# Group health insurance for a small business

> Fully insured, level-funded and self-insured plans, the small-group market and SHOP, and what Northwind's first plan costs it.

Source: https://lopifi.com/learn/group-health-insurance-for-small-business
Part of: Lopifi — US GAAP books on autopilot, checked by a CPA (https://lopifi.com)

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**How does group health insurance work for a small business?** Fully insured, level-funded and self-insured plans, the small-group market and SHOP, and what Northwind's first plan costs it.

A [group health plan](https://lopifi.com/md/glossary/group-health-plan) is a promise the employer makes to its employees; an insurance policy is one way to pay for it. How it is paid for — its funding — decides who carries the claims risk and whose rules apply. There are three ways a startup meets.

**Fully insured**
- Pro: The carrier bears the claims risk
- Pro: A fixed premium per enrollee
- Pro: State insurance law protects employees
- Con: Premiums set by the carrier, renewed each year
- Con: Carries the state's mandated benefits
- Best for: Most small employers, and Northwind

**Level-funded**
- Pro: A fixed monthly payment like a premium
- Pro: Generally outside state health insurance law
- Con: Still a self-insured plan in law: the employer is on the hook past the stop-loss
- Con: More moving parts — TPA, stop-loss carrier, claims fund
- Best for: Small and mid-sized employers whose workforce is healthier than its rating pool

**Self-insured**
- Pro: Generally not subject to state health insurance laws
- Pro: Plan design the employer controls
- Con: The employer pays the claims
- Con: Stop-loss is not health insurance under state law and does not cover everything
- Best for: Larger employers with a predictable claims history

Three ways to fund a group health plan.

> “Stop-loss insurance generally is not treated as health insurance under State law.”

— [DOL EBSA Technical Release No. 2014-01](https://www.dol.gov/agencies/ebsa/employers-and-advisers/guidance/technical-releases/14-01), Self-insured plans, stop-loss insurance and state insurance law

A [fully insured plan](https://lopifi.com/md/glossary/fully-insured-plan) buys a policy: the employer pays a premium and the carrier pays the claims. A [self-insured plan](https://lopifi.com/md/glossary/self-insured-plan) pays claims from the employer's own money, usually through a third-party administrator, and buys [stop-loss insurance](https://lopifi.com/md/glossary/stop-loss-insurance) against a bad year. A [level-funded plan](https://lopifi.com/md/glossary/level-funded-plan) is self-insured in law but sold to look like a premium. Self-insured plans are generally outside state health insurance law — though the ACA's federal market reforms still apply to them.

## The small-group market and SHOP

Most startups buy fully insured coverage in the small-group market, through a broker, a carrier directly, or the [SHOP](https://lopifi.com/md/glossary/small-business-health-options-program) Marketplace. SHOP is for employers with 1 to 50 FTEs (up to 100 in some states), at least one employee who is not an owner, spouse or family member of an owner, and coverage offered to every full-time employee. SHOP requires that at least 70% of the employees offered coverage enroll (some states set a different rate) — a rule that does not apply to enrollments between November 15 and December 15 each year.

> “Have 1-50 full-time equivalent employees (FTEs).”

— [HealthCare.gov — Find out if your small business qualifies for SHOP](https://www.healthcare.gov/small-businesses/choose-and-enroll/qualify-for-shop-marketplace/), SHOP: who qualifies, and the 70% participation rule

**Northwind — $650 a month, 75% paid.** Northwind buys a fully insured employee-only plan through a broker, effective October 1, 2026. The carrier quotes $650 per enrollee per month. Northwind pays 75%: $487.50 each, and the employee pays $162.50. Both employees enroll, so the monthly bill is $1,300 — $975 of it Northwind's — and the plan costs Northwind $11,700 a year.

|  | Per enrollee | All 2 |
| --- | --- | --- |
| Northwind's share | 487.50 | 975 |
| Employee's share, pre-tax | 162.50 | 325 |
| The carrier's bill | 650 | 1,300 |

What one Northwind enrollee's $650 premium is made of.

*[Figure: double entry]*

BEN-4: Northwind's own share, the month's cost of the plan to the company.

1. **Set the contribution.** Decide what share of the premium the company pays, for employees and for dependents.
2. **Get quotes.** Through a broker, a carrier or SHOP. Check the carrier's participation and contribution minimums.
3. **Run enrollment.** Give employees the carrier's summary of benefits and coverage, and collect enrollments and waivers.
4. **Adopt a §125 premium plan.** Adopt a written section 125 premium plan so the employees' share comes out pre-tax.
5. **Paper the ERISA plan.** The plan is an ERISA plan: it needs a plan document and a summary plan description.
6. **Wire payroll and the books.** Add the deduction, set up the carrier's monthly bill, and the accounts the plan needs.

Setting up a small-group plan, in order.

> **Next.** The pre-tax part is the [section 125 lesson](https://lopifi.com/md/learn/section-125-pre-tax-health-premiums). The paperwork is the [ERISA lesson](https://lopifi.com/md/learn/erisa-plan-document-spd-form-5500). The books are the [last lesson](https://lopifi.com/md/learn/accounting-for-employee-benefits).

## Where this lesson's rules come from

- [DOL EBSA Technical Release No. 2014-01](https://www.dol.gov/agencies/ebsa/employers-and-advisers/guidance/technical-releases/14-01) — Self-insured plans, stop-loss insurance and state insurance law (agency)
- [HealthCare.gov — Find out if your small business qualifies for SHOP](https://www.healthcare.gov/small-businesses/choose-and-enroll/qualify-for-shop-marketplace/) — SHOP: who qualifies, and the 70% participation rule (agency)
- [Wikipedia, “Self-funded health care”](https://en.wikipedia.org/wiki/Self-funded_health_care) — Self-funded health care (reference)

## Read further

- https://lopifi.com/md/startups/payroll-journal-entries

- **Track:** [Health & benefits](https://lopifi.com/md/learn/benefits)
- **Lesson:** Lesson 2 of 10 — 10 min
- **Terms taught:** [Group health plan](https://lopifi.com/md/glossary/group-health-plan), [Fully insured plan](https://lopifi.com/md/glossary/fully-insured-plan), [Self-insured plan](https://lopifi.com/md/glossary/self-insured-plan), [Level-funded plan](https://lopifi.com/md/glossary/level-funded-plan), [Stop-loss insurance](https://lopifi.com/md/glossary/stop-loss-insurance), [Small Business Health Options Program](https://lopifi.com/md/glossary/small-business-health-options-program)
- **Previous:** [The employer mandate penalties and affordability, Benefits · Lesson 1](https://lopifi.com/md/learn/does-a-startup-have-to-offer-health-insurance/employer-mandate-penalties)
- **Next:** [Section 125: pre-tax health premiums, Benefits · Lesson 3](https://lopifi.com/md/learn/section-125-pre-tax-health-premiums)
- **The course:** https://lopifi.com/md/learn