Offering health insurance to employees means setting up a group health plan that covers your staff, and usually their families, with the business paying some or all of the cost. In Michigan’s small-group market a plan can start with as few as one W-2 employee, can begin on the first of any month, and does not require an employer contribution.
Key takeaways
- Under 50, it is a choice. Employers with fewer than 50 full-time and full-time-equivalent employees have no federal requirement to offer coverage; at 50 and over, the ACA employer mandate applies.
- You can start small and start any month. A Michigan small-group plan can be set up with one W-2 employee, on the first of any month, even with no employer contribution.
- Employer contributions are tax-favored. What the business pays is generally deductible and not taxable to employees, and employees can pay their share pre-tax through a Section 125 plan.
- There is more than one model. Fully insured, level-funded and ICHRA arrangements all put health coverage in employees’ hands, with different cost and risk.
Do you have to offer health insurance to employees?
Federal law does not require employers with fewer than 50 full-time employees, including full-time equivalents, to offer health coverage. Employers at 50 or more are applicable large employers and must offer affordable, minimum-value coverage to full-time employees or risk a penalty. See What Is an Applicable Large Employer? for how the count works, and our guide to crossing fifty employees for everything that changes at the threshold.
Plenty of small employers offer coverage anyway, because it is one of the main things candidates compare between job offers. Our look at the cost of not offering group health insurance in Michigan puts numbers on the trade-off.
Your options
| Option | How it works | Usually fits |
|---|---|---|
| Fully insured group plan | You pay a fixed premium to a carrier, which takes the claims risk | Most small employers, and anyone who wants predictable cost |
| Level-funded plan | A fixed monthly payment covers administration, expected claims and stop-loss, with a possible refund if claims run low | Healthier groups that want some of the upside of self-funding |
| ICHRA or QSEHRA | You reimburse employees tax-free for individual coverage they buy themselves | Employers who want a fixed budget or have employees spread across many areas |
| Self-funded plan | You pay claims directly through an administrator and buy stop-loss insurance | Larger groups with the cash flow to carry claims risk |
See our pages on level-funded plans, self-funded plans and ICHRA strategy for more on each.
What a Michigan small group needs to start
- At least one W-2 employee
- A start date on the first of the month; small-group plans can begin in any month
- An employee census: names, dates of birth, home ZIP codes and who wants coverage
- A decision on how much, if anything, the business will contribute
- Enough eligible employees enrolling to meet the carrier’s participation rules, which we confirm for each quote
A plan can be entirely employee-paid. Our guide to offering group health insurance with no employer contribution explains how that works for businesses with 2 to 50 employees, and our page for employers with 2 to 50 employees covers the small-group market in more detail.
How much to contribute
There is no required amount for a small group, but most employers choose one of three approaches:
- A percentage of the premium, for example 50% or 75% of employee-only coverage
- A fixed dollar amount per employee per month, which keeps the employer’s cost steady if premiums rise
- A base-plan approach, where the employer pays most of the cost of one plan and employees pay the difference to buy up
Coverage tiers matter as much as the percentage: paying 75% of employee-only coverage and nothing toward dependents produces a very different cost than 75% of family coverage. See What Does EE Mean? for the tier terms.
Tax treatment
- Premiums the business pays for employees’ coverage are generally a deductible business expense.
- Employer-paid coverage is generally excluded from employees’ taxable income.
- Employees can pay their share of premium before tax through a Section 125 cafeteria plan, which also lowers the employer’s payroll taxes.
Steps to set up a plan
- Gather a census and ask employees what coverage they have today.
- Decide your budget and contribution approach.
- Compare carriers and plan types, including networks that match where employees live and the doctors they use. See Michigan health insurance carriers and What Is an HMO?
- Set eligibility rules, including a waiting period for new hires, which cannot exceed 90 days.
- Collect enrollment forms and waivers and submit the group application.
- Distribute ID cards, the Summary of Benefits and Coverage, and the plan’s required notices, and set up payroll deductions.
Compliance that comes with a plan
Even a small group plan brings a few obligations: most employer plans are ERISA plans and need a written plan document and Summary Plan Description, and groups with 20 or more employees are subject to federal COBRA. Our compliance page lists what applies at each size.
More plain-English benefits explainers
- What Is an Applicable Large Employer?: the 50-employee test and what it triggers
- What Is Commercial Health Insurance?: private coverage versus government programs
- Offering Group Health Insurance With No Employer Contribution: a guide for businesses with 2-50 employees
- What Does EE Mean?: EE, ES, EC and family coverage tiers
- What Is an HMO?: how HMO plans work and who they fit
- EAP Benefits for Employees: what an employee assistance program covers
Frequently asked questions
Do small businesses have to offer health insurance to employees?
No. Under federal law, employers with fewer than 50 full-time and full-time-equivalent employees are not required to offer coverage. Employers with 50 or more are subject to the ACA employer mandate.
How many employees do you need for group health insurance in Michigan?
In Michigan’s small-group market, a group plan can be set up with as few as one W-2 employee, subject to each carrier’s rules.
Does an employer have to pay for employee health insurance?
Not in the small-group market. A small-group plan can be entirely employee-paid, although most employers contribute to make it affordable and attractive.
When can a small business start a group health plan?
Small-group plans in Michigan can start on the first of any month; you do not have to wait for open enrollment.
Is health insurance for employees tax deductible?
Premiums a business pays for employees’ coverage are generally deductible, and employer-paid coverage is generally not taxable to employees. Employees can pay their share pre-tax through a Section 125 plan.
Ready to offer health insurance to your team?
CFH Insurance Consultants is an independent employee benefits firm. We are licensed insurance brokers, and for proper coverage of an account we work in teams of five. We will take your census, compare the carriers and funding options that fit your size and budget, and handle the setup through enrollment, so your employees have coverage and your team knows who to call. Start here, call 248.370.8853, or book a 30-minute call.
This article is general information, not legal or tax advice. Carrier rules, participation requirements and tax treatment vary; confirm the details for your business before you enroll.
