Affordable Health Insurance Options for Small Businesses

As a small business owner, providing health insurance for your employees can be challenging. Health insurance costs have been rising rapidly, making it difficult for many small businesses to offer affordable coverage. However, there are several options that can help make health insurance more accessible and affordable for small businesses.

affordable health insurance for small business

SHOP Marketplace

The Small Business Health Options Program (SHOP) Marketplace is an online marketplace created by the Affordable Care Act (ACA) where small businesses can shop for and compare health insurance plans for their employees. The key features of SHOP include:

  • Eligibility: To qualify for SHOP, a business must have 1–50 full-time equivalent employees. The coverage is available to both for-profit and non-profit businesses.
  • Plan options: Businesses can choose from a variety of major medical and supplemental insurance plans from various providers. All plans offered through SHOP cover essential health benefits.
  • Potential cost savings: SHOP plans may provide lower premiums for businesses than plans available outside the SHOP marketplace. Small businesses may also qualify for a tax credit when using SHOP, which can cover up to 50% of premium costs.

The SHOP marketplace gives small business owners an easy way to find and compare health plans for their teams.

Be sure to check if your business qualifies.

Association Health Plans

Association Health Plans (AHPs) allow small businesses to band together by geography or industry to purchase large group health insurance plans. Key features include:

  • Lower premiums: By pooling together, small employers can gain negotiating leverage and economies of scale that result in lower premiums.
  • More flexibility: AHPs are not required to cover all of the ACA’s essential health benefits, allowing for leaner, customized plans.
  • Access: An AHP creates opportunities for small businesses that may not otherwise offer insurance due to cost.

When weighing an AHP, be sure to closely evaluate the coverage details and provider networks to ensure it meets your needs. But they can be an affordable alternative to traditional small group plans.

Health Reimbursement Arrangements

A Health Reimbursement Arrangement (HRA) is an employer-funded plan that reimburses employees for out-of-pocket medical expenses. Key HRA features:

  • Cost management: The employer defines contribution amounts, which converts variable premium costs into fixed HRA contributions.
  • Tax savings: Contributions are tax deductible for employers and non-taxable income for employees.
  • Flexibility: HRAs can wrap around compatible high-deductible individual health plans with unrestricted provider choices.

For small businesses concerned about managing costs, an HRA is an innovative way to fund employee healthcare. Just be sure to set clear reimbursement guidelines.

Level-Funded Plans

A level-funded health plan combines elements of self-funded and fully-insured plans. The key aspects include:

  • Cost control: Premium equivalents are paid to the carrier monthly. If claims are lower than expected, premium savings are returned to the small business client.
  • Risk mitigation: Carriers absorb risk above a certain claims threshold, capping the small business’s maximum financial liability.
  • Ease of use: The insurance carrier processes claims and handles administration. No need to manage in-house.

For a small business wanting greater cost certainty without the headaches of self-funding, a level-funded plan can be the right balance.


Self-insuring is when a business directly funds employee health expenses rather than purchasing traditional insurance. Considerations include:

  • Lower costs: Eliminates insurer premiums and profits. The company retains savings from lower claims.
  • Control: The business decides the plan design details and can customize to meet workforce needs.
  • Risk: With no insurance caps, poor claims experience could be financially devastating for a small business.

Self-insuring is complex but can save costs long-term if executed well. Consult experts to evaluate risk tolerance and create contingency plans.

Final Tips for Finding Affordable Small Business Health Insurance

  • Compare multiple carriers: Prices and plan options vary greatly among insurance companies.
  • Assess workforce demographics: Consider factors like employee age, health conditions, and family sizes as you select benefits.
  • Get quotes annually: Shop rates each year during open enrollment as new options arise.
  • Meet with an agent/broker: An expert can explain options and ensure you get the best rate.

The key is evaluating all the affordable insurance possibilities before deciding what works for your small business budget and priorities. With creativity and diligent shopping, you can find a solution to keep your team covered.


Providing quality, affordable medical insurance is crucial yet challenging for small business owners. But resources like the SHOP Marketplace combined with innovative products such as Association Health Plans, Health Reimbursement Arrangements, and level-funded plans have expanded the options for small businesses to offer health benefits within budget.

As a small business owner, understand all the plans available, leverage expert guidance, evaluate workforce needs, and conduct thorough annual evaluations of options to find the optimal health insurance fit. There are more possibilities than ever to cover employees at reasonable rates – research these little-known options for your small business health insurance solution.

Frequently Asked Questions

What are the penalties if I don’t provide health insurance?

Under the Affordable Care Act (ACA), there are no explicit penalties for small businesses that don’t offer health insurance. However, you may face competitive talent disadvantages without a benefits package. And starting in 2023, there is a tax credit available exclusively to small businesses using SHOP plans to incentivize providing insurance.

What are the costs and obligations to employees?

When providing group health insurance, employers typically pay a large portion (50-90%) of employees’ monthly premiums. Employees are responsible for paying their remaining premium share through payroll deductions. Cost sharing through copays or coinsurance also apply when the employees receive care.

What are the differences between HMOs, PPOs, and HDHPs?

HMOs offer a limited provider network with strict referral requirements for lower costs; PPOs have a broader network and flexibility to see specialists for higher premiums. HDHPs have higher deductibles and lower premiums paired with HSAs or HRAs to save and pay healthcare expenses tax-free.

Can I offer insurance if I employ mostly contract or seasonal workers?

Yes – you can offer coverage to permanent employees even if you also utilize contract workers. And with SHOP, you can determine “full-time equivalent” measures to count seasonal workers’ hours towards insurance eligibility requirements. Get creative with plan design and contributions to cover your whole team.

How long does it take to set up a health insurance plan?

It typically takes 1-2 months from the time you apply and submit initial paperwork to when your health insurance policy goes into effect. Start the quoting and application process 2-3 months prior to when you hope to have active coverage for smooth implementation.

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