Offering health insurance can help you attract and keep good people, but when you have only a handful of employees the options and rules can feel confusing. The good news is that very small businesses have several workable paths. This guide explains each in plain English, with the key rules that usually decide which one fits.
Option 1: Traditional small-group health plan
This is the classic employer plan. You pick a plan (or a few), the employer pays part of the premium, and employees pay the rest. Common features:
- Eligibility. Most states require at least one or two employees who are not the owner or owner's spouse. Rules differ, so ask before you assume you qualify.
- Participation. Insurers often require a minimum share of eligible employees to enroll, unless they have other coverage.
- Employer contribution. Insurers commonly require the employer to pay a minimum share of employee-only premium.
- Rating. Premiums are set using the group's demographics, location, and plan choice, and generally cannot be based on health status.
This option works well when you want a traditional plan that employees understand.
Option 2: SHOP Marketplace coverage
The Small Business Health Options Program (SHOP) is a Marketplace for small employers, and in some states you can enroll year-round. Availability and structure differ by state. Read more in group plans vs. SHOP vs. ICHRA. SHOP may also connect to the Small Business Health Care Tax Credit if you qualify.
Option 3: ICHRA
An individual coverage health reimbursement arrangement lets you give employees a monthly allowance to buy their own individual plans. Key points:
- You set the allowance and can vary it by employee class within IRS rules.
- Employees choose plans that fit their families and doctors.
- There are generally no group participation minimums.
- It can make budgeting predictable.
Learn more in our ICHRA guide for small businesses and the 5-step setup guide.
Option 4: QSEHRA
A qualified small employer HRA is designed for employers with fewer than 50 full-time equivalent employees that do not offer group coverage. The employer reimburses employees tax-free for qualifying medical costs up to a yearly limit set by the IRS. It is simpler than ICHRA in some ways and more limited in others, so compare them if you qualify.
Not sure which structure fits your team?
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Get my free business benefits reviewHow to decide
Ask yourself five questions:
- Budget: How much can you contribute each month, and do you want that number to be fixed?
- Team: Do employees live in the same area, and are their health needs similar?
- Simplicity: Do you want one plan everyone shares or flexibility for each person?
- Participation: Would some employees decline because they have a spouse's plan?
- Growth: Do you expect to add staff soon?
If you want a single shared plan and employees mostly want it, small-group often fits. If your team is spread out or has varied needs, ICHRA's flexibility can be attractive.
Compliance basics
- Most employers with fewer than 50 full-time equivalent employees are not required by federal law to offer coverage, but state rules and tax benefits vary.
- Employer contributions are generally deductible business expenses; consult your accountant.
- Notice, nondiscrimination, and reporting rules differ by structure.
- Employee classification matters, including part-time workers and owners.
Steps to get started
- List your employees, their ages, and ZIP codes.
- Decide the monthly amount you can afford.
- Ask an agent to price group, SHOP, and ICHRA options.
- Check participation and contribution rules for the group option.
- Choose, communicate the benefit clearly, and set enrollment dates.
Common mistakes
- Assuming the cheapest premium is the best value for your team.
- Forgetting that group plans can require a minimum participation level.
- Ignoring tax credits you may qualify for.
- Starting too late before a desired coverage date.
What to ask an agent
When you request quotes, give the agent your employee count, their ages and ZIP codes, whether any have other coverage, and your target monthly budget. Then ask for group, SHOP, and ICHRA numbers side by side, along with the participation and contribution rules for each. Seeing all three on one page makes the trade-offs clear in a way that a single quote never can.
A note on owners and family members
Owners, spouses, and family members who work in the business are treated differently from regular employees for group eligibility and for tax purposes. Rules differ by structure, so mention your family members up front so the quotes and the tax guidance reflect your real situation.
How we help
We are an independent agency and we compare small-group, SHOP, ICHRA, and QSEHRA options from multiple carriers. We explain the rules, but your accountant or attorney should confirm tax and compliance details. Our help costs you nothing because carriers pay us.
Availability and rules vary by state
Health plans, premiums, enrollment rules and state programs differ by state and sometimes by county, and a given plan may not be available in every state. Honorbrook is licensed in the 11 states below; what we can offer you depends on what carriers sell where you live. Each state’s insurance regulator can verify an agent’s license and answer consumer questions.
- Virginia: Virginia Bureau of Insurance
- Maryland: Maryland Insurance Administration
- North Carolina: North Carolina Department of Insurance
- South Carolina: South Carolina Department of Insurance
- Georgia: Georgia Office of Insurance and Safety Fire Commissioner
- Alabama: Alabama Department of Insurance
- Louisiana: Louisiana Department of Insurance
- Texas: Texas Department of Insurance
- Michigan: Michigan Department of Insurance and Financial Services
- Indiana: Indiana Department of Insurance
- West Virginia: West Virginia Offices of the Insurance Commissioner