The Small Group Definition Has Changed. Will Your Business Be Impacted?

Young woman talks to colleagues at small business

Under the original provisions of the Affordable Care Act, the term “small business” applied to companies with no more than 50 employees. As of January 2016, that definition has changed.

If your firm has 1 to 100 full-time equivalent employees, you are now eligible to purchase healthcare coverage through Covered California. Known as the Small Business Health Options Program (SHOP), this state-run marketplace offers group plans — and possibly government subsidies — for your small business. This year’s revised definition of “small group insurance” has other implications for your business, which we’ll discuss in this post. However, before we get into those details, we have to answer an important question:

What’s A Full-Time Equivalent Employee?

A full-time equivalent (FTE) employee is not an actual employee; it’s a calculation of part-time and full-time employees who worked during the preceding calendar year. To be eligible for group coverage under Covered California for Small Business, your firm must have 100 or fewer full-time or full-time equivalent (FTE) employees.

How do you determine how many FTE employees do you have? First, separate your full-time employees from your part-time employees:

A full-time employee works at least 30 hours per week for more than 120 days in a year.
A part-time employee also works more than 120 days a year but less 20 to 29 hours a week.

Then use this simple equation:

Add the total monthly hours for part-time employees. Divide that total by 120.

The number 120 hours represent the monthly average of 30 hours per week. Your final number indicates your FTE count.

What Size Is Your Small Business?

Certain regulations placed on small businesses depend on the number of employees that qualify as FTE or full-time employees.

Firms With 1 to 24 Employees

If you have fewer than 25 full-time or FTE employees, you qualify for two major benefits:

  1. You are not required to offer group health insurance for your employees. Instead, your employees can shop for individual coverage on their own. (Keep in mind, however, that offering group coverage can give your business a competitive advantage.)
  2. If you offer group coverage through SHOP, your firm may be eligible to receive government subsidies. If your employees receive average annual wages of less than $50,000 (excluding owners), and you plan to contribute 50% or more to employees’ premiums, your firm may qualify for a tax credit that covers up to 50% of your contribution to employees’ premium costs.

Firms With 25 to 49 Employees

If your firm has between 25 and 49 full-time or FTE employees, you are still not required to offer group healthcare coverage. However, you won’t qualify to receive government subsidies.

Firms With 50 to 100 Employees

As of January 2016, you now fall into the small business category. So congrats! That means you’re eligible to purchase group coverage through Covered California for Small Business. However, your employee size makes you subject to the ACA’s employer shared responsibility provision. Under this provision …

  1. You are required to offer group health insurance for at least 95% of employees. Employers are required to offer coverage to eligible employees and dependents up to age 26. Employers are not required to offer coverage to employees’ spouses.
  2. The group plan must be affordable. In other words, the group plan’s premiums must not equal 9.5% or more of the employee’s household income.
  3. The group plan must include “minimum value” coverage. Your group health insurance must be designed to pay at least 60% of the total cost of medical services for the group.

If you fail to offer compliant coverage to eligible employees, you could pay a penalty to the IRS.

Do You Qualify As A Small Business?

Let’s review. To qualify to participate in Covered California for Small Business, your firm must have …

  • 1 to 100 eligible (full-time or FTE) employees who receive a W-2.
  • The majority of eligible employees living in California.

If you are self-employed with no employees, or your employees work less than 20 hours a week, you and your employees can shop for individual coverage instead. If the total number of FTE or full-time employees equals 1 to 25, your small business may qualify to receive tax credits. If your business has 25 to 49 eligible employees, you won’t qualify to receive tax credits, but you won’t have to offer group health insurance. Lastly, if your firm has 50 to 100 eligible employees, you’re required by law to offer ACA-compliant group coverage.

Find A Group Plan Today!

Not sure if you qualify for group health insurance? Need help searching for an affordable, customized plan? Try Regency West Insurance Services. Our team of licensed, independent health insurance agents offers free, one-on-one support to help you find a group plan that suits you and your employees’ needs.

Just visit or give us a call at (858) 699-0286. Connect with us today!