Quick answer: Employers with fewer than 50 full-time equivalent employees are not legally required to offer health insurance in the United States, but most offer it anyway to compete for staff. In 2025 the average employer-sponsored premium was $9,325 for single coverage and $26,993 for family coverage, and small firms carry higher deductibles than large ones. Your three realistic routes are a traditional small-group plan, a level-funded plan, or a reimbursement arrangement such as an ICHRA or QSEHRA. Businesses with fewer than 25 employees and average wages under the federal threshold may also qualify for the Small Business Health Care Tax Credit through SHOP.
What Counts as Small Business Health Insurance
Small business health insurance means group coverage bought by an employer from a commercial carrier and offered to employees, rather than each person buying individually. In most states the small-group market is defined as employers with 1 to 50 employees, though a handful of states set the ceiling at 100. Above that line you are in the large-group market with different rules and different pricing.
Commercial group plans are issued by private carriers, not by a government programme. Under the Affordable Care Act, small-group plans cannot deny coverage or price by individual medical history, and they must include the ten essential health benefits.
Are You Legally Required to Offer It?
This is the question most owners get wrong, so here it is plainly.
- Fewer than 50 full-time equivalent employees: no federal requirement to offer coverage. You choose to, or you do not.
- 50 or more full-time equivalent employees: you are an Applicable Large Employer under the ACA employer shared responsibility rules and must offer affordable, minimum-value coverage to full-time staff or face a penalty.
- State rules vary. Some states add their own requirements, and Hawaii has had its own employer mandate since long before the ACA. Check your state’s insurance department before assuming federal rules are the whole picture.
“Full-time equivalent” is a calculation, not a headcount. Part-time hours are aggregated, so a business with 35 full-timers and 30 part-timers can cross the 50 FTE line without ever having 50 people on the full-time payroll.
What It Actually Costs in 2026
The clearest benchmark is KFF’s annual employer survey. In 2025, average annual premiums for employer-sponsored coverage reached $9,325 for single coverage and $26,993 for family coverage, up 5% and 6% respectively over the previous year, against wage growth of 4% and inflation of 2.7%. Employees contributed an average of $6,850 toward family coverage, with employers paying the remaining $20,143.
Two numbers matter more to small employers than the headline average:
- Deductibles are higher at small firms. Covered workers at firms under 200 employees faced an average single deductible of $2,631, against $1,670 at larger firms. More than half faced a deductible of at least $2,000.
- Employee contributions for family coverage are higher too. Workers at smaller firms contributed an average of $8,889 toward family premiums, compared with $6,227 at large firms.
In short, small employers pay comparable premiums but pass more of the cost-sharing to staff. Insurers have been filing double-digit rate requests in the small-group and individual markets, so budget for renewal increases well above general inflation rather than assuming a flat year.
Your Four Real Options
| Option | Best for | Cost control | Admin burden |
|---|---|---|---|
| Traditional small-group plan | Teams that want a familiar, single, employer-chosen plan | Low. You take the renewal you are given. | Moderate |
| Level-funded plan | Younger, healthier groups of roughly 10 to 50 | Higher. Surplus may be refunded if claims run low. | Moderate to high |
| ICHRA | Any size, especially distributed or multi-state teams | Complete. You set the allowance. | Low with an administrator |
| QSEHRA | Under 50 FTEs, no group plan, simple uniform benefit | Complete, within IRS caps | Low |
Traditional small-group coverage
You pick a carrier and one or more plan designs, contribute a percentage of the premium, and employees enrol. Most carriers require you to cover at least 50% of the employee-only premium and to enrol roughly 70% of eligible employees. That participation requirement is what blocks a lot of small teams, because employees already covered through a spouse count against you.
Level-funded plans
A hybrid: you pay a fixed monthly amount that covers expected claims, stop-loss insurance, and administration. If your group’s claims come in under projection, you may get a share of the surplus back at year end. If they run high, stop-loss caps your exposure. Attractive for healthy groups, less so if you have one or two members with high ongoing claims, and the underwriting is medical, unlike ACA small-group.
