Small Business
November 6, 2023

The Best Health Insurance Options for Small Businesses with Under 20 Employees

We outline the pluses and minuses of current options, including a new one. (There is something for any budget.)
Ellen Decareau
A gold trophy cup leaning to the right with stars coming out from the top.

Key takeaways

  • While businesses of all sizes face challenges in accessing affordable health insurance, for small businesses with under 20 employees, it feels near impossible.
  • Sales processes that take many weeks and high participation rates are extra challenges for businesses with small teams. Is it any wonder that more than 60% of SMBs with under 10 employees do not offer health benefits?
  • Fully insured health insurance plans have historically been the "go to" for small employers, and now level funded health plans. But a new pre-tax, fixed benefit option called ICHRA has emerged that small employers are flocking to.

Small businesses have it tough when it comes to finding affordable health insurance for their employees. For businesses with fewer than ten employees, it's nearly impossible. Let's count the ways:

  • Long-winded sales processes for traditional small group plans often take 30 or more hours over six weeks. Eek.
  • Challenging participation criteria, often requiring 70% or more employees to enroll is a high hurdle.
  • And, oh, the cost. Employee health insurance for small businesses has become an expensive venture with the average premium cost rising 25% in 10 years.

But how can you retain your current talent and recruit new ones, without health benefits?

It's not all doom and gloom. There are a few health plan options for smaller-sized small businesses to consider including fully Insured, level funded, fixed pre-tax benefit (also known as ICHRA), and association plans. Let's dig into the advantages and disadvantages of each.

Traditionally, the health benefits process for small businesses is cumbersome, to say the least.

The most traditional route: Fully insured group health plan

If you decide to offer traditional group health insurance, it's most likely a fully insured plan. That's because small businesses don't have the size or scale to offer a self-funded (which means the employer bears the risk.) Small businesses with under 20 employees will likely have to find a one-size-fits-all health plan for everyone. (In fact, a 2019 survey revealed that 76% of employers with under 200 employees only offered one health plan.) 

Advantages of a fully insured group health plan

  • Less Risk: The insurance company bears the risk if the total claims exceed the premiums. This is a benefit for small businesses, where unexpected costs can have a much bigger impact.
  • Regulated Coverage: Fully insured health plans are subject to state laws and regulations. This means that they provide certain standard benefits, ensuring employees have access to basic healthcare. (This could also fit the "less risk" category.)

Disadvantages of fully insured health plan

  • Higher Costs: Fully insured plans often have the highest premiums.
  • Less Flexibility: These plans are harder to customize. Small businesses often need to choose from the pre-designed plans offered by the insurer and one plan for all employees. (The disadvantage of this is pretty clear. Does everyone in your company really have the exact same healthcare needs?)
  • Stringent Participation Rates: Most plans require that at least 70% of employees enroll. That's often a high bar.
  • Unpredictable Premium Increases: If employees file many claims or there's an increase in the general cost of healthcare, the insurance company will increase premiums at the time of renewal. This can make it tough sustaining a benefits budget year-over-year.
  • Complicated Enrollment and Onboarding: Small business owners, especially very small ones, are often managing the paperwork themselves, which can take 30 or more hours over many weeks every year. Oh, and wait until those open enrollment questions pour in from employees.


Health insurance is local, and not all carriers are available where your small business is located (or employees, if they are distributed in other states). The top 3 largest carriers across the U.S. include:

Banner ad for StretchDollar that reads "affordable, instant health benefits for SMBs"

The step-sister of fully insured: Level funded health plan

Level funded health plans may present a more attractive alternative for small businesses with healthy workforces, somewhat bridging the gap between fully insured and self-insured models. (We just introduced a lot of terms here, so check this blog with some background on these group plan options.)

With level funded plans, monthly premiums are based on a company's projected medical claims, offering potential savings if actual claims fall below this estimate. The way they get to this projection is through underwriting, a process that includes a survey for each employee and their dependents. Common questions include address (where they live), weight, height, and if they or their dependents smoke. (If it seems weird that your employees health is surveyed, well, it is one of the disadvantages of this type of group health insurance.)

The risk is shared with the insurance company, reducing potential financial exposure for the business, but not to the level that a self-funded plan does. This also presents another problem. If claims are well above the estimate premium costs will rise significantly or your group plan might be canceled.

Advantages of level funded plans for small businesses:

  • Cost Savings: If claims are lower than predicted, the business could see substantial savings. (See also the first bullet point under disadvantages.)
  • Risk Management: These plans share risk between the business and the insurer. This means that businesses are not as exposed to high-cost claims (as they would with a self-funded plan), providing a degree of financial safety.

Disadvantages of level-funded plans for small businesses:

  • Potential High, Unpredictable Costs: If employee claims exceed the projected amount, premiums will jump, which is hard to predict year-to-year. Or, your insurer may drop coverage altogether.
  • Complicated Enrollment and Onboarding: Similar to enrollment for fully insured plan, the paperwork is a lot.
  • Stringest Participation Rates: Like fully insured plans, a 70% participation rate may be too high to achieve for some employers.
  • Underwriting Can Feel Weird: Requiring that employees provide their weight and height to get a quote may feel like an uncomfortable zone.


