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Health insurance for small business owners - cost & tax tips

Manasa Reddigari

Small business owners can have a lot of trouble when it comes to health insurance. Thankfully, many insurance options cater to small business owners.

Here's a rundown of the best options for health insurance for small business owners. We'll also cover the deductions or credits that can help offset the costs.

How to get health insurance for small business owners

Options for health insurance for small business owners depend on the size of your business. Solopreneurs can get coverage from the following sources:

  • Individual marketplace. Choose this option to buy an individual plan through You may be eligible for premium tax credits depending on your income and location.
  • Private individual plan. Many major health insurance carriers sell individual plans directly to individuals. You won't be eligible for government health insurance premium subsidies with this.
  • Trade association plan. Professional trade associations allow members to buy into a group health insurance plans. This can potentially save versus private individual plans.
  • Medicare. Medicare provides health insurance coverage for seniors. Your age and Medicare tax contribution history will determine whether you qualify for this.

Multi-person businesses can get health insurance for small business owners from the sources below:

  • Qualified Small Employer Health Reimbursement Arrangement (QSEHRA). With a QSEHRA, a small business allocates a monthly healthcare allowance for each employee. Then, they reimburse each employee for healthcare expenses when the employee submits proof of the expenditures. Businesses must have fewer than 50 employees to qualify.
  • Small Business Health Insurance Program (SHOP) marketplace: You must operate a small business within the state in which you want to offer a SHOP plan and your business must have 1 to 50 full-time employees (other than you or a spouse, family member or owner) to be eligible for a plan. You must offer the SHOP coverage to all full-time employees, and at least 70 percent must enroll.
  • Private group plan: Many major health insurance carriers sell group policies to businesses of varying sizes.

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How much do small business owners pay for health insurance?

The cost of obtaining healthcare insurance for yourself and any employees depends on the age, location, and size of the workforce. It also depends on what, if any, premium cost-sharing arrangement you made with your employees to reduce your costs.

But according to PeopleKeep, small businesses with fewer than 200 employees annually paid roughly $6,480 per employee for single coverage premiums and $17,616 per employee for family coverage premiums in 2017. They spent another $13,000 annually in plan administrative costs.

You'll also have to factor in the cost of hiring a part- or full-time benefits administrator, if you choose to hire one, to handle plan selection, price negotiation, plan enrollment and compliance. If you decide to oversee the plan yourself, factor in how much time it would take you to manage the plan throughout the year and translate that into opportunity cost.

Can I deduct health insurance as a small business owner?

Yes; many entrepreneurs enrolled in a qualifying health insurance plan for small business owners qualify for one or more health insurance tax deductions or credits. These include the:

  • Self-employed health insurance deduction: You can generally deduct 100 percent of the premiums you pay for health, dental and long-term health coverage for yourself, your spouse and any dependents aged 26 or younger if you qualify for this health insurance deduction. To qualify, you must have been a self-employed worker with a net profit, a partner who received income on K-1, an individual who used one of the IRS-defined optional methods to figure your self-employment tax or you received wages from an S corporation in which you were a shareholder who held more than 2 percent of shares.
  • Small business health care tax credit: You are eligible for this credit that amounts to 50 percent of the costs you pay for your employees' premiums (35 percent for non-profit employers) if you offer a SHOP plan. But you must have fewer than 25 full-time employees (each making $50,000 or less), and you must cover 50 percent or more of your full-time employees' premium costs.
  • HSA deduction: If the plan you enroll in is eligible for a health savings account (HSA), and you contribute to that HSA account, your contributions are also deductible (up to $3,450 for an individual or $6,850 for a family in 2018). Usually, only high-deductible healthcare plans come with health savings accounts.

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