What Is Considered to Be a Small Group of Employees?

The answer depends on your state

The definition of small group depends on your state
Employers with 50 or more workers have to offer affordable health insurance. But small group regulations apply to different groups in different states.. Caiaimage/Robert Daly/Creative RF/Getty Images

Most of the Affordable Care Act's regulations apply to individual and small group health plans, as opposed to large group plans (some provisions - like the medical loss ratio and the ban on lifetime and annual benefit maximums - apply to large groups as well).

Individual plans are easy to define - they're the plans you buy on your own, rather than coverage obtained through an employer. But the definition of "small group" isn't always clear-cut.

The employer mandate

First, there's the requirement that large employers must offer affordable health insurance to their workers, while small employers are not required to offer coverage. In this case, the threshold is 50 full-time equivalent (FTE) employees. The ACA requires businesses with 50 or more FTE employees to offer affordable insurance to all of their full-time employees (and the ACA defines full-time as 30 or more hours per week). This requirement was supposed to be implemented in 2014, but was delayed until 2015/2016 depending on the size of the business.

But there is no requirement that businesses with 49 or fewer FTE employees offer health insurance coverage. They can if they want to - and small business tax credits might be available if they do - but they aren't required to.

Coverage requirements for small group plans

That said, the ACA implemented several new requirements for small group health plans.

So small employers who do purchase group health insurance coverage must buy plans that conform to the new regulations.

[if they still have the plan they had as of March 23, 2010, the plan is grandfathered and can remain in force indefinitely - as long as it's not changed significantly - unless the employer decides to switch plans or the insurance carrier terminates the plan. And if the plan became effective between March 24, 2010 and October 1, 2013, it's grandmothered (or transitional), and can possibly remain in force as late as September 2017.]

The requirements that apply to small group plans (but not large group plans) include:

  • Essential Health Benefits must be covered on all plans with effective dates of January 2014 or later, with no annual or lifetime dollar limits. This applies regardless of whether they're purchased through the SHOP exchanges, private exchanges, or directly from a carrier.
  • Medical underwriting cannot be used to determine a group's premiums. Small groups can no longer be charged higher premiums because of employees' medical history, gender, or the industry in which the business works.

To what size groups do those requirements apply?

Originally, the ACA called for the small group coverage requirements to apply to groups with up to 50 employees, and then expand to groups with up to 100 employees as of 2016.

That would have meant that starting in 2016, groups with 50 - 100 employees would have been required to offer coverage (because of the employer mandate), and the coverage would also have been required to conform to the ACA's small group coverage requirements (unless the group had a grandfathered plan).

But in October 2015, President Obama signed the PACE Act into law. The PACE Act revised the ACA to keep the definition of "small group" at 1-50 employees, eliminating the definition change to 1-100 employees that had been set to take effect in 2016.

But the PACE Act also gives states the right to expand the definition of a small group to include businesses with up to 100 employees. So on the federal level, a group with 51 employees is still considered a large group, which means, for example, that it can purchase health insurance that doesn't include the ACA's essential health benefits. But if the state opted to go ahead and change the definition of small groups to include those with up to 100 employees, that group with 51 employees would be considered a small group, and would have to purchase coverage that conforms to the ACA's coverage requirements for small groups.

Most states have opted to follow the federal government's lead and keep the definition of a small group at businesses with no more than 50 employees. But California, Colorado, New York, and Vermont maintained their original plans to switch over to the expanded definition of "small group" (up to 100 employees) as of January 2016 (Virginia had also passed a law changing the definition of small group to up to 100 employees, in order to align with the ACA; after the PACE Act passed, Virginia passed emergency legislation to revert to the prior definition of up to 50 employees).

Summing it up

So here it is, in a nutshell:

  • If you've got 49 employees, you're not required to offer health insurance. If you've got 50 employees, you are. This applies in every state.
  • If you've got 50 employees, the health plans available to you will all be compliant with the ACA's small group coverage regulations. This applies in every state.
  • If you've got 51 employees and you're in California, Colorado, New York, or Vermont, the plans available to you will be compliant with the ACA's small group coverage regulations. In the rest of the states, the health plans available to you will be large group plans, and won't have to conform to the ACA's small group coverage requirements (although they will have to conform to some of the ACA's regulations, as some apply to large groups too).


Center for Consumer Information and Insurance Oversight, Market Rating Reforms. State Specific Rating Variations, updated 2/26/2016. Accessed 2/26/2016.

Department of Health and Human Services, FAQs on the Impact of PACE Act on State Small Group Expansion, 10/19/2015. Accessed 2/26/2016.

Internal Revenue Service, Small Business Health Care Tax Credit: Questions and Answers. Accessed 2/26/2016

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