
  2. Medi-Care (usually for seniors age 65 or older).
  3. Medic-Aid (Medi-Cal in California which is for low income people).

These are valid “waivers” and the insurance company omits the employee from the calculation of eligible employees.

An insurance company will consider employees to have “declined” coverage if the employee has:

  1. No health insurance coverage.
  2. Individual health insurance through Covered California or an “off-exchange” plan.

These are “declines” and count against the participation requirement. If too many employees decline coverage your company won’t meet the minimum participation requirement.

Imagine a company with 10 full-time, eligible W-2 employees. One employee is covered as a dependent on her husband’s plan — that’s a waiver. Another employee is covered by his parents through his mom’s employer — that’s another valid waiver. A third employee is covered by his wife’s individual plan obtained through Covered California — this is a decline.

California health insurance companies require that an employer contribute at least 50 percent of the employee’s monthly premium. For example, if the monthly cost for one employee (not including dependents) is $300, then the employer must pay at least $150.

Some insurance companies allow a lower employer contribution amount using a “defined contribution” arrangement. For example, Aetna allows employers to contribute as little as $80/employee/month. Anthem Blue Cross, Blue Shield and Health Net allow employers to contribute as little as $100/employee/month. Covered California SHOP, United Health Care, and Kaiser require the employer to contribute 50 percent of the least expensive plan offered. These minimum requirements may change but they are accurate as of March 2020. For more information, see our page about small business health insurance in California.

The employer contribution is important for insurance companies because it ensures that a large number of employees will enroll, not just the unhealthy ones. The employer contribution is also important for employees because it determines the premium the employees must pay for their medical insurance. It’s like a teeter-totter: The more the employer pays, the less the employees pay. If employees are asked to pay too much for their coverage relative to their income, they will likely decline to enroll. This causes a problem for the “employee participation” requirement.

The Affordable Care Act (Obamacare) put an end to skimpy benefit plans that paid very little for medical services and left employees facing financial ruin. As of 2014, all small group health insurance plans must have a minimum actuarial value of 60 percent. The actuarial value (AV) is the percentage of total average costs for benefits that a plan covers. A plan with 60 percent AV would require the member to pay 40 percent of the cost for medical services and the insurance company would pay 60 percent.

Yes. The ACA places a “pay or play” penalty on employers with 51 or more full-time “equivalent” employees (e.g. two part-timers equal one full-time equivalent.) The government refers to this as “shared responsibility” because employers share the responsibility of offering coverage or they pay the penalty.

An employer with more than 50 employees is subject to penalty if the company either 1) doesn’t offer health insurance at all, or 2) the health insurance is unaffordable to employees, and requires them to pay more than 9.5 percent of their W-2 wage. For a detailed description of how to calculate the employer pay or play penalty, view our ACA employer penalty calculator article

All of the medical insurance companies must follow guidelines established by the Federal government and the state of California. Some of these rules may not make sense but we’ll try to explain the purpose of the rules in this summary  of the Rules for California Small Business Medical Insurance. If you want to check out the source regulations see California Health and Safety Code (HSC) Section 1357.500; and HSC Section 1357.600 and the California Insurance Code (CIC) Section 10753, CIC Section 10753.05 and CIC section 10755. The Federal regulations are 42 US Code Section 18024; Affordable Care Act Section 1304; and 45 CFR Section 155.20.

You can offer many different insurance plans to your employees. However, the government requires that you set up a system to treat all of the employees the same. That is you must have the same new-hire waiting period to start benefits (e.g., 60 days) and you must contribute the same dollar amount or percentage to each employee’s plan. You can offer 20 different health plans if you want to (HMO, PPO, high deductible, low/no deductible, HSA, etc.) Employees can take the employer contribution amount and apply it to the medical insurance plan that best fits their needs.

The two main requirements to provide small group medical insurance to employees in California are:

  1. Employer Contribution – the small business employer must pay a minimum of 50% of the employee only monthly cost (called a “premium” in insurance-speak.) Some insurance companies allow a contribution of as little as $100 per month per employee, but the employer must pay something towards the employees’ medical insurance. An employer can’t just “offer” a plan to employees and not pay a portion of the premium. If you’re in a field that requires skilled labor and your employees can work other places that offer benefits; then, you may need to match the level of benefits and pay a larger share of the employee’s premium. If you have unskilled workers who are just delighted with the thought of having any medical insurance – then you may be able to pay the minimum. Keep in mind that you need sufficient number of employees to enroll, so if you pay too little and few employees enroll, then the insurance companies won’t approve your coverage. Here’s the second requirement:
  2. Employee Participation – the insurance companies require that a minimum percentage of the “eligible employees” enroll in the plan – usually it’s 70% of the eligible employees but some insurance companies only require 25 or 30% of the eligible employees to enroll. This requirement ensures that the majority of employees – healthy and unhealthy – enroll and prevents “adverse selection” where only unhealthy people enroll.

