Can an LLC Get Group Health Insurance?

Group health insurance is an excellent addition to an employee benefits package, and can help offer a number of benefits to your workplace, including decreased stress, improved efficiency, and greater employee retention. But for a “business structure” like an LLC, is it possible to get group health insurance for your employees?

In short, yes. An LLC, or limited liability company, can get group health insurance. An LLC can be considered an employer, and therefore group health insurance may be offered by employers to their employees as part of a benefits package, or as an individual benefit.

In this blog post, we address why an LLC might choose to offer group health insurance to its workers and what benefits providing it may have for your business. 

What is a limited liability company?

In the United States, a limited liability company (or just LLC, for the purpose of this article) is a business structure that is designed to protect its owners from any personal responsibility pertaining to liabilities or debts. A limited liability company is technically a hybrid entity, which combines the qualities of a sole proprietorship with that of a corporation.

To exist, an LLC must acquire articles of organization that are then filed with their state. From step one to completion, an LLC is simpler to arrange than a corporation and tends to offer more flexibility and security for its investors than the latter option.

LLCs may also choose not to pay federal taxes directly. The “limited liability” feature of an LLC is very similar in essence to that of a corporation. Still, the losses and profits may be reported on the personal tax returns of the owners of the company. LLCs can also choose to classify as a corporation. Creditors can go directly after members if fraud is detected or the company is unable to meet its reporting or legal state or industry requirements.

Are limited liability companies required to purchase group health?

No, it’s important to note that LLCs are not required by law to purchase group health insurance, and there are many examples of smaller LLCs choosing to opt out of their purchase for multiple reasons. Employers may also have the option to purchase individual health insurance or acquire coverage through their spouse’s insurance plan, if applicable.

It tends to be that individual health insurance can offer more flexibility and choices than group plans that an LLC provides, but it’s more expensive than a group health plan. Depending on what your employees prefer – flexibility over affordability, or vice versa – you can choose either.

Employees who want to go the group health route may have to pay a small monthly premium to maintain their coverage.

How does the taxation of an LLC impact the health plan you choose?

Depending on if you have a single-member LLC that is taxed as a sole proprietor, a multi-member LLC taxed as a partnership/S corp or an LLC taxed as a corporation, your options for a health plan may be impacted or limited.

Single-member LLCs taxed as sole proprietorships mean you will not be able to deduct your health plan premiums as business expenses. According to the IRS, single-member LLC health insurance and other business activities should be reflected on the owner’s federal tax return.

Multi-member LLCs taxed as a partnership or S corp means that the losses and profits of your company flow through to the owner’s personal income tax returns.

Finally, LLCs taxed as corporations may have more limited options on the type of health plans that they can purchase, and costs will be a lot higher.

Why should an LLC buy group health insurance?

For any business, it can be confusing trying to pick the “right” group health insurance plan, but it can be even more so for an LLC owner. It is worth taking the time to look through your various options, possibly with the aid of an insurance agent, and find the plan that best suits you and your company.

Also, depending on what your LLC is filed as your options may differ.

For example:

• • Filing as self-employed means that you may need to consider getting group health insurance directly via an agent or insurance company.

• • Filing as a non-member employee may mean having to get individual health insurance.

• • Filing as a partnership where you and your partners want to get group health insurance as a more affordable option may necessitate the enlisting of an accountant/financial advisor to see what is the best option for you and your company.

• • Filing as a corporation means your options will likely be far more limited, and coverage costs may be higher than other LLCs and unincorporated organizations.

A lot of business owners nowadays are opting for a totally alternative option, which is a “health reimbursement arrangement,” or HRA. An HRA is essentially an agreement that exists between your company and your insurer, where you will be reimbursed (tax-free) for any incurred medical costs.

Each month, money is set aside to cover unexpected healthcare costs.

HRAs can be used with group health plans or individual plans. This allows for additional flexibility that other options may not present. You may be able to use them to cover expenses that ordinary health plans won’t, such as dental/vision or even wellness care. If you have further questions about healthcare options for LLCs, give Hitchings Insurance a call to discuss.