Health insurance. For most small business owners, it might as well be a two-word horror story.
It's a huge expense that doesn't directly boost profits, but matters a lot to your employees. The small group market offers worse deals than what big businesses get (so unfair). It can take hours to find a plan and get signed up. And for all that work, you’ll have the sneaking suspicion that it’s a terrible deal (it probably is).
You care about doing right by your employees, but health insurance really puts your good intentions to the test.
Before you give up on providing health benefits, there’s a chance that the complexity of the market may be keeping you from understanding all your options. Our ultimate guide to small business health benefits can help fix that, and may be able to make doing right by your employees feel easier and more accessible.
Why Offering Health Benefits Matters (Even for Small Teams)
Dealing with the small business health insurance marketplace can crush even the best of intentions. Many small business owners end up throwing up their hands after hours of fruitless work, feeling frustrated, exhausted, and beaten. So why even bother?
Because providing your employees with health insurance benefits is important both to their quality of life and your ability to keep good people. Strategically speaking, providing health benefits isn’t just good for employees, it also offers some important business benefits:
It improves hiring and retention.
In a 2022 survey, 80% of respondents named health insurance as one of the most important benefits for an employer to offer. If a talented candidate has an option between a small business that doesn't offer health care benefits and a big company that does, it may not matter how much they like your mission and workplace culture. At the end of the day, people need to be able to go to the doctor when they're sick.
And health insurance benefits are also important for keeping employees once they're hired. According to the 2025 Kaiser Family Foundation (KFF) benefits survey, 50% of U.S. adults who get employer-sponsored health benefits say it's an important factor in staying with their employer. Other than wages, people consider it the most important benefit.
In other words, even if you do everything else you can to make your business an amazing place to work, if you don't provide health benefits, you could still lose employees to someone that does.
It boosts employee morale.
KFF reports that people without insurance are more likely to delay health care due to costs, or forgo it completely. And they're right to worry about the bills receiving care entails—62% of uninsured adults have health care debt.
Over 73% of the uninsured in the U.S. have a full-time worker in the family. Working full-time and still not being able to afford medical bills can make it hard for an employee to love their job. Giving your employees at least an option for coverage can make a big difference in how they feel about working for you.
It can lead to higher productivity.
Employees who can't afford preventative care are more likely to get sick. If they can't afford to go to the doctor when sick, they'll generally take longer to recover. And if employees are stressing about health issues they can't treat and medical bills they can't afford, they'll have a harder time focusing on their work.
When more of your workforce is able to come in feeling healthy and well each day, they'll be able to get more work done. By providing health care benefits, you get more productive workers in exchange.
It comes with tax advantages.
While the upfront cost of providing health benefits is high, it's not the whole story. Small businesses can take advantage of health insurance tax deductions to help defray the costs somewhat. Your specific tax advantages depend on how your business is set up, but talk to your accountant to make sure you can feel the relief come tax time. Taking the right deductions can make a notable difference in your overall costs.
Comparing Your Options: Group Plans vs. ICHRA vs. Stipends
Once you've determined you want to offer health insurance benefits, your next move is to figure out how. There are three main options small businesses have to choose from here.
Option 1: Traditional Small Group Health Insurance
Small group plans are an option if your business has fewer than 50 employees. You can work with a broker to learn about your options, or research and compare plans on the SHOP (Small Business Health Options Program) marketplace.
You may end up finding a just-right plan in this category. But a lot of small businesses hit some snags during their search, such as:
- Unreasonably high costs: Insurance companies have more incentive to make plans for big businesses comparatively affordable, since they bring in so much business. They don't feel the same way about small business plans. For small group plans, premiums are often too high for small businesses to comfortably afford—even after considering tax advantages. A lot of business owners see how expensive their options are and give up.
- Unrealistic minimum participation rates: Small group plans commonly require at least 70% of employees to sign up in order for you to qualify. If half of your employees prefer to get their coverage another way, such as through their spouse's employer, then a small group plan likely won’t even be an option.
- Limited options: Some insurers have been leaving the small group market in recent years. In some areas, that could mean the main provider(s) that have large networks in your town don’t have plans available in the small group market. If you provide your employees health benefits, only for them to realize none of their go-to doctors are covered, you're replacing one problem with another.
- Huge time cost: Setting up a small group health plan can take over 30 hours in administrative work. Few small business owners can afford such a high cost in time and energy.
Option 2: ICHRA
Small group plans used to feel like the only game in town, but in the past few years, changes in federal legislation brought about a new option: ICHRA (Individual Coverage Health Reimbursement Arrangement).
ICHRA gives you a way to provide health benefits while breaking free of the limitations that plague the small group marketplace. The idea behind it is simple: you choose a set amount of money to offer your employees toward their health insurance premiums, and they select the plan to spend it on.
Even better, your contribution to their health benefits is tax free. They get the full amount you spend to put toward their insurance plan. And there are no minimum participation requirements. If you have 10 employees and only 4 want to take advantage of the option, that's fine!
For most small businesses, ICHRA presents the most compelling, accessible option for providing health benefits to your employees.
