How to offer health insurance to part-time employees

Providing affordable health insurance to employees can boost your benefits package and help you recruit qualified full- and part-time workers. And yet, while 89% of full-time workers have health coverage from their employers, only 26% of their part-time counterparts do¹.

Our Employee Benefits Survey found that 92% of employees believe health benefits are important perks to have. Based on this, it’s clear that providing your part-time workers with a health benefit can improve morale and retention. But what kinds of health coverage are available to part-time employees, and how can you offer it?

In this blog post, you’ll learn:

• How to define part-time and full-time employment based on hours worked and the Affordable Care Act (ACA).
• Your options for offering health insurance to employees with part-time status.
• How health reimbursement arrangements (HRAs) can support full- and part-time workers.

Who does the law consider a part-time employee?

Employers usually consider full-time staff members as individuals who work 40 hours or more per week. Conversely, part-time employees work less per week.

Many employers classify part-time as anyone who meets one of the following hourly thresholds:

• Fewer than 130 hours per month for more than 120 days in a row
• Fewer than 40 hours per week
• Fewer than 30 hours per week

However, the definition of “part-time” differs when it comes to employer-sponsored health insurance. Under the Affordable Care Act (ACA), a full-time employee is someone who works at least 30 hours per week. Business owners must use this number to calculate their number of full-time equivalent employees (FTEs) when determining if they must offer medical coverage. Anyone who works fewer than 30 hours per week is part-time for health insurance purposes.

Aside from these general rules, no federal laws set strict guidelines surrounding part-time work. Employers can decide what they consider part-time hours for their individual businesses. But check your state and local laws for any part-time employment regulations before determining how you’ll categorize your part-time and full-time hours.

How can employers offer traditional health insurance to their part-time workers?

Federal law doesn’t require you to provide health coverage to part-time staff. But deciding to do so can be a good idea.

Traditional group health insurance is a popular option that covers 154 million Americans. With this type of benefit, you choose a group health plan for your company that your employees can enroll in at a reduced monthly premium rate.

A group health insurance policy can cover full-time and part-time workers. But its high costs don’t always make it the best choice for employers.

The average annual premium for group health insurance in 2024 was $8,951 for self-only policies and $25,572 for family plans². Employers paid for 84% of their employees’ self-only premiums and 75% of family premiums. Depending on your plan type and the number of full-time and part-time employees enrolled in coverage, this can be costly.

If you want to offer a group plan and include your part-time workers, you must first know a few rules.

1. ACA requirements

According to federal regulations, you must provide health benefits to all employees in similar situations to avoid discrimination issues.

This means you can only vary benefit eligibility based on job-based classifications, such as³:

• Geographic location
• Job position
• Tenure
• Full-time or part-time status

Full- and part-time status is a job-based classification. For example, you can’t give health coverage to one part-time worker while refusing it to another part-time employee working the same number of hours and doing the same job.

2. Health insurance company requirements

Insurance carriers have different guidelines about providing health insurance to part-time employees. In short, some allow it, but others don’t. If you want to offer a health insurance policy to your part-time workers, ask your preferred insurer what their rules are. You can also work with a broker before securing coverage.

3. Minimum participation requirements

Most insurers require a certain percentage of employees to enroll in your group plan. If not enough of them do, you won’t be able to offer the policy. The specific percentage varies by insurance provider.

States also impose minimum participation requirements for employers who offer a small group plan through the Small Business Health Options Program (SHOP) Marketplace. In most cases, employers need at least 70% of employees to participate in a group policy.

If you offer health insurance coverage to part-time workers, you must add them into your calculations to determine if you meet the minimum standard.

4. Your company’s requirements

Besides the above rules, you can create your own criteria for part-time workers to qualify for health coverage. For instance, you can require employees to work at least 25 hours a week or 40 hours a month to be eligible for health benefits.

You must explain your eligibility requirements to part-time workers so they know what to expect in advance. An efficient way to do this is to include the information in your job postings and employee handbook as company policy. This way, they’ll know how to qualify for coverage from the beginning of the employee life cycle.

What other health benefits can support part-time employees?

