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The cost of small business health insurance: What you need to know

Navigating the world of small business health insurance can be complex, filled with jargon, and, quite frankly, overwhelming. Understanding the costs involved, the options available, and how to make the best choice for your team is no small task.

Let's demystify small business health insurance.

In this post, we'll dig into the following:

  • The average costs of health insurance for small businesses

  • The ins and outs of how small-group health insurance works

  • How to go about buying insurance for your employees

  • Any burning questions you have about health insurance

Whether you're just starting your small business journey or trying to revamp your existing health benefits strategy, this guide is for you.

Let's dive into the sometimes complicated, always crucial topic of health insurance for small businesses.

Small business health insurance options

Suppose you're a small business owner (with fewer than 50 employees in most states). In that case, you might be wondering about health insurance for your team.

It's not mandatory, but it's often a good idea.

Here's the deal: you pick a group health insurance plan from an insurer, then offer it to your staff. You chip in for their monthly premiums, and they handle their deductibles and copays.

The Affordable Care Act (ACA) introduced a program called SHOP. That lets you shop around for health insurance – and could get you a tax credit.

To qualify, you need:

  • At most, 25 full-timers.

  • Average salary around $56k or less.

  • To cover at least half of your employees' premiums.

  • To offer SHOP coverage to all full-timers.

If you offer insurance, there are a few ACA rules to follow. Insurance plans fall into "metal" tiers, with different premiums, deductibles, and coverage.

The average monthly cost is around $547 per employee or $1,175 for family coverage. But so that you know, the actual prices can vary.

Next step? Start comparing plans!

Look at benefits, premiums, out-of-pocket costs, and provider networks. You can do it yourself, hire an insurance broker, or use the SHOP Marketplace.

How does small-group health insurance work?

Small-group health insurance isn't as complex as you might think. It's an option for businesses with at most 50 full-time equivalent employees. Hence the "small" group.

Here's how it works:

  • Small-group insurance providers consider the risk for a group of employees rather than just one person.

  • Because the risk is spread out, providers can offer lower premiums.

  • That means many employees get a better deal than buying health insurance alone.

What's neat is that, unlike other types of health insurance, you can shop for small-group coverage any time of year. So you're not locked into specific enrollment periods.

Want to get started?

Your next step could be contacting a trusted insurance broker or researching providers online. Understanding your options is critical to making the best decision.

How much do group health insurance premiums cost employers?

Let's talk dollars and cents. After all, understanding the cost of group health insurance premiums can be a big deal.

But before that, let's clarify the differences between Small Group insurance and the ACA SHOP marketplace.

Small Group insurance is for businesses with fewer than 50 employees. The ACA SHOP marketplace is for companies with fewer than 25 employees.

It's an important distinction to consider when picking a health insurance option.

Let's move on to the costs involved.

We'll interchangeably use 'small business health insurance' and 'group health insurance.' Both refer to a policy an employer buys and offers to employees as a benefit.

In the U.S., the average annual premium in 2022 was about $7,470 for single coverage and $21,550 for family coverage.

Most employers shoulder a good chunk of those health insurance premiums. In 2021, the average employer covered about 83% of the cost of single coverage and 73% of family coverage.

Now, let's look at the group health insurance premiums.

The annual premiums averaged around $7,911 for single coverage, roughly $659 per month, and $22,463 for family coverage, totaling about $1,872 monthly.

Your contribution could vary depending on the size of your business and the coverage type. About 17% of small businesses (fewer than 200 employees) paid 25%-50% of their employees' single coverage premiums. For family coverage, it was 28%.

Other things to note:

  • Monthly premiums can be higher for some health insurance types, like PPO and HMO plans.

  • Premiums can be costlier in the Northeast and Midwest regions of the U.S.

  • Specific industries, like transportation, communications, and utilities, have higher premiums.

  • Higher employee cost-sharing requirements can reduce the budget but may discourage plan participation.

Most insurers require employers to pay their employees at least half the insurance premium. A quick estimate of the cost of offering health insurance is about $3,910 annually for a single employee.

You can reduce costs by requiring employees to pay a more significant portion of their health insurance premiums but be cautious. If too many employees decline, you won't be able to offer the policy.

Ready to explore your options?

Compare plans to find one that meets your business needs and budget. Start with this list of the best health insurance providers for small businesses.