ICHRA: individual coverage HRA
Instead of buying a group plan, you give employees a tax-free monthly allowance to buy their own individual coverage and reimburse them on proof of purchase. There is no IRS cap on how much you contribute, and you can set different allowances for different employee classes such as full-time, part-time, or by location. Employees keep their plan if they leave. Employees who accept ICHRA reimbursements generally cannot also claim a premium tax credit on the marketplace, which is the main trade-off to explain clearly before you launch.
QSEHRA: qualified small employer HRA
The simpler cousin, restricted to employers with fewer than 50 FTEs who do not offer a group plan. For 2026 the IRS caps reimbursement at $6,450 per year for self-only coverage and $13,100 for family coverage, set in Revenue Procedure 2025-32. It must be offered to all full-time W-2 employees on the same terms, and there is no minimum contribution, so a very small budget still works. There are no participation requirements, which is the main advantage over a group plan.
The Small Business Health Care Tax Credit
Frequently missed, and worth checking before you dismiss group coverage as unaffordable. To qualify you generally must:
- Have fewer than 25 full-time equivalent employees
- Pay average annual wages below the IRS threshold, which is indexed each year
- Contribute at least 50% of employee-only premium costs
- Buy coverage through the SHOP marketplace, where available in your state
The credit is worth up to 50% of your premium contributions for small businesses (35% for tax-exempt employers), and can be claimed for two consecutive tax years. The credit tapers as headcount and average wages rise, so a 10-person business at modest wages captures far more of it than a 22-person business at higher wages.
Separately, employer premium contributions are generally deductible as a business expense, and premiums paid through a Section 125 cafeteria plan reduce payroll taxes for both sides.
Plan Types Your Employees Will See
- PPO: broad network, out-of-network coverage at higher cost, no referrals needed. The most flexible and usually the most expensive.
- HMO: narrower network, primary care gatekeeping, little or no out-of-network benefit. Cheaper premiums, less choice.
- EPO: a middle ground. No referrals, but no out-of-network coverage except emergencies.
- HDHP with HSA: high deductible paired with a tax-advantaged, employee-owned savings account that rolls over annually and travels with the employee.
- FSA: pre-tax employee contributions for medical expenses. Mostly use-it-or-lose-it within the plan year, unlike an HSA.
An HSA is employee-owned and portable; an HRA is employer-funded and stays with the employer. That is the distinction that confuses most people during open enrolment.
What Coverage Has to Include
ACA-compliant small-group plans must cover the ten essential health benefits, including:
- Preventive care, screenings and immunisations, generally with no cost sharing in-network
- Ambulatory patient services and emergency care
- Hospitalisation
- Prescription drugs
- Maternity and newborn care
- Mental health and substance use disorder services
- Rehabilitative services, laboratory services, chronic disease management, and paediatric services
Adult dental and vision are not essential health benefits and are usually sold as separate riders. Coverage of newer high-cost categories, notably GLP-1 medications for weight loss, varies enormously by carrier and is worth asking about directly rather than assuming.
Which Carriers Actually Write Small-Group Health Plans
Be careful with the “best small business insurance” lists you find online, because many of them mix in commercial property, liability and workers’ compensation insurers who do not sell group health at all. For employee medical coverage in the US small-group market, the carriers you will actually encounter are:
- UnitedHealthcare: the widest national footprint and a strong small-group presence in most states
- Blue Cross Blue Shield companies: including Anthem in its licensed states. Usually the deepest local provider networks
- Aetna, a CVS Health company: broad national network with integrated pharmacy. See our breakdown of Aetna health insurance plans
- Kaiser Permanente: integrated HMO model, typically strong value where it operates, limited to its regions
- Cigna Healthcare and Humana: competitive in specific regional markets
Health coverage for employees is a separate purchase from your business liability policies. If you also need commercial cover, see our guides to ecommerce business insurance and esthetician liability insurance. Owners without employees should start with self-employed health insurance options instead.