Option 3: Taxable Health Stipends
If all of this seems needlessly complicated and annoying, you may be sitting there wondering why you shouldn't just give them a lump sum to spend on their health insurance. It's easy and straightforward, right?
Afraid not. While a health stipend would be easy—you're right about that part at least—it's not straightforward. That's because taxes eat over a third of the amount you spend. Chances are what's left over wouldn't go very far toward premiums.
While this is technically still an option you have, the existence of ICHRA makes it an inconsequential one (unless you just really love spending extra on taxes).
What’s New in 2026: Hint, Health Care Costs are Going Up
The headline for the health insurance market in 2026 is familiar: prices are going up (again). Specifically, some of the main health insurance trends we see going into 2026 include:
- Higher premiums: It's pretty typical for premium amounts to go up each year, but 2026 is seeing a higher jump than usual. KFF reports that small group plans will see a median increase of 11%, but about 10% of plans are seeing a price jump of 20% or more. Plans on the individual marketplace are increasing premiums by 26% on average.
- Higher costs across the board: Higher costs should at least mean more is covered, right? Right? Not this time. Deductibles and out-of-pocket maximums are also going up. And with enhanced pandemic-era health care subsidies set to expire at the end of 2025, people will have less help in covering the cost as well.
- Fewer options: On top of the higher costs, some insurers have pulled out of the individual and/or small group markets. Most notably, Aetna is pulling out of the individual marketplace, impacting approximately 1 million people who previously depended on their ACA plans.
That's a lot of bad news. The biggest takeaway for small business owners: doing what you can to help employees access health care this year is more important than ever.
The Modern Solution: Why an ICHRA is a Game-Changer for Small Businesses
Amidst all the bad news, ICHRA is the shining bit of good news that just keeps on giving. While the small group market just keeps getting worse (for complicated reasons we've covered before), ICHRA keeps more affordable, accessible options available to small businesses.
To summarize, ICHRA works well for a few main reasons:
- You get budget control: You determine the amount you can afford to contribute to your employees' health care premiums. No unpleasant surprises, just a straightforward number.
- Employees get to exercise choice: Your employees have the power to choose their own plan based on their own preferences and needs.
- It's easy: You skip the administrative headaches that come with group plans. Indeed, you can get set up within minutes.
- Bonus: Have a remote, spread out workforce? Still easy! Even if your team is spread across states where every marketplace is different, getting everything set up is still fast and easy. Your part in the process is the same, and employees can research and select from the plans available in their area.
Get started with StretchDollar
When we say it's easy, we really mean it. It's as simple as 1-2-3:
1) Set Your Budget: Choose the monthly (tax-free) allowance you'll be providing to your employees.
2) Employees' choice: Send your team instructions on how to select their plan and how to access our experts. They do their own research (with our help, if they so choose), and make their choice.
3) Launch & Reimburse: You're live! Employees pay their premiums, you reimburse them. Everyone gets health care. Woo hoo🎉!
Let small business health insurance be easy for you and your team this year. You all deserve it.
Your Questions About Small Business Health Benefits, Answered
Still have questions? We've got answers! Here are some of the most frequently asked questions about small business health insurance:
1. What is the most affordable health benefits option for a small business?
For most small businesses, the most affordable option will be using ICHRA. You can select the amount you can afford to contribute to each employee's health benefit, based on what your budget can handle.
2. How many employees do I need to offer health insurance?
Even if you just have one employee, you can provide them health benefits. There's no minimum for the number of employees you can offer ICHRA to and no participation requirements, and SHOP is available for businesses of 1 to 50 employees,
3. Are ICHRA tax deductible?
Yep! Your ICHRA contributions are tax deductible.
4. Can I offer different allowance amounts to different employees with an ICHRA?
Only if they fall into different employee classes. Classes can include distinctions like full-time, part-time, seasonal, salaried, and hourly. If you want to provide different ICHRA amounts to full-time vs part-time employees, that's fine. But all your full-time employees should receive the same amount.
5. How do I offer health benefits to a team spread across multiple states?
The easiest way to offer health insurance benefits to employees that live in different states is with ICHRA. Since each employee is able to select their own health insurance plan, you don't have to worry about differences in which insurers and networks are available in each place.
6. Can my employees use their ICHRA for dental and vision insurance?
Yep! If employees have money left over after paying for the health insurance plan of their choice, they can put it toward dental and vision premiums.
7. How much does it cost to set up an ICHRA?
It depends on how you go about it. If a small business wants to self-administer ICHRA, expect a high cost in time and administrative labor. If you work with an administrator like StretchDollar, the costs are more straightforward: we charge a $40 monthly base fee, plus $8 per employee per month.
8. What kind of support do my employees get when choosing a plan?
If you self-administer, their support will be up to you. If you work with a platform like StretchDollar, we work with your employees directly to help them choose the right plan.
9. Can business owners participate in an HRA?
It depends on your business structure. The short answer: C-corp owners can; S-Corps, sole proprietors, and partners can't, but only because they get tax-friendly deductions already. For the longer answer, check out our post on health insurance tax deductions.