Where can you buy small-group health insurance?

Ready to get your team covered? There are several ways to purchase small-group health insurance:

  • You can purchase it directly from an insurance provider in your state.

  • An insurance broker will hunt for policies tailored to your needs in exchange for a commission.

  • Payroll products like Gusto or QuickBooks Payroll let you buy health insurance from brokers on their platforms.

  • The Small Business Health Options Program (SHOP) is a federal government insurance option for businesses with fewer than 50 full-time employees (up to 100 in some states).

  • A Professional Employer Organization (PEO) can pool multiple small companies together to get competitive insurance rates.

  • Qualify for QSEHRA, which offers employee reimbursement for health expenses.

When you shop for a small-group health plan, providers will give quotes based on your business location and the number of full-time employees.

You can calculate your full-time equivalent employees using this calculator.

How can small businesses control their health benefits costs with a QSEHRA?

Many small organizations find a Health Reimbursement Arrangement (HRA) a fitting way to offer health benefits on a tight budget. It's simple: instead of paying premiums, your organization provides employees a monthly allowance.

Here's how that works:

  • Employees get tax-free reimbursement for individual insurance premiums and qualifying costs up to a maximum allowance.

  • Employers can control their health benefits costs.

  • Employees can choose the best plan for them.

A Qualified Small Employer HRA (QSEHRA) often works best for small businesses with at most 50 full-time employees. Once employees purchase individual coverage, they can get reimbursed for premiums, medical expenses, and out-of-pocket costs tax-free.

What makes QSEHRA stand out?

  • There annual maximum contribution limits set by the IRS reduce financial risk for businesses.

  • QSEHRAs don't have participation requirements, even if you have one or two employees.

  • Part-time employees are eligible but must receive the same allowance as full-time employees.

HRA administration software like PeopleKeep lets you manage a QSEHRA in a few minutes each month by handling all the documents, reimbursements, and compliance issues.

Frequently asked questions

Here are some of the most asked questions about small business health insurance. Are you wondering about co-payments, out-of-pocket costs, or the factors influencing insurance costs? We got you covered.

What is a small business health insurance co-payment?

A co-payment is a fixed amount for a covered healthcare service. It's usually paid when you receive the service.

What are out-of-pocket costs?

Out-of-pocket costs are health costs not reimbursed by insurance. They include deductibles, coinsurance, and co-payments.

What are out-of-pocket maximums?

The out-of-pocket maximum is the most you could pay during a policy period for your share of the costs of covered services.

What factors influence the cost of small business health insurance?

Several factors can influence the cost, for example, the number of employees, the type of health plan, employee ages and locations, industry, and other risk factors.

How much time does it take to administer a group health insurance plan?

It can take time to administer a plan if you don't have a dedicated HR department. You have to manage enrollment, handle changes in coverage, and answer employee questions.

Are group health insurance options limited for small organizations?

Small organizations often have fewer options, which makes it harder to find a plan that fits their needs and budget.

What are employer and employee cost-sharing?

Cost-sharing is the share of costs covered by your insurance that you must pay out of pocket. That can include deductibles, co-payments, and coinsurance.


Navigating small business health insurance can seem like much work. But hopefully, you feel more at ease now.

Here's a recap of what we discussed:

  • Choosing a group health insurance plan is not mandatory but is often advantageous.

  • Small-group health insurance is more affordable premiums as the risk is spread.

  • Offering health insurance to your employees isn't a one-size-fits-all decision.

  • There's no harm in seeking assistance when you purchase insurance. Compare plans, hire an insurance broker, or use the SHOP Marketplace.

  • Consider options like QSEHRA to control the costs of your health insurance.

What's your next move? Ready to start comparing plans?

Try to find a solution that suits your business needs and budget. Take the time you need to make an informed decision. Your team is counting on you!

One Park Financial is the ideal choice for financing tailored to your business. We have a decade-long track record of helping small businesses like yours.

To qualify for support, you have operated for at least 90 days and generate a minimum monthly revenue of $7,500.

Sounds like you? Contact our financial agents or complete our online form, and we'll get back to you as soon as possible.

Disclaimer: The content of this post has been prepared for informational purposes only. It is not intended to provide and should not be relied on for tax, legal, or accounting advice. Consult with your tax, legal, and accounting advisor before engaging in any transaction.

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