Health Insurance Options for Small Business

Why this matters

Health insurance is the most-cited benefit employees want + the single biggest cost item after wages. For a small service contractor, monthly premium per employee varies widely by plan tier, region, and coverage level. Offering insurance is increasingly necessary to attract + retain quality techs. Designed wrong, it bankrupts the small employer; designed right, it's a competitive advantage that pays for itself in retention. This is the working framework.

The fundamental decision

Option 1: Don't offer health insurance

• Legal in most states (no federal mandate for employers under 50 FT employees)
• Employees buy on the marketplace OR via spouse OR Medicare/Medicaid
• Trade-off: harder to attract experienced techs; high turnover risk

Option 2: Offer group plan

• Traditional path; most common for 5+ employee operations
• Employer + employees share cost
• Plan selection through broker

Option 3: Individual Coverage HRA (ICHRA)

• Newer option (2020+)
• Employer reimburses employee for individual marketplace plan
• Fixed monthly contribution; employee chooses plan
• More flexibility than group; more admin than nothing
• Cost: defined by employer contribution amount

Option 4: Qualified Small Employer HRA (QSEHRA)

• For employers under 50 FT employees who don't offer group plan
• Tax-free reimbursement up to IRS-defined annual limits
• Simpler than ICHRA; smaller business focus

Option 5: Health Sharing OR Direct Primary Care

• Non-insurance alternatives
• Lower cost; specific limits + restrictions
• Trade-off: limited coverage + financial risk

Affordable Care Act (ACA) basics

The ACA changed health insurance fundamentally:

• No medical underwriting: pre-existing conditions covered
• Essential benefits: 10 categories of required coverage
• Coverage tiers: Bronze (60% covered), Silver (70%), Gold (80%), Platinum (90%)
• Employer mandate: 50+ FT employees must offer affordable coverage OR pay penalty
• Marketplace: HealthCare.gov + state exchanges for individual plans

For a typical 1 - 20 employee service contractor:

• Employer mandate doesn't apply (< 50 FT)
• Group plans available through brokers
• ICHRA / QSEHRA available for HRA structures
• Marketplace is the alternative employees use without employer coverage

Group plan basics

A group plan covers a defined population (your employees + dependents).

Setting up:

1. Engage a broker (free to you; commission paid by insurer)
2. Provide census (employee + dependent demographics)
3. Receive quotes from multiple carriers
4. Choose plan + cost-sharing structure
5. Enroll employees + dependents
6. Set up payroll deduction for employee contribution

Carriers: Aetna, Anthem (Blue Cross), Cigna, Humana, Kaiser Permanente (regional), Oscar, United Healthcare. Availability varies by state.

Network types:

• HMO: in-network only; primary care gatekeeper; lower cost
• PPO: in + out-of-network; no referrals; higher cost
• EPO: in-network only; no referrals; mid-cost
• HDHP: high-deductible health plan; eligible for HSA; lower premium

Cost-sharing:

• Premium: monthly cost
• Deductible: out-of-pocket before insurance pays
• Co-pay: per-visit charge
• Co-insurance: percentage you pay after deductible
• Out-of-pocket maximum: yearly cap on your spending

Employer contribution:

• Common: 50 - 80% of employee-only premium
• Dependent coverage: employee pays full OR employer contributes
• Trade-off between cost + recruiting/retention

A working group plan example

Small contractor, 8 employees, Silver HMO with a moderate deductible. Family premium runs roughly 3x the employee-only premium. Employer pays 70% of the employee-only premium; employee pays the balance + the family-coverage delta. Multiply the employer's per-employee share across the group + annualize: the total lands as a real line item on the P&L, but well short of what a single serious workers' comp claim or a bad hiring year would cost. Significant but defensible cost.

ICHRA - the modern flexible option

Available since 2020. Employer offers fixed monthly reimbursement tax-free; employee buys individual marketplace plan + chooses what fits. Pros: fixed employer cost, employee choice, simpler admin. Tradeoff: employee navigates marketplace; regional plan availability varies. Setup: use an ICHRA administrator (Take Command Health, PeopleKeep) - a modest per-employee monthly admin fee. Often MORE cost-effective + simpler than group plan.

QSEHRA - for the smallest employers

QSEHRA is even simpler than ICHRA, with built-in IRS limits.

Eligibility:

• Employer < 50 FT employees
• Don't offer group plan
• All FT employees eligible (you can't pick favorites)

Reimbursement limits: the IRS sets an annual cap each year, with the family limit roughly double the single-employee limit - check the current-year figure.

• Pro-rated by months of eligibility

Setup: simpler than ICHRA but limited to small employers without group plans.

For a 1 - 5 employee operation that wants to offer something: QSEHRA is the cheapest entry point.

Cost reality + budgeting

Plan ahead:

• Insurance premiums rise 5 - 10%/year typically
• Group plans have annual renewals; can switch carrier annually
• ICHRA budget is fixed (you set the amount)
• Employee turnover affects costs; new enrollees usually mid-year

Typical service-business benefit cost: zero for a shop offering nothing; a meaningful five-figure annual line item for a small group plan covering 5 - 10 employees; a somewhat smaller, fully predictable annual outlay under ICHRA since the employer sets the reimbursement amount directly.

Tax treatment

• Group plan premiums: deductible for employer; tax-free for employee
• ICHRA/QSEHRA: reimbursements tax-free for both
• HSA contributions: tax-free for both
• Section 125 / cafeteria plan: pre-tax employee contributions

Talk to CPA about structuring. Significant tax savings possible.

HSA (Health Savings Account)

For high-deductible plans (HDHP):

• Employee contributes pre-tax
• Money grows tax-free
• Withdrawals tax-free for medical
• Employer can contribute as benefit

The IRS sets an annual contribution limit each year, roughly double for family coverage vs. self-only - check the current-year figure before advising an employee.

Often paired with HDHP for low-premium-high-deductible coverage strategy.

Choosing the right option

Decision tree for a service-business owner:

• 0 employees (just you): individual marketplace OR spouse's plan OR self-employed health deduction
• 1 - 5 employees: QSEHRA OR small group OR ICHRA - model each
• 5 - 25 employees: ICHRA OR small group plan
• 25+ employees: group plan OR ICHRA (employer mandate kicks in at 50+)

The honest math: get a broker to quote group + ICHRA admin both. Compare total cost vs. employee experience. Choose based on YOUR economics + your team's preferences.

Open enrollment

Annual cycle:

• October - December: open enrollment for marketplace + most group plans
• Plan starts January 1
• Employees can only change plans at open enrollment OR with qualifying life event
• Owner should plan choices 60 - 90 days in advance

References

• HealthCare.gov (marketplace)
• IRS Notice 2017-67 (QSEHRA)
• IRS Final Rule on ICHRA (2019)
• Small Business Health Options Program (SHOP)
• Manuall internal: Payroll Setup for Service Business, Employee Handbook Essentials