Health Insurance for Small Business Owners: With or Without Employees

By Michael Sprague, Licensed Health Insurance Agent · Reviewed by Heather Sprague, Licensed Health Insurance Agent

Health insurance for small business owners depends on one key question: do you have employees who are not owners or your spouse? Owners working alone usually buy individual coverage. Once you add a W-2 employee, group plans and health reimbursement arrangements open up.

This guide covers each situation, from a one-person LLC to a team of 20, and the tax rules that apply to owners. To compare plans for yourself or your team, call 888-730-6031 or request a free quote.

Which Situation Are You In?

Your business	Typical options
Just you (sole proprietor, single-member LLC)	Individual or Marketplace plan; self-employed deduction
You and your spouse only	Individual or family Marketplace plan
You plus 1 or more W-2 employees	Group plan, ICHRA, QSEHRA or level-funded plan
1099 contractors only	Individual plan for you; contractors buy their own
C corporation with you as an employee	Group plan or HRA that can include you

Health Insurance for Business Owners With No Employees

If you work alone, the most common choice is an individual plan, either through the ACA Marketplace or directly from a carrier with help from an agent. Marketplace plans cover essential health benefits and pre-existing conditions. Depending on your household income, you may qualify for a premium tax credit that lowers your monthly cost.

Because self-employed income can change, estimate your yearly net income carefully when you apply. Our guide to self-employed Marketplace income explains how to estimate it. You can also add dental, vision and supplemental plans on your own.

Health Insurance for an LLC Owner

An LLC does not change your health insurance options by itself. A single-member LLC taxed as a sole proprietorship is treated like a self-employed person. A multi-member LLC taxed as a partnership treats each member as a partner. If your LLC elects S corporation tax status, special rules apply to owners who hold more than 2%.

What matters for group coverage is whether the LLC has W-2 employees who are not owners.

The Self-Employed Health Insurance Deduction

Sole proprietors, partners and more-than-2% S corporation shareholders can often deduct health, dental and qualifying long-term care premiums for themselves, their spouse and dependents. The deduction lowers your adjusted gross income, which can also help with Marketplace subsidies.

There are limits. You cannot deduct premiums for any month you were eligible for an employer-subsidized plan through your own job or your spouse's job. The deduction also cannot be more than your net profit from the business. For S corporation owners, the company usually pays the premium and reports it as W-2 wages, and the owner then takes the deduction. A tax professional can confirm how it works for you.

Health Insurance for a Small Business With One Employee

Once you have at least one W-2 employee who is not an owner or your spouse, most carriers will let you buy a small group plan. Many owners then join the plan as well. Participation and contribution minimums still apply most of the year, but they are waived from November 15 to December 15 during small business open enrollment.

A group plan for one or two people can cost about the same as individual coverage. Compare both before deciding.

Can Owners Use a QSEHRA or ICHRA?

HRAs are for employees. Sole proprietors, partners and more-than-2% S corporation shareholders are generally not treated as employees for this purpose, so they cannot reimburse their own premiums through the company's QSEHRA or ICHRA. Owners of a C corporation who work in the business are employees and can usually participate.

You can still offer an ICHRA or QSEHRA to your employees while you buy your own individual plan and take the self-employed deduction.

What About Hiring Your Spouse?

Some owners hire a spouse as a W-2 employee. Health plan rules for spouse-employees are complex. Many carriers do not count a spouse as the eligible employee needed for a group plan, and tax treatment depends on your business structure. Talk to a tax professional before setting up a plan around a spouse.

Covering 1099 Contractors

Independent contractors are not your employees, and offering them health benefits can blur that line. Contractors usually buy their own coverage. Our guide to gig worker health coverage covers their choices.

Best Health Insurance for Small Business Owners: How to Choose

• Check that your doctors and hospitals are in the plan network.
• Compare the deductible and out-of-pocket maximum, not just the premium.
• Consider an HSA-eligible plan if you are healthy and want a tax-free savings account.
• Look at subsidy eligibility if your income is modest or varies.
• Plan for growth: if you will hire soon, ask how a group plan or HRA would work.

Health Insurance for Small Business Owners: FAQ

Can I get group health insurance if I am the only employee?

Usually no. Most carriers require at least one eligible non-owner employee. Owners working alone typically buy individual coverage.

Can my LLC pay for my health insurance?

It depends on how the LLC is taxed. Sole proprietor and partnership owners usually pay premiums personally and take the self-employed deduction. S corporation owners usually have the company pay and report it as wages.

Do small business owners qualify for Marketplace subsidies?

Yes, if your household income qualifies and you do not have access to affordable employer coverage.

Is health insurance a business expense for an owner?

For most owners, premiums are deducted through the self-employed health insurance deduction rather than as a regular business expense.

What is the cheapest health insurance for a business owner?

It depends on income and health needs. A subsidized Marketplace plan or an HSA-eligible bronze plan is often the lowest cost.

Next Steps for health insurance for small business owners

If you work alone, compare Marketplace and off-exchange individual plans and confirm your deduction with a tax professional. If you have employees, compare a group plan with an HRA. For the full overview, see our guide to small business health insurance.

Want a licensed agent to help? Call 888-730-6031, Monday through Friday, 9 a.m. to 6 p.m. Eastern, or request a free quote.

Sources

1. IRS: Form 7206, Self-Employed Health Insurance Deduction
2. HealthCare.gov: Self-employed coverage
3. HealthCare.gov: Small businesses

Related Guides

• Small business health insurance
• Self-employed health insurance
• Small business open enrollment
• QSEHRA for small business

Vivna Insurance is a licensed independent agency, not a government website. Our help is free; we are paid by the insurance companies we work with. Coverage options, deadlines and costs vary by plan and state.