Does a Texas business have to offer health insurance? The rules and the real reasons

Most small Texas businesses are not required to

Texas does not have its own state law requiring private employers to provide health insurance. The federal requirement under the Affordable Care Act applies to applicable large employers, which the IRS defines as businesses with at least 50 full-time employees, including full-time equivalents, on average during the prior year. Below that line, offering coverage is a choice. Once you do offer it, other rules apply, including COBRA at 20 or more employees and Texas state continuation for smaller groups.

I am Rex Slover, and at Slover Agency in Murphy I set up group health and benefits for businesses across the Dallas area, many of them offering coverage for the first time. What follows is general information about the rules as I work with them every day. For questions about how they apply to your company specifically, talk with your CPA or an employment attorney as well as a licensed benefits broker.

The federal line: 50 full-time employees

The IRS explains that an employer becomes an applicable large employer for a calendar year if it had at least 50 full-time employees, including full-time equivalent employees, on average during the prior year. A full-time employee, for this purpose, is someone who averages at least 30 hours of service per week in a month, or at least 130 hours in a calendar month.

Part-time hours count toward the total through the full-time-equivalent calculation, which is why a business with 40 full-time staff and a large part-time crew can cross the line without realizing it. Restaurants, retailers and service companies with many part-time workers should run the calculation each year with their payroll provider or CPA. Applicable large employers are subject to the federal employer shared responsibility rules, and the details of those rules, including any payments, are a question for your tax advisor.

• At least 50 full-time employees, including full-time equivalents, on average in the prior year
• Full-time means an average of at least 30 hours a week, or 130 hours in a month
• Status is determined each year based on the year before

Under 50: optional, but rarely a neutral choice

If your business is below the applicable large employer line, no federal or Texas law requires you to offer health insurance. That does not make the decision neutral. In my experience, the owners who call me about benefits for the first time are rarely driven by a legal requirement. They are driven by a candidate who turned down an offer, a valued employee who left for a job with coverage, or their own family's need for a group plan.

Offering coverage is also not all or nothing. You choose the plan, the contribution and the eligibility rules within carrier guidelines. Some small employers start with a single medical plan and a modest contribution, then add dental, vision or life in later years as the business grows. What it costs and what moves the price are covered in what it costs a small business to offer health insurance.

There is also a timing advantage to starting before you have to. A company that sets up a modest plan at twelve employees learns how enrollment, payroll deductions and renewals work while the stakes are low. A company that waits until it is near 50 full-time employees has to make a larger decision quickly, with more people affected.

Once you offer coverage, continuation rules apply

Offering a plan brings obligations when people leave. The U.S. Department of Labor explains that COBRA generally applies to group health plans sponsored by employers with 20 or more employees in the prior year, and lets departing employees and their families keep the plan for a limited time, paying up to 102% of the cost to the plan. Your plan administrator or PEO usually handles the notices, but the employer is responsible for making sure they go out.

Smaller employers are not entirely outside these rules in Texas. The Texas Department of Insurance explains that if an employee is not eligible for COBRA, Texas state continuation can let them keep coverage for up to nine months after the job ends, provided they had coverage for the three months before leaving. State continuation does not apply to self-funded plans, which the state does not regulate. Ask your carrier or broker how continuation works on your specific plan before your first employee departs.

Employees 65 and older change the math at 20 employees

The 20-employee mark matters for Medicare too. Medicare.gov explains that for people 65 or older covered through current employment, the group health plan pays first and Medicare pays second when the employer has 20 or more employees. When the employer has fewer than 20, Medicare pays first and the group plan pays second.

For a small employer with an employee turning 65, that difference determines whether the employee needs to enroll in Medicare Part B to be fully covered. Getting it wrong can leave someone with unpaid claims or a lifetime penalty. Share whether you need Medicare at 65 if you are still working with any employee approaching that birthday, and make sure whoever handles your benefits can answer their questions.

Ways to offer coverage without overcommitting

If you decide to offer benefits, the structure you choose matters as much as the decision itself. On my agency's group benefits page I list HSA, level-funded and self-funded plan designs alongside traditional fully insured plans, and I also broker professional employer organization arrangements. Each suits a different kind of business.

I put these side by side with real quotes so you can see the trade-offs in dollars, not just in descriptions. A business of eight people and a business of eighty will usually land in different places, and that is how it should be.

• A fully insured plan with an employer contribution toward employee-only coverage
• A high-deductible plan with an HSA, sometimes with an employer deposit to soften the deductible
• A level-funded plan for groups with steady claims, with stop-loss protection built in
• Two plan options side by side, so employees can choose richer or leaner coverage
• A PEO that bundles benefits with payroll and HR administration

Benefits as a hiring and retention tool

In the Dallas–Fort Worth labor market, candidates often compare offers on the whole package, not only the salary. A modest health plan can tip a decision your way, and losing a trained employee to a competitor that offers coverage is expensive in ways that never appear on a premium invoice.

If hiring is your main pain point, a benefits package is one piece of a larger fix. A recruiter such as Chase Bryant can tell you what candidates in your field expect to see in an offer, and I can tell you what it would cost to provide it. Together that turns a vague sense that you should offer benefits into a concrete budget decision.

Retention works the same way. An employee whose family depends on the company plan thinks twice before leaving, and an owner who explains the plan clearly at enrollment gets far more goodwill from the same spending.

Five questions to answer before you decide

Whether or not the law requires it, offering health insurance is a business decision, and it deserves the same thinking you would give any recurring expense. Answer these honestly before you request a single quote, and the right structure usually becomes obvious.

If your answers point to waiting a year, that is a legitimate outcome. Some owners decide to build cash first and revisit benefits at a set headcount or revenue level. Writing that trigger down keeps the decision from drifting.

• What problem are you solving: hiring, retention, your own family's coverage or all three?
• How many people would be eligible, and how many already have coverage through a spouse?
• What can the business contribute each month per employee, in good months and slow ones?
• How close are you to 20 or 50 employees, and do you expect to cross either line soon?
• Who in the business will answer employee questions and handle new hires and departures?

Mistakes I see owners make with the rules

Most of these come from good intentions and a lack of time. They are easier to prevent than to fix.

• Not counting part-time hours, and crossing the 50 full-time-equivalent line without noticing
• Paying employees' individual premiums informally without first checking the tax and compliance side with a CPA or benefits professional
• Forgetting COBRA or state continuation notices when someone leaves
• Assuming every employee over 65 can drop Medicare Part B because they are on the company plan
• Choosing a plan without checking carrier participation and contribution requirements
• Offering benefits and never explaining them, so employees do not value what the company pays for

What I do for first-time employers

I start by learning about your team, your budget and why you are considering benefits. Then I gather a census, request quotes from multiple carriers, including BlueCross BlueShield of Texas, UnitedHealthcare, Aetna, Cigna and Humana, and show you the options with the employer and employee cost for each. I explain the rules that will apply once you offer coverage, and I point you to your CPA or attorney for questions that belong with them.

Once you choose, I handle the applications and enrollment, and I stay your contact for claims, billing and employee questions through the year. My services cost nothing, because carriers pay the broker. When the first renewal arrives, the steps in what to do when a group health renewal goes up will help you decide whether to stay or shop.

Questions people ask me