Offering health coverage can be challenging for any business. But it’s especially tough for small employers. In many cases, they have less bargaining power with health insurers, smaller budgets, and often don’t have a dedicated HR professional to manage their benefits packages.
If this sounds familiar, you're not alone. KFF found that the smaller the company, the less likely employees are to receive employer-sponsored health benefits1. Luckily, there are health coverage options out there that are specifically for small employers. One such possibility is small group health insurance. The article below will explain everything you need to know.
In this blog post, you’ll learn:
- What small group health insurance is, what it covers, and who qualifies for it.
- How to enroll in a small business health insurance plan and what it typically costs.
- The alternative options to small group health coverage, such as health reimbursement arrangements (HRAs).
Small group health insurance is what it sounds like—a medical insurance plan that small employers offer their employees. These policies are only for small businesses. They’re a great way for small employers and startups to attract and retain talented workers to compete with larger companies.
To qualify for a small business health insurance plan, you must:
There are many types of health insurance plans. But, all small group coverage must meet specific Affordable Care Act (ACA) requirements. Insurers must categorize their plans using the metal tiers of coverage: bronze, silver, gold, and platinum. Policies must also cover the ten essential health benefits.
The essential health benefits are:
Small group health plans don’t include vision care or dental benefits for adults. If your employees value these services, your insurance carrier may offer “benefit riders” that you can add to your group plan for an extra fee.
You can also add ancillary benefits, such as vision and dental coverage, to your compensation package. These benefits are separate from your small group health insurance coverage, but you can buy them individually from a private exchange.
There are a broad range of ways you can buy a small group health insurance plan:
If you have fewer than 25 employees, a SHOP plan has a special perk. You may qualify for the small business health care tax credit, which can help reduce your contributions to your employees’ health insurance premiums.
Unlike the individual market, group health insurance plans have no set open enrollment period. That means you can buy a plan whenever you're ready to sign up for one.
Once you choose a plan, your insurance company will generally lock in your premium rate for the entire plan year. You can add or drop employees and dependents anytime within the year. However, your health plan premiums will stay the same.
Once the plan year ends, you can renew your current plan or shop for a new one. With the start of a new plan year comes renewed premium rates, and group health plans almost always rise from year to year—even if you don't make any changes to your plan.
Like large group plans, small group health insurance requires employers to cover a portion of their employees' health insurance premiums. However, the minimum employer contribution will differ by state and insurer.
If you’re buying SHOP health coverage and want to apply for the tax credit, you must pay at least 50% of an employee's monthly premium. The employee will cover the rest of the cost. While not required, you can also contribute toward the premium costs for an employee's dependents.
Let’s look at the cost in dollars. In 2024, the average annual cost of group health coverage was $8,951 for single policies and $25,572 for family plans. Of those amounts, employers contributed $7,584 toward self-only coverage and $19,276 for family policies2.
But there’s some good news. Thanks to the ACA, the overall health of your employees no longer impacts small group plan rates. So, your insurers can’t raise your health plan premiums if your employees are “high-risk.” This includes if they have a poor health status or pre-existing medical conditions.
The ACA requires applicable large employers (ALEs) with 50 or more full-time equivalent employees (FTEs) to offer affordable health insurance that provides minimum value to at least 95% of their full-time workers and their dependents. If they don’t follow this employer mandate, they may have to pay a fine.
If you have fewer than 50 FTEs, you don't have to offer your employees health insurance. But if you have the budget, you should consider doing so.
Our 2024 Employee Benefits Survey Report found that 92% of employees value health benefits, while only 74% of employers currently offer them. Choosing to provide health insurance benefits can help improve retention, boost morale, and increase job satisfaction.
Small group health insurance isn't the only plan option for small employers. In fact, enrollment in these types of plans has been steadily decreasing year over year3. Many small businesses have turned to level-funded or self-insured health plans, which come with extra financial risk. Others have decided to forgo benefits entirely, putting their employees in a tough spot.
But don’t worry; if a small group plan isn’t right for you, you can offer your employees other affordable and flexible health benefits, such as health reimbursement arrangements (HRA) and health stipends.
An HRA is an IRS-approved, employer-funded health benefit that allows you to reimburse your staff tax-free for their qualifying medical expenses, including individual health insurance premiums and out-of-pocket costs.
Instead of dealing with group insurance carriers and annual rate hikes, your employees choose their own individual health plans and medical services. Then, you reimburse them up to a set limit of your choosing after you approve the expense.
Small businesses can use the following two HRAs as an alternative to group health insurance:
Small employers can also offer their employees a health stipend. This type of benefit provides employees with a monthly allowance for medical expenses. Employers usually add the stipend to their employees’ paychecks as extra income.
Stipends are flexible in how you can determine payment. For example, you can offer them as a one-time bonus, regularly, or use a reimbursement model, like HRAs. They’re also typically more straightforward for small employers to administer, especially if they have limited time and resources.
Health stipends offer a range of benefits, including the following:
However, stipends aren’t formal benefits. So, they don't comply with the ACA’s employer mandate if you have at least 50 FTEs. You also can’t require employees to prove they spent their stipend on healthcare services and items. Lastly, stipends are taxable income. This means you must report the stipend amount on your employees' W-2s as extra wages.
Providing your employees with health benefits for the first time is an impressive milestone for any business. But it's not always easy. Exploring and understanding your health insurance options, including traditional group plans and unique reimbursement models, is key to finding the best policy for you and your staff.
If you're ready to offer a personalized health benefit, PeopleKeep by Remodel Health has the solution! Our HRA administration software helps small businesses like yours easily set up and manage customized health benefits, no matter your benefits budget. Book a call with an HRA specialist today to see how HRAs can support your employees.
This blog article was originally published on June 2, 2021. It was last updated on April 14, 2025.
1. Availability of employer-sponsored coverage
2. 2024 Employer Health Benefits Survey
3. Small employers are fleeing from the fully insured market