Offering employees health insurance involves choosing a funding approach, selecting a plan type, and managing enrollment. The process looks different depending on your company size: businesses with 50 or more full-time employees are legally required to offer coverage, while smaller employers have more flexibility in how (and whether) they provide it. Here’s how to navigate each step.
Know Whether You’re Legally Required to Offer Coverage
Under the Affordable Care Act, businesses with 50 or more full-time employees (including full-time equivalents) are classified as Applicable Large Employers and must offer minimum essential health coverage. To calculate your workforce size, add up your total full-time employees and full-time equivalents for each month of the prior calendar year, then divide by 12. If that number hits 50, you’re subject to the employer shared responsibility provisions, which means penalties if you don’t offer qualifying coverage.
If you have fewer than 50 full-time employees, offering health insurance is voluntary. But most small employers still choose to offer it because it’s one of the strongest tools for recruiting and retaining good people.
Choose How You’ll Fund the Benefit
You have several paths, and the right one depends on your budget, your tolerance for financial risk, and the size of your team.
Group Health Insurance (Fully Insured)
This is the most common route, especially for small and mid-size businesses. You contract with an insurance carrier, pay a fixed monthly premium per employee, and the insurer handles all claims. The upside is predictability: you know your costs each month regardless of how much care your employees actually use. The downside is that those fixed premiums include the insurer’s overhead and profit margin, so you may pay more over time than your employees’ actual claims would warrant.
Self-Funded Plans
With a self-funded plan, you pay employee health claims directly instead of routing money through an insurer. This can improve cash flow because you’re not paying premiums upfront, and you avoid the insurer’s markup. The tradeoff is financial exposure: if several employees have expensive medical events in the same year, you’re on the hook. Most self-funded employers buy stop-loss insurance to cap their liability on catastrophic claims. Self-funding generally works best for larger companies with enough employees to spread risk and enough cash reserves to absorb fluctuations.
Health Reimbursement Arrangements
If you’d rather give employees money to buy their own individual health plans, two types of health reimbursement arrangements (HRAs) let you do this tax-free.
A Qualified Small Employer HRA (QSEHRA) is available only to businesses with fewer than 50 employees. The IRS caps contributions at $5,850 per year for individual coverage and $11,800 for family coverage in 2025, and you must offer the same reimbursement amount to all eligible employees.
An Individual Coverage HRA (ICHRA) is available to businesses of any size and has no cap on contributions. You can set different allowance amounts for different employee classes (full-time vs. part-time, for example), giving you more flexibility than a QSEHRA. Employees use the money to purchase their own plan on the individual market or through the ACA marketplace.
Pick a Plan Type
If you go the group insurance route, you’ll choose from a few standard plan structures. Each balances monthly cost against flexibility differently, and many employers offer two or three options so employees can pick what fits their situation.
- HMO (Health Maintenance Organization): The lowest premiums and deductibles, but employees must use in-network doctors and get referrals to see specialists. Out-of-network care isn’t covered at all.
- PPO (Preferred Provider Organization): Higher monthly premiums, but employees can see specialists and out-of-network providers without referrals. In-network care still costs less. This is the most flexible option.
- POS (Point of Service): A middle ground. Works like an HMO with a primary care doctor and referrals, but employees can go out of network for higher cost. Premiums fall between HMO and PPO levels.
- EPO (Exclusive Provider Organization): Premiums lower than a PPO but higher than an HMO. No referrals needed for specialists, but out-of-network care isn’t covered.
- HDHP with HSA (High-Deductible Health Plan with Health Savings Account): The lowest monthly premiums of any option, paired with high deductibles. Employees can contribute pre-tax dollars to a health savings account to cover those deductibles. Works well for younger, healthier workforces comfortable paying more out of pocket before coverage kicks in.
Decide How Much You’ll Contribute
There’s no single rule for how much employers must pay toward premiums (beyond the ACA’s affordability requirements for large employers). In practice, employers cover the majority of the cost. According to the KFF 2024 Employer Health Benefits Survey, employers pay an average of 84% of the premium for single coverage and 75% for family coverage. Employees pick up the remaining 16% and 25%, respectively.
You don’t have to match those averages, but they’re a useful benchmark. Covering less than 50% of individual premiums will make your offering significantly less attractive to candidates. Many employers cover a high percentage of the employee’s own premium but ask employees to pay a larger share for adding spouses or children.
Use the SHOP Marketplace for Small Businesses
If your business has 1 to 50 employees who aren’t owners, partners, or family members, you’re eligible to purchase coverage through the Small Business Health Options Program (SHOP). SHOP plans are sold through HealthCare.gov or your state’s marketplace and let you compare options side by side.
You can enroll in the same SHOP plan you offer to your team, as long as at least one non-owner employee also enrolls. For new hires, you’re allowed to set a waiting period before coverage begins, but it can’t exceed 90 days.
Claim Available Tax Credits
Small employers who buy coverage through SHOP may qualify for the Small Business Health Care Tax Credit, which can cover up to 50% of the premiums you pay. To qualify, your business must have fewer than 25 full-time equivalent employees, and average wages must be below an inflation-adjusted threshold ($62,000 for tax year 2023).
The credit works on a sliding scale. Businesses with 10 or fewer employees and average wages under $25,000 (adjusted for inflation) get the largest benefit. As your headcount and wages rise toward those ceilings, the credit gradually decreases.
Work With a Broker or Benefits Platform
Most employers, especially those setting up coverage for the first time, work with a licensed insurance broker. Brokers help you compare plans across multiple carriers, negotiate rates, and handle the application paperwork. Their commission is typically built into the premium, so you’re not paying extra out of pocket for their services.
The timeline for getting a group plan in place is relatively short. You’ll need to submit a group application and supporting documentation (business type verification, owner/officer eligibility documents) to the carrier or marketplace. Coverage can start as soon as the first of the following month if your application is submitted at least five days before the effective date. Membership becomes active once your initial payment is received and applied.
Manage Enrollment Windows
Group health plans operate on an annual enrollment cycle. Each year, you’ll designate an open enrollment period when employees can sign up, switch plans, or drop coverage. Outside of that window, employees can only enroll or make changes during a special enrollment period triggered by a qualifying life event.
Common qualifying events include getting married, having or adopting a child, losing other health coverage (such as aging off a parent’s plan at 26 or losing coverage from a previous job), getting divorced and losing coverage through a spouse, or moving to a new ZIP code or county. Employees generally have 60 days from the event to enroll. Being offered an ICHRA or QSEHRA for the first time also qualifies as a triggering event.
Building a clear enrollment calendar and communicating deadlines well in advance saves you and your employees from coverage gaps. Most brokers and benefits platforms provide enrollment tools that walk employees through their options and collect elections electronically, which simplifies the process considerably once you have it set up.