Guide to small business health insurance in California

Providing health insurance is a vital investment for small businesses in California, where over 4.1 million businesses employ more than 7.5 million people. Affordable coverage helps attract and retain talent, but navigating options can be difficult due to rising costs and complex regulations.

Many small business owners worry about the sustainability of their employee benefits programs, with 93% expressing concerns about long-term affordability, according to one Thatch survey. 

Concerns like this illustrate how crucial it is for employers to find cost-effective solutions, such as Individual Coverage Health Reimbursement Arrangements (ICHRAs) and state-sponsored programs that balance affordability with quality coverage.

This guide covers key information to help you navigate small business health insurance in California, including some of the top providers, enrollment options, and important compliance considerations. 

Why small businesses in California need health insurance

Health insurance is a critical investment for small businesses in California. Whether mandated by law, used as a tool for attracting and retaining employees, or leveraged for financial benefits, providing coverage directly impacts a company's success and stability.

Navigating health insurance in California can be especially challenging for small business owners due to the state’s size, diversity, and complex healthcare landscape. 

The chart below offers a glimpse into how widespread marketplace enrollment is among small business owners and self-employed individuals in California. It helps illustrate the broader context in which these benefit decisions are made.

Legal requirements: California mandates and ACA regulations

California small businesses must navigate both federal and state regulations when it comes to health insurance. Some of the unique details you should be aware of include:

• Under the Affordable Care Act (ACA), businesses with 50 or more full-time employees must offer health insurance or face penalties

• California also enforces an individual mandate, meaning uninsured employees may face tax penalties, making employer-sponsored coverage attractive

• While businesses with fewer than 50 employees are not legally required to provide coverage, doing so can still offer financial and competitive advantages

Employee retention, satisfaction, and productivity

With California’s tight labor market, health benefits are a key tool for small businesses looking to attract and retain top talent. Given the state’s high cost of living, employees may see health insurance as an essential part of their compensation, not just a perk. 

Offering a comprehensive benefits package can make a significant difference in retaining skilled workers, especially in competitive industries. Advantages include:

• Increased job satisfaction and loyalty, reducing turnover costs

• Improved employee health, leading to fewer sick days and higher productivity

• Competitive advantage in hiring, as employees prioritize jobs with strong benefits packages

Financial advantages for employers

Health insurance is not just an employee benefit — it can also be a smart financial decision for business owners.

Here are some key financial benefits employers can take advantage of:

• Tax-deductible contributions: Employer contributions toward health plans are typically deductible as a business expense.

• Payroll tax exclusion: Employer-sponsored healthcare coverage does not count as employee wages and is thus not subject to payroll taxes.

• Budget optimization: Options like ICHRAs or Covered California for Small Business (CCSB) enable businesses to offer healthcare coverage to their employees while maintaining cost control and flexibility.

Understanding these advantages allows small business owners in California to make informed decisions about health insurance that benefit both their company and their employees

Types of health insurance in California

California offers a variety of health insurance plans for small businesses, each with its own set of benefits, cost structures, and provider networks. Here’s an overview of some of the most common plan types available for small businesses in California.

Health Maintenance Organizations (HMOs)

Best for: Employers seeking cost-effective coverage with a strong emphasis on preventive care.

HMOs are a popular choice for small businesses looking for affordable and comprehensive healthcare coverage. HMOs require employees to select a primary care provider (PCP) who coordinates all healthcare services, including specialist referrals. 

These plans typically have lower premiums and out-of-pocket costs but limit coverage to in-network providers.

Preferred Provider Organizations (PPOs)

Best for: Businesses with employees who prefer flexibility in choosing doctors and specialists.

PPOs offer greater flexibility in choosing healthcare providers. Employees can visit any doctor or specialist without a referral, though staying in-network results in lower costs. 

PPOs generally have higher premiums and out-of-pocket expenses but provide more autonomy in managing healthcare choices.

Exclusive Provider Organizations (EPOs)

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Best for: Small businesses wanting a balance between cost savings and flexibility.