Tax Advantages of Employer-Sponsored Medical Insurance: Keep in mind that group health insurance has significant tax advantages because employer payments towards employee insurance is a fully tax-deductible business expense and a non-taxable benefit to the employees.

Compare that to paying an employee a wage where the employer pays FICA taxes (7.65% for Social Security and Medicare) plus wages are usually included in the calculation of the premium for Worker’s Compensation.

So, if you pay $100 in wage, it may cost you $110 or 10% more than the wage. Worse yet, with a wage the employees must also pay the FICA tax (7.65%) plus State and Federal taxes, which could total 25-30% of an employee’s wage. So, you pay $100 in wage, which costs the company $110 and the employee may net only $70… that’s a huge amount of money. In contrast, pay $100 for medical insurance and the employee receives $100 of coverage.

A small business in California can follow these five easy steps to set up employer-sponsored medical insurance plans.

  1. Find an agent who specializes in small group employee benefits. There is no additional charge for a licensed agent’s services and they can help you compare the insurance companies that offer benefits to small businesses; help you and your employees select a plan; enroll; and assist during the entire time that you offer employee benefits. As far as selecting an agent, we think that we’re the best…, but, of course, we’re biased. Please check us out.
  2. Understand the rules. The State of California sets guidelines that all insurance companies must follow when offering health insurance to small business. Here is a summary of the Rules for California Small Business Medical Insurance that you may find helpful. Knowledge is power and after you read this short guide you’ll have a good understanding of whether your company will qualify as a small business (1-100 employees). Also, the guideline will answer some of the questions that you’ll need to address before you set up your plan.
  3. Obtain a customized quote that shows the benefits and rates for various insurance companies for your employees. Each insurance company offers standardized benefit plans that they offer all companies with 1 -100 employees, however, each company’s plans are different. The rates (cost per employee and dependents) are set based on the age of the employee and dependents. You can easily start the process of setting up employer-sponsored group medical insurance by clicking here where you’ll create a census that includes your employees’ and their dependents’ names or other identifying info; dates of birth; and home zip code.
  4. Select the insurance company, plan or plans to offer your employees. After you complete the census you’ll be able to see all of the plans and rates for all of the group medical insurance plans offered in California from Aetna, Anthem Blue Cross, Blue Shield of California, Health Net, Kaiser, United Health Care and also California Choice, which combines a few different insurance companies into one entity. By working with us, we’ll create custom proposals that narrow your choices based on your preferences and the needs of your employees. For example, low wage employees may be happy with any coverage you offer and “Bronze” level plans may suffice. Well-trained and well-paid employees who have many employment options may demand high level benefits and you may need to offer Platinum or Gold level plans. If you don’t know the difference between a Platinum, Gold, Silver or Bronze level plan; check out the Rules for California Small Business Medical Insurance or give us a call 800-746-0045.
  5. Educate and enroll your employees and submit applications. Finally, you’ll need to communicate information about the new plans to your employees; enroll them; and then submit the material to the insurance company. Again, a licensed agent like can help you through this somewhat complicated process. Give us a call at 800-746-0045.

There is NO Federal or California State requirement for a small business with fewer than 50 employees to offer group medical insurance to employees.

Companies with 50 or more employees must pay a tax penalty if they don’t offer their employees insurance. The Affordable Care Act (ACA, or “Obama Care”) places a “pay or play” penalty on employers with 50 or more full time “equivalent” employees (i.e., 2 part-timers equal one “full time equivalent” or “FTE.”) The government euphemism for this is “shared responsibility” where employers either share the cost of their employee’s medical insurance or they pay a tax penalty.

The government has other requirements for businesses with 50 or more FTEs that include:

  1. that the medical insurance coverage have “minimum essential benefits” (i.e., you can’t offer such skimpy plans that very little is covered); and,
  2. that the coverage be “affordable” to your employees.

The IRS describes both of these concepts (minimum benefits and affordability) in question 38 on the Employer Shared Responsibility guidelines.

(Note: The City of San Francisco and perhaps other localities require some employers to contribute to employees’ medical insurance. San Francisco has a Health Care Security Ordinance that you should check out if you have employees who work there. We’re not discussing local requirements in this article.)

You can have as few as one employee to qualify for a small business health insurance plan. Federal and state laws set 100 employees as the maximum number of employees to qualify for a small business plan. Some people have different ideas of what constitutes an “employee” so the government defines an eligible employee. The law says that an employee is one for whom the employer deducts and pays payroll taxes (i.e., FICA taxes for Medicare and Social Security) and who works 30 hours per week.