Traditional group health insurance is expensive. Many small businesses can’t afford to offer these plans, or they don’t meet the participation requirements. Your chosen group plan may also not allow you to include part-time employees. If you face any of these situations, you still have options.

Other affordable and flexible health benefits can support full-time and part-time workers. One of the most popular options for employers of all sizes, locations, and budgets is the health reimbursement arrangement (HRA).

An HRA is an employer-funded health benefit that allows you to reimburse employees tax-free for their individual health insurance premiums and qualifying out-of-pocket expenses. With an HRA, you set a monthly allowance that your employees can spend on insurance premiums and medical care. Once employees make an approved purchase, you reimburse them tax-free up to their set allowance amount.

Two HRAs can cover your part-time employees without requiring you to buy a group health plan. We’ll go over both benefits in the sections below.

Qualified small employer HRA (QSEHRA)

The qualified small employer HRA (QSEHRA) is for employers with fewer than 50 FTEs who don't offer a group health or ancillary plan to any employees. There are no minimum participation requirements with a QSEHRA. You can offer it as long as you have at least one W-2 employee.

The QSEHRA is customizable. For example, you can design it to reimburse eligible employees for health insurance premiums only or their monthly premiums plus qualified out-of-pocket costs. This keeps your budget in check while helping your employees with their medical expenses.

Lastly, the QSEHRA has no minimum employer contribution requirements. But, the IRS sets annual maximum contribution limits.

Here’s how a QSEHRA can support your part-time staff:

• The QSEHRA is available to all full-time W-2 employees. But you can add your part-time employees to the benefit as long as they receive the same allowance as full-time employees.
• Your employees can choose their preferred individual health plan instead of enrolling in a group plan that may not meet their needs.
  • However, to participate in the QSEHRA, all employees must have a health plan that provides minimum essential coverage (MEC).
• Employees eligible for a QSEHRA can collect premium tax credits if their QSEHRA allowance isn’t affordable.
• QSEHRA reimbursements are payroll and income tax-free for employees.

The QSEHRA is an excellent solution for small businesses looking for a quality but affordable health benefit for their entire staff.

Individual coverage HRA (ICHRA)

Another option is the individual coverage HRA (ICHRA). The ICHRA works like the QSHERA. But, it has a few notable differences. For example, it’s available for companies of all sizes and has no maximum contribution limits. Like the QSEHRA, all individual businesses with at least one W-2 employee can offer an ICHRA.

Here’s how an ICHRA can support your part-time staff:

• For greater personalization, you can set custom ICHRA allowances based on job-based employee classes, such as part-time employees. This allows you to offer more to full-time employees and less to part-time employees, for example.
• All employees must have a qualifying form of individual health insurance that provides MEC to participate in the ICHRA.
• Employers can offer both group insurance and an ICHRA at their organization. But they can’t give the same employee class a choice between the two options.
  • For instance, you can offer group coverage to full-time employees and an ICHRA to part-time workers. This allows you to cover your part-time workers at a lower cost than group medical plans. This is an excellent option if your group health plan doesn’t allow part-time employees.
• Employees who qualify for premium tax credits can opt in or out of the ICHRA based on affordability.

Lastly, applicable large employers (ALEs) must offer their employees healthcare coverage to comply with the employer mandate or pay a tax penalty. Most ALEs think a traditional group plan is the only way to fulfill this federal regulation. But, you can design an ICHRA to meet the mandate without enrolling in a costly group plan. This saves you money and keeps you compliant while giving your employees greater control over their healthcare.

Conclusion

Health insurance benefits aren’t only for full-time workers. While not required, providing part-time employees with health coverage has many advantages. It helps you entice and retain talented workers and ensures your staff stays happy and healthy, regardless of how many hours they work.

Offering a group health insurance plan isn’t the only way to support your part-time staff. Whether you choose a QSEHRA or ICHRA, your entire workforce can have a personalized health benefit that won’t break your budget. Talk to an HRA specialist today, and we’ll help you design and administer the right HRA for your organization.

1. BLS - 2024 Employee Benefits in the U.S.

2. 2024 KFF Employee Health Benefits Survey

3. CFR 2590.702