Exclusive Provider Organizations (EPOs) are a hybrid between HMOs and PPOs. They offer moderate network flexibility, allowing employees to see specialists without a referral. However, out-of-network care is not covered except in emergencies. 

EPOs usually have lower premiums than PPOs but still offer a decent provider network.

Point of Service (POS) Plans

Best for: Businesses looking for a middle-ground option between HMOs and PPOs.

POS plans combine elements of HMOs and PPOs. Employees need a primary care provider for referrals (like an HMO) but can see out-of-network doctors at higher costs (like a PPO). 

These plans tend to have moderate premiums and flexible options for those who occasionally need out-of-network care.

Health Reimbursement Arrangements (HRAs)

Best for: Small businesses wanting to control healthcare costs while offering employees plan flexibility.

HRAs are not traditional insurance plans but rather an employer-funded system that reimburses employees for medical expenses. Employers set a budget for reimbursements, and employees purchase their own insurance or pay for healthcare services. 

Options like ICHRAs allow businesses to provide tax-free funds for employee health insurance.

4 factors to consider when choosing a plan

Choosing the right health insurance plan involves more than just comparing prices. Small businesses must evaluate their workforce's healthcare needs, the extent of coverage, network access, and overall cost implications. 

Let’s take a closer look at these four key factors:

1. Coverage options

The comprehensiveness of a health insurance plan can vary widely. Employers should assess whether the plan includes:

• Preventive care services, such as routine check-ups and screenings

• Specialist care and referrals

• Prescription drug coverage

• Mental health services and maternity care

Selecting a plan that aligns with employees' healthcare needs ensures they receive the necessary medical attention without excessive out-of-pocket costs.

2. Network size

The size of a plan's provider network determines how easily employees can access healthcare services. Businesses should consider:

• Whether the plan includes major hospitals and healthcare providers in their area

• The availability of in-network primary care physicians and specialists

• Whether employees will need referrals for specialist visits

A broad network gives employees more flexibility, while a narrower network often costs less.

3. Cost considerations

Cost is a major factor for both employers and employees. Small businesses should evaluate:

• Monthly premiums and how much of the cost the business will cover

• Deductibles and how they impact employees' out-of-pocket expenses

• Copayments and coinsurance for routine care

• The plan's out-of-pocket maximum to ensure financial protection

Balancing affordability with comprehensive coverage is key to selecting the right plan.

4. Employee needs

Understanding employees' healthcare preferences can guide plan selection. Businesses should consider:

• The average age and health conditions of their workforce

• Whether employees have dependents who will also need coverage

• Preferences for specific providers or types of care

Gathering employee input through surveys or discussions can help tailor a benefits package that meets their needs while staying within budget.

How to request quotes for health insurance plans in California

Once a business has determined its priorities, the next step is to request quotes from reliable sources. Small businesses can explore multiple avenues to compare plans and pricing through any of the following:

• ICHRA administrators: An ICHRA administrator can simplify the process of structuring an arrangement that aligns with business goals, assist employees with individual plan selection, enrollment, and manage the reimbursement process

• Brokers: Licensed employee benefits brokers can help navigate options, negotiate better rates, and ensure regulatory compliance

• Covered California for Small Business (CCSB): This state-run marketplace provides plan comparisons and potential tax benefits for small employers

• Directly from insurers: Businesses can compare plans and pricing by reaching out to providers like Kaiser Permanente, Blue Shield of California, or Aetna

Financial incentives and tax credits for California businesses

Offering health insurance can provide significant financial benefits for small businesses. Understanding available tax credits and incentive programs can help reduce costs and maximize savings.

Small Business Health Care Tax Credit

Small businesses that meet certain eligibility requirements may qualify for the Small Business Health Care Tax Credit, which can cover up to 50% of employer-paid premium expenses.