How to Choose the Right Plan
- Count your FTEs properly first. This determines your legal obligations, your tax credit eligibility, and whether a QSEHRA is even available to you.
- Ask your team what they need. A group of twenty-somethings values low premiums; a team with young families values maternity coverage and a manageable deductible. Survey before you shop.
- Check the network, not the brochure. Search each carrier’s directory for the specific hospitals and doctors your employees already use. A cheap plan that excludes the local hospital system will generate complaints within a month.
- Compare total cost, not premium. Model premium plus deductible plus out-of-pocket maximum for a typical employee, not just the monthly figure.
- Get quotes from at least three carriers plus one ICHRA administrator, so you can see the defined-contribution option priced against traditional group coverage.
- Confirm compliance. ERISA plan documents, summary plan description, COBRA or state continuation obligations, and Section 125 documentation if you are running pre-tax deductions.
A licensed broker costs you nothing directly, since commissions are built into carrier pricing. Using one is usually the right call for a first-time buyer, provided you ask which carriers they are appointed with.
Frequently Asked Questions
Only if you have 50 or more full-time equivalent employees, under the ACA employer shared responsibility rules. Below that there is no federal requirement, though some states add their own rules.
KFF put average 2025 employer-sponsored premiums at $9,325 for single coverage and $26,993 for family coverage. Small firms tend to have higher deductibles, averaging $2,631 for single coverage against $1,670 at large firms. Insurers have been filing double-digit small-group rate increases, so budget above inflation for renewal.
An HSA is employee-owned, funded with pre-tax dollars by either party, rolls over year to year and travels with the employee. An HRA is employer-funded and employer-owned, reimburses qualified expenses, and does not follow the employee out the door.
For 2026 the IRS caps QSEHRA reimbursement at $6,450 per year for self-only coverage and $13,100 for family coverage, published in Revenue Procedure 2025-32. An ICHRA has no contribution cap.
Generally yes if you have fewer than 25 FTEs, pay average wages below the annually indexed IRS threshold, contribute at least 50% of employee-only premiums, and buy through SHOP. It is worth up to 50% of your contributions for two consecutive tax years.
Group plans with 20 or more employees generally offer COBRA continuation, and many smaller employers fall under state mini-COBRA rules. Coverage length and cost vary, and the former employee usually pays the full premium. With an ICHRA the employee already owns the policy, so it simply continues.
The Bottom Line
Health benefits are one of the few levers a small employer has against much larger competitors in the hiring market. Start by counting your full-time equivalents accurately, because that single number decides your legal obligations, your tax credit eligibility and which products are open to you. Then price a traditional group plan against an ICHRA before you commit, since defined contribution has quietly become the more predictable option for a lot of small and distributed teams. Whatever you choose, check the provider network against the doctors your people actually use, and re-shop the market every renewal rather than accepting the increase by default.
References and Further Reading
- HealthCare.gov: Small Business Health Options Program (SHOP) — official federal marketplace, eligibility, enrolment and employer requirements.
- IRS: Small Business Health Care Tax Credit and the SHOP Marketplace — qualification rules and current wage thresholds.
- KFF Employer Health Benefits Survey — the benchmark dataset for premiums, deductibles and employee contributions.
- U.S. Department of Labor: ERISA compliance — plan documents, disclosure and fiduciary obligations.
- U.S. Small Business Administration: offering employee benefits — practical guidance for owners.
- National Association of Insurance Commissioners — links to your state insurance department for state-specific mandates.
Disclaimer: This article is general information, not legal, tax or insurance advice. Eligibility rules, contribution limits and state mandates change annually. Confirm current figures with the IRS and your state insurance department, and consult a licensed broker or tax professional before making benefit decisions for your business.
