Small Employer Coverage

Because of high costs and limited options, many small businesses have struggled to offer health insurance to their workers, and the number of small businesses doing so has declined over time. In most states, a small business is defined to include at least one but no more than 50 employees.

The Affordable Care Act builds on a prior federal law—the Health Insurance Portability and Accountability Act, or HIPAA—to improve the accessibility, adequacy and affordability of health insurance for small businesses through a series of reforms. Many of the Affordable Care Act’s reforms apply to small business health insurance but not to large businesses (see summary table, here). Specific small business market reforms include:

(NOTE: States may enact stronger laws or rules to protect consumers)

  • Modified community rating. Insurers are no longer allowed to charge higher premiums based on the health status or claims experience of an employer group. However, insurers in some states may charge more if the employer group is older than average (up to three times more) or if a number of employees use tobacco products.
  • Prohibition on pre-existing condition exclusions. Prior to the Affordable Care Act, some small employer plans would refuse to cover care for employees’ pre-existing conditions. In many states this period could last for up to 12 months. Under the Affordable Care Act, health insurers are not allowed to exclude pre-existing conditions from covered benefits under the plan.
  • Minimum essential benefit standard. Insurers are required to cover a minimum set of benefits within at least the following 10 categories: ambulatory patient services; emergency services; hospitalization; maternity and newborn care; mental health and substance use disorder services, including behavioral health treatment; prescription drugs; rehabilitative and habilitative services and devices; laboratory services; preventive and wellness services and chronic disease management; and pediatric services, including oral and vision care.
  • Access to key services. Health plans must cover recommended preventive care at no cost-sharing (co-payments, coinsurance and deductible); allow individuals to designate any participating pediatrician to be their child’s primary care doctor; and use emergency services without prior authorization or higher cost-sharing for out-of-network emergency room care.
  • Minimum generosity of coverage or minimum value. Small employer coverage must provide a minimum level of financial protection for health costs, at least 60 percent of total average costs for covered benefits. Further, the Affordable Care Act requires plans to be offered at specified coverage levels, so that employers and employees can more easily compare them. The lowest level of coverage (60 percent) is called the bronze level. A silver level plan will cover 70 percent of total average costs for covered benefits, a gold plan covers 80 percent, and a platinum plan covers 90 percent.
  • Maximum out-of-pocket costs. Insurers are required to limit how much consumers can pay in out-of-pocket costs (including deductibles, co-payments, and co-insurance) for covered benefits in a given year. In 2024, the limits are $9,450 for individuals and $18,900 for families.
  • Small Business Health Options Program (SHOP). Small employers eligible for this program may receive a small business health care tax credit worth up to 50 percent of premium costs for up to two years. In most states, the SHOP Marketplace operates through direct enrollment with insurers, and the small business health care tax credit, previously only available with coverage purchased through the SHOP Marketplace, can now be used for certain non-SHOP small group plans if the business has a principal address in a county without SHOP plans available (see more information here).

Note that several of the Affordable Care Act protections listed above do not apply if a small employer chooses to self-fund their group health plan. For more information on protections that apply to self-funded group health plans, see our table here.

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