An LLC can sponsor group health insurance. So can an S corporation, a C corporation, and a partnership. The company's legal form is the starting point, not the obstacle. What changes with form is the tax treatment of owners, and, in some cases, whether a particular product treats an owner as an eligible employee.
This page separates two questions that get mixed together in searches such as "can an LLC owner get group health insurance." The first is whether a group policy or an HRA can be issued. The second is how the owner's premium is taxed. Ares will help you with the first, and will flag the second for your tax advisor.
What it is
An LLC is a state-law entity. For federal tax purposes it may be a disregarded entity, a partnership, an S corporation, or a C corporation. That tax classification, not the letters "LLC" on the articles, is what drives the fringe-benefit rules.
IRS Publication 15-B and the IRS page on S corporation compensation and medical insurance issues describe the owner rules that come up most often:
- A 2-percent S corporation shareholder is treated as a partner, not as an employee, for fringe-benefit purposes under IRC § 1372. Premiums the S corporation pays for that shareholder's accident or health insurance are included in the shareholder's wages for income-tax withholding, as the IRS explains, following Revenue Ruling 91-26. The exclusion in § 106 that applies to employees does not apply to those premiums, and the exclusion in § 105(b) for reimbursements under a self-insured arrangement does not apply to a 2-percent shareholder.
- A 2-percent S corporation shareholder is not an employee for § 125 purposes and may not participate in the company's cafeteria plan, including a premium-only plan or a health FSA. The IRS cites Proposed Treasury Regulation § 1.125-1(g)(2)(i) for that point. Partners are in the same position.
- Common-law employees of the LLC or S corporation — including, in a C corporation, owner-employees who are not in the 2-percent S corporation or partner category — may generally be covered on the same terms as other employees, and may use the cafeteria plan when the Code allows it.
- A self-employed owner (including a sole owner of a disregarded LLC, and generally a partner) is not the "employee" for whom an ICHRA or a QSEHRA is designed. Those arrangements are for employees. The existing ICHRA and QSEHRA pages state that they are not for a self-employed owner or the spouse of a self-employed owner. The IRS also notes limitations on QSEHRA participation for 2-percent S corporation shareholder-employees.
Owners in these categories may still have other tax paths for premiums, including, where it applies, the self-employed health insurance deduction. That deduction is a tax-return issue for the owner and the tax advisor, not a plan-design we will invent here.
Who it fits
This page is for any LLC, S corporation, or owner-operated company that wants to offer coverage to employees, to owners, or to both. If the company has common-law employees who are not owners, a small-group plan, SHOP, a level-funded plan, or an HRA for those employees is usually in the conversation — including at two, five, or ten employees. If the census is owner-only, a group policy and SHOP may be unavailable, and individual coverage is often the path for the owner.
How it works for employers
You send a roster that identifies each person's ownership percentage, tax classification, and whether they are a common-law employee, plus the states where people work. We confirm which products can be issued for that census, how a cafeteria plan can be used for the employees who are allowed to participate, and how an HRA — if it is the right structure — would apply to employees. We will not complete a Form 1120-S or a personal return, and we will ask your tax advisor to confirm the wage-inclusion and deduction treatment for any 2-percent shareholder or partner.
How it compares
The medical-plan menu for an LLC is the same menu on the group plan options page: a group policy, SHOP, level-funded coverage, or a defined-contribution HRA for employees. What is different is the owner-tax overlay and, sometimes, product eligibility for owner-only groups. A family business has a closely related set of questions when family members are also owners or dependents. We will not describe one legal form as a cheaper way to buy coverage.
To get a proposal that starts from your actual entity and roster, request a proposal or call (813) 540-1299. Our agents are licensed in all 50 states.Frequently asked questions
Can an LLC get group health insurance?
Yes, when it has eligible employees and meets the issuer and state rules for the product. The LLC's tax classification affects how owners are treated, not whether the company may sponsor a plan for employees.
Can an S corporation owner be on the group policy?
Often the policy can include a shareholder-employee, subject to issuer rules. The tax treatment of that owner's premium is the 2-percent shareholder rule described above, and that owner may not participate in the cafeteria plan. Your tax advisor should confirm the reporting.
Can an LLC owner use an ICHRA or a QSEHRA for himself or herself?
Those arrangements are for employees, not for self-employed individuals, and the IRS describes limits for 2-percent S corporation shareholder-employees in a QSEHRA. Employees of the company may be eligible. We will apply the arrangement's rules to each person on the roster.
Can the owner pay premiums through a Section 125 plan?
Partners and 2-percent S corporation shareholders may not participate in the cafeteria plan. Other employees may, when the Code allows it.
What if the LLC has no employees other than the owner?
SHOP requires at least one full-time equivalent employee who is not an owner, a spouse or family member of an owner, or a partner. Many group products have their own eligibility conditions. Individual coverage is often the path for an owner-only shop. We will tell you what can actually be issued.
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