Small Business Health Insurance: Plans, Costs and How to Start

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

Small business health insurance lets you offer medical coverage to your employees, and often to yourself, at a lower tax cost than paying for it on your own. Today you have more choices than a traditional group plan. You can also use a health reimbursement arrangement (HRA) that pays employees back for their own plans.

This guide compares every main option, what each one costs, the rules carriers and the IRS apply, and the steps to get coverage started. If you want a licensed agent to run the numbers for your team, call 888-730-6031 or request a free quote.

What Is Small Business Health Insurance?

Small business health insurance is any way an employer helps workers pay for health coverage. Most people mean a small group plan. That is one policy the business buys from a carrier that covers eligible employees and their families.

Under the Affordable Care Act (ACA), the small group market generally means employers with 1 to 50 employees. California, Colorado, New York and Vermont define small groups as up to 100 employees. Small group plans must cover the ACA essential health benefits. Carriers cannot charge your group more because an employee has a health condition.

You can also offer health benefits without a group policy. An individual coverage HRA (ICHRA) or a QSEHRA gives each employee a tax-free allowance to buy their own plan. Many owners now compare both paths before they decide.

Your Main Options at a Glance

Each option trades cost control, plan choice and paperwork in a different way. Here is how they compare:

Option	Best for	Budget control	Who picks the plan
Fully insured small group plan	Teams that want one familiar plan with a carrier network	Medium. Premiums change at each renewal.	Employer picks one or more plans
Level-funded plan	Healthy groups of about 5 or more that want possible refunds	Medium to high	Employer
ICHRA	Any size business, mixed locations or worker types	High. You set the allowance.	Each employee
QSEHRA	Fewer than 50 employees, tight budgets	High, with IRS caps	Each employee
SHOP Marketplace plan	Fewer than 25 employees who want the tax credit	Medium	Employer or employee choice of plans
Supplemental benefits only	Adding value on a small budget	High	Employee

Group Health Insurance for Small Business

A traditional group plan is still the most common choice. You choose a carrier and plan design, such as an HMO, PPO or EPO. You decide how much of the premium you pay. Employees enroll through you, and payroll handles their share.

Outside the yearly window, carriers usually require two things before they issue a small group plan:

• Minimum participation: often 50% to 75% of eligible employees must enroll. Workers who decline because they have other coverage usually do not count against you.
• Minimum contribution: many carriers require you to pay at least 50% of the employee-only premium.
• At least one eligible non-owner employee: most carriers will not write a group plan for an owner alone or for an owner and spouse only.

Group plans make sense when your team wants one shared network and plan, and you can meet participation. Employees also get a benefit they recognize, which helps with hiring and keeping staff.

How Much Does Small Business Health Insurance Cost?

The 2025 KFF Employer Health Benefits Survey found an average annual premium of $9,211 for single coverage at firms with 10 to 199 workers. For family coverage, the average was $26,054. That works out to roughly $768 a month for one employee and about $2,171 a month for a family.

Small firms often pass more of the cost to workers through deductibles. The average single-coverage deductible at small firms was $2,631, compared with $1,670 at larger firms. Across all firms, covered workers paid 16% of the single premium and 26% of the family premium on average.

Your price depends on where your business is located, the age of each employee, the plan level you choose and how many family members enroll. Tobacco use can matter in some states. For a full breakdown, see our guide to health insurance costs per month.

See our full breakdown of small business health insurance cost per employee.

ICHRA: Set a Budget, Let Employees Choose

With an ICHRA, you give employees a monthly allowance. They buy their own individual health plan, often on the ACA Marketplace, and you reimburse premiums tax-free up to the allowance.

ICHRAs have no federal contribution limit and no minimum participation. You can set different allowances for classes of workers, such as full-time and part-time, or workers in different states. Employees must have individual health coverage to use the allowance.

An ICHRA works well for remote teams, businesses in several states and owners who want a predictable cost. Read our full ICHRA health insurance guide for the rules.

Not sure which fits? Compare ICHRA vs QSEHRA vs group health insurance side by side.

QSEHRA: The Small Business HRA

A QSEHRA is built for employers with fewer than 50 full-time equivalent employees that do not offer a group health plan. For 2026, the IRS caps QSEHRA reimbursements at $6,450 a year for self-only coverage and $13,100 a year for family coverage.

You must offer the QSEHRA on the same terms to all eligible full-time employees, and give a written notice at least 90 days before the plan year starts. A QSEHRA allowance can reduce an employee's Marketplace premium tax credit. See our QSEHRA guide for details.

Level-Funded Plans

Level-funded plans are a middle ground. You pay a set monthly amount that covers expected claims, administration and stop-loss insurance. If claims come in lower than expected, some plans return part of the surplus.

Level-funded plans are now common. KFF found that 37% of covered workers at small firms were in a level-funded plan in 2025. These plans may use health questions to set rates. They are often a better fit for groups with about five or more healthy employees.

Small Business Health Care Tax Credit

Our small business health care tax credit guide walks through the math.

The Small Business Health Care Tax Credit can cover up to 50% of the premiums you pay, or up to 35% for tax-exempt employers. You can claim it for two consecutive years. To qualify, you generally must:

• Have fewer than 25 full-time equivalent employees.
• Pay average annual wages below the IRS limit, which is adjusted for inflation each year.
• Pay at least 50% of the premium for employee-only coverage.
• Buy coverage through the SHOP Marketplace (or a state small business exchange).

