Health insurance is one of the most important benefits you can offer as a small business owner. Not only does it help you attract and retain top talent, but it also boosts employee satisfaction, productivity, and loyalty. And while setting up health insurance can feel complex, understanding how it works—and what your options are—makes it much more manageable.
In this ultimate guide to small business health insurance, we’ll walk you through everything you need to know so you can make informed decisions for your business and your team.
How does small business health insurance work?
Small business health insurance involves several key components that determine how coverage is provided and shared between employers and employees.
- Group Coverage: As a small business, you purchase a group health insurance plan through an insurance company or broker. This plan covers your employees (and often their dependents) under one policy.
- Employer Contribution: You, as the employer, usually pay a portion of the monthly premiums. Many businesses choose to cover at least 50% of the cost, but you can contribute more to increase participation and employee satisfaction.
- Employee Contribution: Employees pay the remaining portion of their premium—usually through a payroll deduction.
- Coverage Details: Plans can include medical, dental, vision, and even wellness benefits. Most also include preventative care and coverage for chronic conditions.
Health insurance plans are regulated by state and federal laws, including the Affordable Care Act (ACA), which helps ensure that plans meet minimum coverage standards.
Do you need to provide health insurance?
While health insurance is required for larger businesses, it isn’t always mandatory for small businesses. In fact, if your business has fewer than 50 full-time employees, you are not legally required to provide coverage. However, any business with 50 or more employees must provide this benefit.
Keep in mind that just because it may not be required for your business doesn’t mean you shouldn’t offer it. Health insurance can be an enticing benefit that can help you gain and maintain top talent.
What should you consider when choosing health insurance?
Choosing the right plan isn’t just about finding the lowest premium. You want a plan that balances cost, coverage, and employee satisfaction. With that in mind, here are a few key factors to consider:
Budget
How much can your business afford to contribute monthly? When looking at different coverage options, consider all the different elements that can impact this monthly cost including deductibles, co-pays, and out-of-pocket expenses. Keep in mind that while offering coverage can be expensive, it may also qualify you for tax credits and reduce hiring and turnover costs in the long run.
In many cases, talking with a professional consultant may help you find options that both fit your business’s needs and keep you within your budget.
Employee Needs
Any employee benefit is only effective if it’s actually what your employees need. Consider what your team looks like and what they prioritize. Are they mostly young individuals or employees with families? Do they need access to certain specialists or medications? Understanding these priorities can help you focus on providing what your employees actually need and save money on benefits they may not utilize.
Provider Networks
Ensure that the plan’s network includes local hospitals and doctors your employees already use. Narrow networks can lead to frustration and lower plan satisfaction.
Usability
Look for a provider that offers a smooth and accessible experience. Health insurance can be confusing, so having a user-friendly platform for enrollment, benefits management, and day-to-day administration is a huge advantage. A streamlined system with intuitive tools not only reduces stress for your HR or management team but also helps your employees better understand and utilize their benefits.
How much does health insurance cost?
The cost of providing health insurance for small businesses varies based on several factors, including the type of plan, number of employees, geographic location, and the specific benefits offered.
According to the Kaiser Family Foundation’s 2024 Employer Health Benefits Survey, the average annual premiums for small businesses are:
- Single Coverage: Approximately $8,951 per year, or about $746 per month.
- Family Coverage: Approximately $25,572 per year, or about $2,131 per month.
Typically, employers cover a significant portion of these premiums. On average, small business employers contribute about 83% for single coverage and 63% for family coverage. This means employees may pay around $127 per month for single coverage and $789 per month for family coverage.
However, these costs can be influenced by a number of factors including:
- Employee demographics
- Number of employees
- Location
- Plan type & coverage level
- Insurance carrier & network
Understanding these factors can help small business owners make informed decisions when selecting health insurance plans that balance cost with employee needs.
What are the health insurance options for small businesses?
Small businesses actually have several options when it comes to providing health benefits. Here’s a breakdown of the most common:
Small Group Health Insurance Plans
Designed for businesses with fewer than 50 employees (though some states extend this to 100), small group health insurance plans allow employers to purchase coverage for their employees and, in some cases, their families. Employers typically pay a fixed premium, a portion of which can be passed on to employees. These plans often benefit from group purchasing power, making them more affordable than individual plans.
Individual Coverage Health Reimbursement Arrangement (ICHRA)
ICHRA enables employers to reimburse employees for individual health insurance premiums and other qualified medical expenses on a tax-free basis. This arrangement offers flexibility, allowing employees to choose plans that best fit their needs while providing employers with control over their healthcare budgets. Notably, ICHRA has no minimum or maximum participation requirements, making it suitable for businesses of all sizes.
Qualified Small Employer Health Reimbursement Arrangement (QSEHRA)
Tailored for businesses with fewer than 50 full-time employees, QSEHRA allows employers to reimburse employees for medical expenses, including individual health insurance premiums, tax-free. Unlike ICHRA, QSEHRA has annual contribution limits set by the IRS but offers a straightforward way for small businesses to provide health benefits without the complexity of traditional group plans.
Self-Funded Health Insurance
In a self-funded plan, the employer assumes the financial risk of providing healthcare benefits to employees, paying for medical claims out-of-pocket as they arise. While this can lead to cost savings, especially for businesses with healthy workforces, it also exposes the company to potentially high medical expenses. To mitigate this risk, employers often purchase stop-loss insurance, which provides protection against catastrophic claims.
Health Stipends
Health stipends involve providing employees with a fixed, taxable amount of money to spend on healthcare expenses of their choosing. This approach offers maximum flexibility and minimal administrative burden for employers. However, since stipends are considered taxable income and lack the tax advantages of other health benefit options, they may be less appealing to employees.
Association Health Plans (AHPs)
AHPs allow small businesses to band together, often based on industry or geographic location, to purchase health insurance as a larger group. This collective approach can lead to more favorable insurance rates and broader coverage options. However, AHPs may not be subject to all the consumer protections mandated by the Affordable Care Act (ACA), so it's essential to review the specifics of any AHP carefully.
Health Savings Accounts (HSAs) and Flexible Spending Accounts (FSAs)
While not insurance plans themselves, HSAs and FSAs allow employees to set aside pre-tax dollars for medical expenses. HSAs are typically paired with high-deductible health plans and offer the advantage of funds rolling over year to year. FSAs, on the other hand, are often "use-it-or-lose-it" accounts tied to traditional health plans. Both options provide tax benefits and can enhance an employee's ability to manage out-of-pocket healthcare costs.
Offering health insurance is a big decision—but it’s also one of the most powerful ways to invest in your business and your people. Whether you’re aiming to stay competitive, take care of your team, or both, the right health plan can make a lasting impact.
The good news? You don’t have to navigate it alone. An employee benefits advisor can help you find the best options, ensure compliance, and make the entire process smooth and stress-free.
Ready to get started? Use this guide to small business health insurance to evaluate your goals and budget—then reach out to a trusted advisor who can help you take the next step with confidence.
Please let us know if you have any questions. We understand that local companies have unique needs that most national firms don’t consider or struggle to identify. This leaves your people with a less effective, one-size-fits-all benefits plan. However, our ability to cater to the needs of our clients comes from decades of client partnerships. This perspective allows us to fully address unique needs and generate creative benefits plans.
You shouldn’t have to worry about just being a number, offering a generic plan, or getting the unique support you need. Call us today.
This Benefits Insights is not intended to be exhaustive nor should any discussion or opinions be construed as professional advice.