The government also defines who is NOT an employee. This includes:

  1. independent contractors, or people who receive a 1099, are not considered an employee so; they’re not eligible to enroll in a small group medical insurance plan.
  2. sole proprietors and S Corporations owners are also NOT considered employees. Owners can enroll in the group health plan if they work at least 30 hours per week in the business; but, all California health insurance companies exclude the owners from the calculation of meeting the minimum of 1 employee. So, a husband and wife who work in the business and take distributions as compensation, won’t qualify for group medical insurance. A company needs at least one, non-owner, W2 employee to qualify for a small group plan in California.

So, if you have at least one and not more than 100 W-2 employees then you likely qualify for coverage. California insurance companies require companies that apply for small group medical insurance coverage to submit a copy of the most recent Form DE-9C. The insurance companies use the DE-9C as a roster, or list of company employees. The DE-9C lists only W-2 employees and shows the wages paid to each employee during the previous quarter. With this information, insurance company employees (euphemistically called “underwriters”) calculate the hours worked for each employee. They make sure that the enrollment includes only full-time employees – or, if an employer wants to expand coverage he/she can include part-time employees (i.e., W-2 employees who work at least 20 hours per week).

Federal and state laws dictate that the cost of small business medical insurance be set based on two factors:

  1. the age of the employee and dependents; and,
  2. the location of the business.

So, if you have older employees you should expect to pay more than if you have younger employees. The federal law limits the difference in the monthly cost of medical insurance (politely called a “premium” in insurance-speak) so that the oldest person (age 64) doesn’t pay more than three times the premium of the youngest person (age 21).

The rate/cost/premium is standardized based on age and location; however, if you offer a Platinum level plan you’ll pay more than a Bronze level plan. If you think platinum, gold, silver and bronze are only used by jewelers and you don’t know how this relates to medical insurance, see this summary of the Rules of Small Business Health Insurance.

Thankfully, insurance companies can NOT charge more for pre-existing medical conditions. You get the same rate if you’re fit and healthy as if you’re extremely sick. Also, insurance companies can’t raise your rate or cancel coverage if someone gets sick or injured.

Estimated cost per employee: While it’s good to know that the rates and benefits vary based only on age and location; you probably want to get a specific number so that you can determine whether you can afford to offer medical coverage to your employees. So how much does it cost? As of July 2017, a ball park monthly premium would be $250-$500 per month per employee. There are plans for as little as $150 – $200/month for very high deductible bronze plans and young employees and dependents. You may want to estimate $300- $400 per employee per month as a ball park amount.

While that is an estimate of 100 percent of the monthly cost of a small business health insurance plan per employee; know that you can share the cost with your employees. The law only requires that employer to pay as little as 50 percent of the employee only cost. Further, some California insurance companies allow employers to pay as little as $100 per employee per month. The employee would pay the difference and if you set up a Section 125, Premium Only Plan, the employee’s contribution can be pre-tax, which saves the employee (and the employer) a lot of money.

If you’re an employer, trying to determine whether you can afford to offer coverage; give us a call 800-746-0045 and we can help you out. There is no charge for our services – the insurance companies pay us when you sign up and you pay the identical rates signing up through as if you signed up directly with any insurance company. We can help you through the entire process and also throughout the entire time you have coverage.

No, there is no Federal or state requirement for a small business to offer employees medical insurance. However, if you have more than 50 employees (or “full-time equivalent” employees or “FTEs”) then you’ll need to either purchase insurance coverage for your employees or pay a tax penalty. Not only does the government require companies with 50 or more employees to offer employees health insurance; but they also specify that the plans must have minimum benefits and must also be affordable to employees. See pages 5 and 6 of the Rules for California Small Business Medical Insurance for more info on the IRS requirements for employer-sponsored medical insurance or give us a call 800-746-0045.

If you have fewer than 50 employees then you won’t pay a penalty to the government if you don’t offer coverage. However, you may find, as many employers have discovered, that the tax advantages of group medical insurance make it an excellent way to attract and retain good employees.

The City of San Francisco and perhaps other localities require some employers to contribute to employees’ medical insurance. If you have employees in San Francisco you should check out the Health Care Security Ordinance.

  • Bruce Jugan

    Bruce is an expert in group medical insurance and employee benefits for small to mid-sized companies. He's been a licensed agent/broker since 1993. Bruce has written all of the content on He and his team help employers select medical plans; communicate information to employees; stay in compliance with various rules and regulations; and solve benefits-related problems that may arise.