Do employers have to provide health insurance?
It’s one of the most common questions we hear from small business owners.
There’s a lot of confusion around what’s legally required, and what’s simply a smart move.
The truth is, not every employer is required to offer coverage, but that doesn’t mean it should be off the table. If you’re trying to stay compliant, attract talent, and manage your bottom line, understanding the rules matters.
Key Takeaways
- Only businesses with 50+ full-time equivalent employees are legally required to offer insurance.
- Smaller companies can still offer benefits through flexible, affordable alternatives.
- Offering health coverage, required or not, can be a powerful hiring and retention tool.
Let’s break it down and look at what employers are actually required to do, and what options you have if you’re not.
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Do Employers Have To Provide Health Insurance?
No, most small businesses are not legally required to offer health insurance.
Under the Affordable Care Act (ACA), only employers classified as Applicable Large Employers (ALEs) must provide health coverage to their full-time employees. An ALE is defined as any business with 50 or more full-time equivalent (FTE) employees.
If your business has fewer than 50 FTEs, there is no federal requirement to offer coverage. However, some states, like Hawaii, have their own rules, so it’s worth reviewing your local regulations.
You can find official federal guidance on the IRS website for ACA employer responsibilities.
What Happens If You’re an ALE and Don’t Offer Coverage?
If you’re an ALE and don’t offer qualifying health insurance, you could face financial penalties under current employer health insurance laws.
These penalties fall under the Employer Shared Responsibility Provision of the ACA and apply only if at least one full-time employee receives a subsidy on the Health Insurance Marketplace.
If you offer no coverage, the penalty is $2,900 per full-time employee, minus the first 30 employees
If you offer coverage that is not affordable or doesn’t meet minimum value, the penalty is $4,320 per employee receiving subsidized coverage. Coverage must meet affordability and minimum value standards to avoid penalties
It’s not just about offering insurance, it has to meet federal requirements, too.
Why Offer Health Insurance Even If You Don’t Have To?
What’s the cost of not offering health benefits, even when you’re not required to?
For many small businesses, skipping coverage might save money upfront, but it can hurt in the long run. Offering health insurance sends a strong message: you value your team. And the business benefits go beyond employee satisfaction.
Here’s what you gain:
- Attract stronger talent in competitive hiring markets
- Improve retention by giving employees a reason to stay
- Boost morale and well-being, leading to better productivity
- Deduct premiums as a business expense
- Qualify for the Small Business Health Care Tax Credit if you have fewer than 25 FTEs and meet salary requirements
Even without a legal mandate, health benefits can be a smart investment.
What Are the Alternatives for Small Employers?
Can’t offer a full group health plan?
You still have options—flexible, cost-effective ones that work for smaller teams.
These alternatives give you ways to support your employees’ health needs without committing to traditional insurance coverage.
- QSEHRA: Tax-free reimbursement for employees who purchase their own plans
- ICHRA: Customizable reimbursements based on employee classes or roles
- Health stipends: Simple cash benefits, though fully taxable
- Group purchasing coalitions: Join forces with other businesses to reduce insurance costs
- Health sharing ministries: Non-traditional, faith-based option (not insurance)
These tools can help you support your team, on your terms and within your budget.
How to Choose the Right Health Coverage Strategy?
There’s no one-size-fits-all answer, but there is a smart choice for your business.
The right approach depends on your goals, your team, and how employer health insurance laws apply to your situation. Start by evaluating:
- Team size: Are you close to the 50-employee threshold?
- Budget: What can you realistically allocate to benefits?
- Hiring goals: Are you trying to stay competitive in recruiting?
- Employee expectations: What matters most to your team?
A clear benefits strategy can strengthen both your culture and bottom line.
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Final Takeaways on Employer Health Insurance Rules
So, do employers have to provide health insurance?
The answer is yes, but only if you’re considered an Applicable Large Employer, with 50 or more full-time equivalent employees. Everyone else has options, but not obligations.
Still, as we’ve seen, offering health coverage can be a smart business move, whether it’s to stay competitive, support your team, or take advantage of tax benefits. The best path forward depends on your size, your goals, and how you want to support the people who keep your business running.
Are you still unsure if your business is required to offer health insurance?
Talk to our licensed benefits advisor today.
Further Reading:
Christine Corsini is a health insurance and medical cost sharing expert, and a Personal Benefits Manager at ColoHealth. Her goal is to help people embrace life’s amazing possibilities by staying healthy, saving money, and making the best decisions when it comes to healthcare.