Eligibility criteria include:

• Having fewer than 25 full-time equivalent employees

• Paying an average wage of less than $56,000 per year (as of 2024, adjusted annually)

• Covering at least 50% of employees' premium costs

• Purchasing insurance through Covered California for Small Business

This tax credit can significantly lower the cost of providing health insurance, making coverage more affordable for small employers.

SHOP Marketplace

The Small Business Health Options Program (SHOP) is a marketplace designed specifically for small businesses looking to offer health insurance.

• SHOP plans are available through Covered California for Small Business

• Businesses with 1-100 employees can compare plans and enroll in coverage

• Eligible employers can access tax credits to reduce premium costs

For more details on SHOP plans and enrollment, visit Covered California for Small Business.

Best health insurance providers for small businesses in California

Small businesses have several high-quality health insurance providers to choose from in California. The best option depends on factors like network size, affordability, and coverage flexibility.

Each provider offers distinct benefits, from comprehensive national coverage to affordable, localized plans. Take a closer look at the following options to determine which provider is the most suitable for your employees' health insurance needs.

• Kaiser Permanente: A top choice for affordable HMO coverage with integrated care and wellness programs

• Blue Shield of California: Ideal for businesses that prioritize broad PPO networks and provider flexibility

• Health Net: A solid option for budget-conscious employers looking for a mix of HMO and PPO plans

• Aetna: Offers strong national coverage, which is ideal for businesses with remote or multi-state employees

• UnitedHealthcare: Stands out for its digital tools, customer support, and wellness incentives

While not a provider, Covered California for Small Business (CCSB) serves as a valuable marketplace for comparing plan options from multiple carriers. Employers can use CCSB to evaluate coverage choices side by side and potentially qualify for tax credits, making it easier to find a cost-effective fit.

For businesses exploring alternatives to traditional group plans, an ICHRA can complement this flexibility.

An ICHRA  provides tax-free funds that employees can use to purchase individual coverage from many of these providers. This eliminates the burden on employers to choose one-size-fits-all group coverage and enables each worker to select the plan that best suits their personal health and financial situation.

Steps to enroll in a health insurance plan in California

Whether you’ve decided to offer traditional group health insurance or implement an ICHRA, it’s important to follow a structured process to ensure your employees get the coverage they need. 

The following steps will guide you through enrollment, from assessing your business’s needs to educating your employees about their options.

Step 1. Assess your business's needs

Before you begin comparing health insurance plans, it's essential to assess the specific needs of your business and employees. Consider factors such as the size of your workforce, your team's age and health demographics, and any particular healthcare preferences. 

For example, if you have a younger, healthier workforce, you may prioritize more affordable options, whereas an older or diverse workforce may need more comprehensive coverage. 

Additionally, if you're offering an ICHRA, assess whether your employees would benefit from a fixed contribution model, where they can purchase individual plans that meet their unique healthcare needs. 

Step 2. Compare plans

The next step is to explore the health insurance plans available in California. 

If you’re using an ICHRA, your ICHRA administrator will help you understand the plans available to your employees and set a reimbursement budget that meets your employees’ needs and aligns with your business goals. They can also help with regulatory compliance, facilitate employee plan selection and enrollment, and manage reimbursements.

For businesses not using an ICHRA, you can use resources like Healthcare.gov or the California Department of Insurance to explore plans available in your area. 

Regardless of the route you choose, it's essential to compare premiums and provider networks, coverage limits, and benefits to ensure the benefits you offer are cost-effective, competitive, and promote employee retention.

Step 3. Consult a broker or advisor

Navigating the complexities of health insurance options can be challenging, but both ICHRA administrators and independent brokers or advisors can help. 

When offering an ICHRA, your administrator will provide expert advice on how to structure your contributions and help you set the right budget for your business and employees. They can also offer guidance on ICHRA-specific regulations and compliance requirements. 

For businesses using traditional group health insurance, working with a health insurance broker or advisor is highly recommended. They can assist you in comparing various insurance carriers and plan designs, ensuring you understand all available options and their implications for your business. 