The full credit goes to employers with 10 or fewer FTEs and lower average wages. It phases out as you grow. You claim it on IRS Form 8941. A tax professional should confirm your credit.

Small Business Open Enrollment: November 15 to December 15

Each year from November 15 through December 15, small group carriers must accept employers even if they cannot meet participation or contribution rules. Coverage starts January 1. Federal rules allow carriers to limit these employers to this one window.

This is the easiest time to start a plan if only a few employees want coverage, or if you can't pay half the premium yet. You can still buy a group plan any other month of the year, but the usual minimums apply.

Read the details in our guide to small business open enrollment.

Do Small Businesses Have to Offer Health Insurance?

No federal law requires businesses with fewer than 50 full-time equivalent employees to offer health insurance. The ACA employer mandate only applies to applicable large employers, which are businesses with 50 or more full-time employees, including equivalents.

Hawaii is an exception. Its Prepaid Health Care Act requires most employers to offer coverage to employees who work at least 20 hours a week. Even where it is optional, offering benefits helps you hire. KFF found 59% of small firms offer health benefits, compared with 97% of large firms.

For how to count employees and what rules apply if you do offer a plan, see do small businesses have to offer health insurance.

Health Insurance for Small Business Owners

If you are the only person in your business, a group plan usually is not available. Most owner-only businesses buy an individual plan on the Marketplace or through an agent. You may qualify for premium tax credits based on income, and you can often deduct premiums with the self-employed health insurance deduction.

Once you hire at least one W-2 employee who is not your spouse, you can usually start a group plan or an HRA. Learn more in our guide to self-employed health insurance.

We cover LLCs, S corporations and one-employee businesses in health insurance for small business owners.

Covering Part-Time and Seasonal Workers

You decide who is eligible, as long as you follow carrier rules and nondiscrimination rules. Many group plans require employees to work at least 30 hours a week. Some allow 20 hours.

An ICHRA can offer part-time workers a separate allowance. For more, read about health insurance for part-time employees and seasonal workers.

Add Dental, Vision and Supplemental Benefits

Dental, vision and supplemental plans are low-cost ways to round out a benefits package. Many can be fully paid by employees through payroll deduction. Popular add-ons include dental insurance, accident insurance, critical illness insurance and hospital indemnity insurance.

Employees often value these benefits more than their cost suggests, especially when a group health plan has a high deductible.

How to Set Up Small Business Health Insurance

Here is the process most small employers follow:

• Count your employees. Note full-time, part-time and seasonal workers and where they live.
• Set a budget. Decide what you can pay each month per employee.
• Survey your team. Ask who needs coverage, who has a spouse's plan and which doctors matter.
• Compare options. Price group plans, level-funded plans, ICHRA and QSEHRA side by side.
• Collect documents. Carriers usually need a recent payroll report or state wage filing and business tax ID.
• Enroll employees. Give everyone the same chance to enroll and keep records of waivers.
• Set up payroll. A Section 125 premium-only plan lets employees pay their share pre-tax.

Mistakes Small Employers Should Avoid

• Waiting until mid-December, when carrier deadlines are tight.
• Offering a QSEHRA and a group plan to the same workers. That is not allowed.
• Paying for individual plans directly without a formal HRA, which can trigger tax problems and penalties.
• Picking a plan by premium alone without checking networks and deductibles.
• Forgetting required notices, such as the QSEHRA 90-day notice or COBRA notices where they apply.

Florida Small Business Health Insurance

Vivna Insurance is based in Deerfield Beach, Florida. Florida employers can read our guide to Florida small business health insurance for state rules, including Florida's continuation law for employers with fewer than 20 employees.

Small Business Health Insurance: FAQ

What is the cheapest health insurance for a small business?

There is no single cheapest option. A QSEHRA or ICHRA with a modest allowance often costs the least because you set the budget. A high-deductible group plan paired with an HSA can also keep premiums down.

How many employees do you need for group health insurance?

Usually at least one eligible employee who is not an owner or the owner's spouse. Rules vary by carrier and state.

Can I get group health insurance just for myself?

Generally, no. Owner-only businesses usually buy individual coverage instead. An agent can review your options.

Is small business health insurance tax deductible?

Yes. Premiums a business pays for employee coverage are generally deductible as a business expense. Employees' share can be paid pre-tax through a Section 125 plan.

When can a small business enroll in group health insurance?

Any time of year, as long as you meet carrier rules. From November 15 to December 15, participation and contribution minimums are waived for January 1 coverage.

Can I offer health insurance to some employees but not others?

You can set eligibility by job classes, such as full-time versus part-time, but you must apply the rules consistently and avoid favoring highly paid workers.

Next Steps for small business health insurance

Start by deciding on a monthly budget and getting a headcount. Then compare a group plan with an ICHRA or QSEHRA so you can see the trade-offs in real dollars. If you want coverage on January 1 without participation minimums, apply between November 15 and December 15.

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. KFF 2025 Employer Health Benefits Survey
2. IRS: Small Business Health Care Tax Credit and the SHOP Marketplace
3. HealthCare.gov: Small businesses
4. 45 CFR 147.104: Guaranteed availability of coverage
5. IRS: Determining if an employer is an applicable large employer
6. IRS: Revenue Procedure 2025-32 (2026 QSEHRA limits)

Related Guides

• Small business health insurance cost
• Small business open enrollment
• ICHRA vs QSEHRA vs group
• Small business health care tax credit
• Health insurance for small business owners
• Florida small business health insurance

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.