How to get health insurance for your small business

Picking a health-benefits plan is just one of many things founders have to do. With so much time spent on product development and hiring, it often gets delayed. But when you make a job offer, candidates may be considering other companies. If another company offers a full benefits package and you don’t, you might miss out on top talent. Offering health insurance signals trust to potential employees, and shows that your business has operational maturity. It’s not just a compliance factor; it also provides hiring leverage and can deliver high return on investment for your team.

In this guide, we’ll explain whether every small business must provide health insurance. We’ll also show you how to get health insurance for a small business, so you can make a strategic decision that will help your company thrive.

Not every small business has to provide health insurance. Under the Affordable Care Act (ACA), if you have 50 or more full-time employees, then you’re considered an applicable large employer (ALE). As an ALE, you’re required to offer health benefits to your employees and their dependents. If you don’t offer health insurance, you may face penalties. 

If you have fewer than 50 employees, offering health insurance is optional. Given the competitive nature of attracting talent and keeping employees satisfied, most founders still choose to offer it anyway, since candidates usually expect health insurance to be part of their employee benefits package.

Most startups offer health insurance as a group plan. As the employer, you pick the plan and decide how much to contribute. Employees pay their share through payroll deductions. You can work with an insurance carrier, a broker, or use a platform to help manage everything.

Plans vary in both cost and coverage. The main types are:

• Health maintenance organization (HMO): This is an affordable option with low premiums and low deductibles. However, employees must use the provider network and may need a referral to see a specialist. 
• Preferred provider organization (PPO): This type of plan has higher premiums, but offers a broader network of providers. Employees can see a specialist without a referral. It’s a good option if you want more flexibility and have a higher budget.
• High-deductible health plan (HDHP): This plan is usually combined with a tax-free health savings account (HSA). It has lower monthly premiums, but has higher deductibles. An HSA can help cover out-of-pocket expenses.

After employees enroll in the health insurance plan, they’ll pay monthly premiums and get access to medical care through the plan’s network.

Here’s a simple step-by-step approach to find and set up health insurance.

Step 1: Determine eligibility and team size

Confirm the number of full-time employees you have. This will help determine your eligibility and your state's requirements. 

Step 2: Decide on the budget and contribution strategy

Decide how much you’ll pay toward premiums. On average, small business employers paid $528.84 per month for single coverage and $1,232.59 for family coverage, as of March 2024, according to the U.S. Bureau of Labor Statistics.

Step 3: Choose how to buy 

You have a few ways to find health insurance for a small business:

• Traditional group health insurance plan: This is employer-sponsored coverage where you choose the plan and split the costs with your employees. 
• SHOP (Small Business Health Options Program) marketplace: This government exchange offers small group plans and potential small-business tax credits. 
• Health reimbursement arrangements (HRAs): With this setup, you reimburse employees tax-free for their own individual medical expenses.
• Broker: A broker is a licensed advisor who helps you compare plans and handles setup at no direct cost. 
• Private insurers: With private insurance, you’ll purchase directly from a carrier and manage the plan and administration yourself.
• Professional employer organizations (PEOs) and HR platforms: These options combine health insurance with payroll and HR for an integrated, all-in-one solution.

Step 4: Compare plans 

When comparing plans, consider these factors:

• Type of coverage (such as HMO, PPO, and HDHP)
• Cost of monthly premiums
• Deductible amounts and out-of-pocket expenses
• Provider networks covered by the plan
• Flexibility in choosing doctors and specialists

Step 5: Enroll and administer the plan

After you pick a plan, make sure you meet participation requirements, which usually amount to about 70% of your team. Have open enrollment and set up payroll deductions, so employees can start using their benefits.

Figuring out the cost of health insurance can be a big challenge for founders. The 2025 Employer Health Benefits Survey by the Kaiser Family Foundation found that small businesses with 10 to 199 employees pay about $9,211 per year for single-coverage plans. On average, employees pay 16% of premiums and employers pay 84%.

Costs depend on factors such as your team members’ ages, where your business is located, how many employees you have, the type of plan, and the level of coverage. As the owner, you’ll decide which plan to offer and how much to contribute.

Here are two real-world examples:

1. Example 1: For a lean three-person startup, the monthly premium is $600 per employee. The employer pays 50%, or $300 per employee. The total cost for the employer is $900 per month for the whole team ($300 x 3 employees).
2. Example 2: A growing 15-person team has a monthly premium of $800 per employee. The employer pays 60%, or $480 per employee. The total cost for the employer is $7,200 per month for the entire team ($480 x 15 employees).

To qualify for small business health insurance, you’ll generally need to meet several criteria, including:

• You’ll need to have at least one and up to 50 full-time employees. Some states require an employee, in addition to the founder. 
• For SHOP plans, employers must contribute at least 50%. 
• You may need to have a minimum participation rate of 70%. 
• You’ll need to have a physical office or business address in the state where you’re purchasing the health insurance plan. 

Yes, when you provide health insurance for your employees, you can claim it as a tax deduction. Premiums you pay as an employer are usually fully tax-deductible as a business expense.

The Small Business Health Care Tax Credit is also available if you have fewer than 25 employees and pay average wages below an inflation-adjusted amount. You’ll need to have a health plan through the Small Business Health Options marketplace and contribute at least 50% of the employee's premiums. If you qualify, you could receive a tax credit of up to 50% of the premiums you paid. For instance, if you spend $40,000 annually on health insurance, this business expense can reduce your taxable income. You may also receive up to $20,000 in tax credits. Your actual costs could be much lower than expected.

You don’t need to overthink choosing a health insurance plan. Start by setting a budget and understanding your team’s needs. Ask yourself these questions:

• What’s the age demographic? Older employees may need more extensive coverage.
• Do they have dependents? Some employees may require coverage for their spouse and children. 
• How often will they be using the healthcare coverage? Depending on their medical needs, they may incur occasional or ongoing costs.

Use the answers to pick a plan that offers the right balance of cost and flexibility.

One mistake is choosing a plan with too many features that your team doesn’t need. It’s also easy to overlook how complex administration can get. A good approach is to choose a mid-level plan with optional upgrades, so you’ll have steady costs and some flexibility.

It’s smart to introduce benefits as soon as you start hiring. Once your team grows past five or 10 people, health benefits can help you attract better candidates and keep them around. These benefits will also make people more likely to accept your offers and stay with your company. When your team feels cared for, satisfaction increases.

Now that you know the steps, you don’t need a full HR team to get started. A fintech platform can help you automate enrollment and set up payroll deductions for monthly premiums.

Setting up a health benefits plan is easier than you might think, and making it a priority can help you build a strong team. The sooner you set up your benefits plan, the faster you’ll create a solid foundation for your business to grow.

To give your business a competitive edge, take the first step and explore your health insurance options. With Mercury’s accounting tools, you can easily set up payroll deductions for your team’s health insurance.