Whether you go through an ICHRA administrator or an external advisor, this professional guidance can make decision-making much easier.

Step 4. Enroll and educate employees

Once you’ve selected the right plans, the next step is to enroll employees and ensure they understand their options. 

For businesses using an ICHRA, the administrator will assist with the enrollment process, providing your employees with the necessary information on how to select individual plans and make informed decisions. They can also handle communications and answer any specific questions employees might have about the available plans. 

If you're offering a traditional group health plan, you will need to provide employees with enrollment forms, explain the plan details, and ensure they understand how to use their benefits. 

Educating your employees is key to ensuring they fully understand and maximize the benefits available to them.

Resources for California’s small businesses

Various tools, organizations, and platforms can assist you with plan administration, compliance, cost management, and employee engagement. These resources can help streamline the process, ensure compliance, and reduce administrative burden.

Plan administration and compliance

Several California-based resources help small businesses stay compliant and manage their health insurance plans efficiently. These platforms simplify plan setup and eligibility management, ensuring your business meets state and federal requirements.

• Covered California for Small Business: Provides a marketplace for small businesses to compare and purchase health insurance plans, ensuring compliance with state regulations 

• Third-party administrators: For businesses using ICHRAs, third-party administrators like Thatch can handle compliance, contributions, and employee eligibility management

• Plan aggregators: Platforms that provide cost transparency, helping businesses choose the most affordable plans based on specific employee needs

Employee education and engagement

Educating employees about their health insurance options helps them make informed decisions and utilize their benefits effectively. Several resources are available to support employee engagement and education.

• Health Consumer Alliance (HCA): Offers expert guidance to employees on understanding and navigating their health insurance plans 

• Workshops and informational sessions: Many ICHRA administrators provide webinars and materials to educate employees on plan choices and enrollment

• Benefit communication tools: Platforms that send reminders, create FAQs, and provide digital guides to ensure employees fully understand their coverage options

Utilizing these resources can make health insurance management easier and more cost-effective and provide better support to your employees in California.

FAQ 

Are small businesses in California required to offer health insurance?

In California, small businesses with fewer than 50 full-time employees are not required to offer health insurance. However, businesses with 50 or more full-time employees must comply with the Affordable Care Act’s employer mandate and provide coverage. 

What are the most affordable health insurance options for small businesses in California?

Affordable options for small businesses in California include HMO plans, which often offer lower premiums, and the use of a private exchange like CalCHOICE for a variety of plan options. 

Additionally, utilizing an ICHRA can allow businesses to set a fixed contribution amount, giving employees flexibility in choosing their plans.

How does an ICHRA work for small businesses in California?

An ICHRA allows small businesses to reimburse employees for individual health insurance premiums and other qualified medical expenses using tax-free funds. Unlike traditional group plans, an ICHRA offers flexibility for employees to choose their own coverage from various carriers, while the business controls the contribution amount.

Find the right small business health insurance in California with Thatch

Providing health insurance is one of the most valuable benefits you can offer your employees, but navigating the complex world of traditional health insurance plans can be overwhelming for small business owners. 

From understanding plan options to managing compliance and costs, it’s easy to feel lost in the process. Small businesses often struggle to balance offering quality coverage while keeping expenses manageable.

Thatch is here to make it easier. 

With flexible, cost-effective ICHRA plans, Thatch allows employees to choose the coverage that best fits their individual needs, providing them with greater flexibility and control over their health benefits. Thatch also simplifies plan administration with key features, including:

• Automated reimbursements: Streamline payments to employees for qualified health expenses

• Compliance support: Built-in tools to ensure your business stays in line with federal and state regulations

• Easy onboarding: Get started quickly with expert guidance every step of the way

With these features, you can focus on growing your business while Thatch handles the complexity of benefits management.

Explore Thatch’s tailored solutions today and take the next step in offering better health benefits to your employees. Sign up for a free demo to see how Thatch can simplify your health benefits administration and provide the best options for your team.