Nearly every major health insurance company and some insurance companies who do general lines (like workers comp and home) are getting into the level funded game. More on why here. In fact, small business owners who go through the quoting process for a small group plan might not even realize the option presented is a level funded one. Examples of companies offering level funded plans are:

The newest option: Fixed, pre-tax health benefit (ICHRA)

One of the newest and most flexible health insurance options for small businesses is the Individual Coverage Health Reimbursement Arrangement or ICHRA. The name is a mouthful, but the way it works is actually quite simple. Rather than offering traditional group health insurance, ICHRA is a newish small group option that allows employers to give pre-tax money to their employees (as their health benefit) to help cover premiums for a health plan the employee buys and owns.

To put this into context. Consider ICHRA as a potluck party, a popular and practical solution for gatherings. In a traditional group health insurance plan, it’s like you, the host prepares all the dishes for your guests — it’s a lot of work, costly, and doesn't always cater to everyone's tastes. ICHRA is the potluck version — each guest brings a dish according to their preference, and you just contribute to the expenses. It's more affordable, and everyone gets what they prefer.

If you’re wondering why you’ve never heard of it before, it’s because it’s relatively new, made possible in 2020 due to IRS legislation. A lot happened in 2020, and it has been slow to catch up. But that’s changing.

Advantages of ICHRA for small businesses:

  • Financial Flexibility and Stability: ICHRAs allow businesses to set their own budget. Rather than being tied to the costs of a group health insurance plan and the unpredictable climbing premium prices, a small business owner can decide how much they can affordably contribute toward their employees' health insurance.
  • Employee Choice: Employees are not limited to a single group plan as they are with traditional fully insured and level funded options. Rather, they can choose a health insurance plan that best meets their needs and preferences.
  • Customization: Want to give a different amount to your Full-Time employees versus Part-Time? You can with an ICHRA. The ICHRA plans allow you to customize the benefit per employee "category."
  • No Participation Requirements: While all employees of a similar category (such as Full Time or Part Time) must be offered the ICHRA benefit, there is no minimum participation requirement. As many or as few can enroll or waive.
  • Hassle-Free Enrollment: An ICHRA reduces the administrative burden for businesses. And because they do not own the group plan, they are also relieved of the weird role of coming in between an employee and their doctors.

Disadvantages of ICHRA for small businesses:

  • Employee Confusion: With the freedom to choose their own plans, some employees may feel overwhelmed by the options and struggle to make an informed choice.
  • Expectation Gap: Employees used to high-end health plans with lots of bells and whistles may not find those options on the individual marketplace.


While ICHRAs are catching on, it’s still a relatively newish option. (Here's a bit more on why that is.) StretchDollar is one of the first to focus on small businesses with under 50 employees, a group that tends to have the most challenges when it comes to finding affordable, uncomplicated health insurance.

Banner ad for StretchDollar that reads “health “benefits designed for small businesses”

The "non-health insurance" route: Association plans

Association Health Plans (AHPs) are group health insurance plans that allow small businesses to band together to purchase the types of coverage available to large employers. As the subtitle of this section suggests, AHPs do not offer qualified health plans, and therefore it is not health insurance.

Advantages of association plans:

  1. Expanded Access: AHPs can help small businesses and individuals obtain health coverage where they might not have been able to before due to cost and availability.
  2. Increased Bargaining Power: Grouping together allows small businesses to have more negotiation leverage with insurance providers, potentially leading to more favorable rates.
  3. Customized Plans: AHPs often offer more flexibility for businesses to customize plans that better meet the needs of their employees.

Disadvantages of association plans:

  1. Lack of Comprehensive Coverage: AHPs are not required to cover all the essential health benefits that individual and small group health plans must cover under the Affordable Care Act, potentially leading to gaps in coverage.
  2. Risk of Higher Premiums: If a group has employees with higher health risks, the aggregated risk will result in higher premiums for the entire group.
  3. Limited State Oversight: AHPs may not be subject to the same level of state regulation as traditional health insurance plans, potentially leading to fewer consumer protections.
  4. Employee Dissatisfaction (Especially for Those with Unexpected Health Issues): Per the reason above, these types of plans fall outside typical regulations. Employees with unexpected serious health issues may get surprise bills without a lot of options for negotiating them.
  5. General Risk: AHPs are not health insurance, and this concept may not be well understood among employees when signing up.

Bottom line: Small businesses have more options

Small businesses for many years have had a very hard time finding reasonable small group health insurance for their employees. It feels unfair. You want to take care of your employees, but the options are complicated out of your budget. The good news is that there are more options than ever before. Before jumping into the process, consider your priorities and the pluses and minuses of each.

Interested in learning more about StretchDollar's ICHRA? Check out How it Works or get started here.

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