How to Offer Employee Health Benefits When You Have Under 50 Employees

Small businesses with fewer than 50 employees are not required by federal law to offer health insurance — but that does not mean they should not. In a competitive labor market, health benefits are one of the top factors employees weigh when choosing or staying with an employer. The good news: small businesses have more options for offering benefits than ever, including traditional group plans, level-funded arrangements, ICHRAs, and individual market strategies that can fit almost any budget.

What Health Benefit Options Do Small Businesses Have?

Small businesses under 50 employees can choose from four primary approaches to offering health coverage: traditional fully insured group health plans, level-funded or self-funded group health plans, ICHRAs (Individual Coverage HRAs) that reimburse individual insurance premiums, and SHOP marketplace plans designed specifically for small businesses. Each has different cost structures, administrative requirements, and suitability based on your workforce.

Traditional Group Health Plans for Small Businesses

Traditional fully insured group plans are the most familiar option. You pay a fixed monthly premium per employee to a carrier, the carrier assumes all risk, and employees receive a defined benefits package. Most carriers require at least 2 full-time employees and a minimum participation rate (typically 70% of eligible employees). Premium costs for small groups tend to be higher per employee than for large employers because there is less risk pooling, but the plan stability and simplicity are advantages.

Level-Funded Plans: Better Value for Healthy Small Groups

For small businesses with 10–50 employees and a relatively healthy workforce, level-funded plans can deliver 15–30% cost savings over traditional fully insured plans. You pay a fixed monthly amount, but you have access to your group's claims data, the potential for year-end refunds on unused claims, and more plan design flexibility. Stop-loss insurance caps your financial exposure at a defined level.

ICHRAs: The No-Plan-Required Option

For very small businesses, startups, or businesses with diverse workforces spread across multiple states, an ICHRA may be the most practical benefit option. Set a monthly reimbursement budget, employees buy their own individual insurance, and you reimburse them tax-free up to your budget amount. No minimum participation. No network management. No carrier negotiation. Just a clean, controllable benefit with predictable costs.

Small Business Options Comparison

Best for Simplicity: Fully Insured Group Plan

•  Fixed, predictable monthly premium

•  Carrier manages claims and administration

•  Employees get structured, consistent benefits

•  Works from 2 employees up

•   Simple HR administration

Best for Cost Control: Level-Funded or ICHRA

•  Level-funded: 15–30% savings potential vs. fully insured

•  ICHRA: Zero minimum group size, maximum budget control

•  Both provide access to claims data and refund potential

•  Employees choose own plans under ICHRA — maximum flexibility

•  Stop-loss insurance (level-funded) caps financial risk

What Contribution Strategy Should a Small Business Use?

There is no single right answer, but a common starting point is covering 50–75% of the employee-only premium and 0–25% of dependent premiums. This is often enough to attract employees while remaining budget-sustainable. Whatever your strategy, consistency matters ; you must apply the same contribution rules to all employees in the same class. An independent broker can model the total annual cost of different contribution strategies before you commit.

How Does Offering Health Insurance Help a Small Business Compete?

SHRM research consistently shows that health insurance is the most valued employee benefit — ranking above retirement plans, paid time off, and flexible schedules. Small businesses that offer health coverage see lower turnover, stronger candidate pools, and more engaged employees. The tax savings add to the value: every dollar an employer contributes to health premiums is a deductible business expense, effectively reducing the net cost by the employer's tax rate.

Frequently Asked Questions

Q: Can a part-time employee be excluded from health coverage?

Yes. Employers can set eligibility rules that require employees to work a minimum number of hours to qualify — typically 30 hours per week for full-time classification. You can offer different benefits to different employee classes as long as the distinctions are based on legitimate factors like hours worked.

Q: What is the waiting period for new employee health coverage?

Under ACA rules, employer group plans cannot impose a waiting period longer than 90 days before eligible employees can enroll. You can set a shorter waiting period or no waiting period at all.

Q: Does the employer have to cover dependents?

Employers are not required to cover dependents but must offer dependent coverage options under ACA rules for group plans. The employer can choose how much, if anything, they contribute toward dependent premiums.

Q: What is SHOP marketplace insurance for small businesses?

The SHOP (Small Business Health Options Program) marketplace is a federally operated exchange for businesses with 1–50 employees. It allows small businesses to offer employees a choice of plans and potentially access the Small Business Health Care Tax Credit.

Key Takeaways

•  Businesses under 50 employees are not required to offer health insurance but have strong competitive and tax incentives to do so.

•  Options include traditional group plans, level-funded plans, ICHRAs, and SHOP marketplace plans.

•  Level-funded plans can save 15–30% over traditional fully insured for healthy groups.

•  ICHRAs work for businesses of any size with no minimum participation requirements.

•  An independent benefits broker navigates all options, negotiates with carriers, and manages administration at no cost to you.

Sources & References

• KFF. 2025 Employer Health Benefits Survey. kff.org

• Department of Labor. ICHRA and QSEHRA Guidance. dol.gov

• IRS. Small Business Health Care Tax Credit. irs.gov

• SHRM. Employee Benefits Survey 2025. shrm.org