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Running a small business is hard. Keeping employees happy and healthy should be the least of your worries.
Here's the catch though…
If you want to attract the best talent and keep your top employees from leaving, you need to provide health insurance. It's not a nice-to-have anymore – it's a requirement. But health insurance options and plans can be a confusing mess.
Here's the good news though.
Once you understand the basics of group health insurance plans and available options, building a great benefits package for your employees is straightforward.
What's In Store:
Small Business Health Insurance Guide: Why It's Needed
How Group Health Insurance Plans Work
How Much Group Health Insurance Plans Cost
Exploring Your Group Health Insurance Plan Options
Choosing The Best Plan For Your Small Business
1. Small Business Health Insurance Guide: Why It's Needed
Let's be real with each other…
Your competitors all offer health insurance. If you don't, you're already in a talent war that you're losing. Right now, only about 49% of employees at small companies have health insurance coverage. That means you have a tremendous opportunity to get ahead of the curve and stand out.
Remember, when a job candidate is comparing two similar job offers, what's likely going to make a difference in the choice? The health benefits package. Full stop.
It's not just recruitment. Health insurance also helps you retain great employees. Healthy employees are happy employees. They take fewer sick days, are more engaged, and stay with your business for the long haul.
Offering health insurance also increases your employees' loyalty to your company. When your team knows you're investing in their long-term health and wellbeing – and not just their output – they want to stick around. Plus, you get tax benefits. The premiums you pay on employee health insurance are typically tax deductible. Your employees also save since they contribute with pre-tax dollars.
Sounds pretty compelling, right?
2. How Group Health Insurance Plans Work
Okay, let's break it down…
In short, a comprehensive group health insurance plan is a single policy that covers all your employees. Rather than having each of your employees go find their own insurance plans on the individual market, everyone gets placed under one master group policy issued directly to your business.
Group health insurance has several advantages over individual insurance. The biggest is the cost per person. Because the insurance risk is spread out over several people, individual plans typically cost less. Insurance companies also like group plans because the larger the pool, the more predictable their costs become.
Both you and your employees pay part of the monthly premium. The employer (you) pays one share and the employees pay the rest through payroll deduction. In most states, employers are required to contribute at least 50% of the employee-only premium amount, although most small businesses will pay more than that if their budget allows.
A business needs at least one full-time W-2 employee that isn't the owner or a spouse, a registered business entity, be willing to pay a portion of the premium costs, and offer health coverage to all eligible full-time employees.
The definition of small business varies from state to state, but is generally between 2 to 50 full-time employees.
3. How Much Group Health Insurance Plans Cost
Let's face it…
Costs for small group health insurance are not small. The average annual premium in 2024 is $8,951 for single coverage and $25,572 for family coverage. But here's the kicker, those numbers go up every single year.
In fact, for 2026, insurers are predicting an 11% median increase in premiums across small group plans. That's a big jump that small businesses need to budget for.
Why are small group premiums going up so much?
Several things are contributing to the yearly inflation we're seeing in the health insurance market. Inflation in general is raising the costs of medical services and medications. Labor shortages are driving up the salaries of doctors, nurses, and other medical professionals. The hospital consolidation trend is giving insurance companies less leverage and allowing providers to charge more.
None of this is new information, but with each yearly increase in premiums, it gets harder to justify the growing expense to small business owners. However, two things should be kept in mind.
One, you aren't paying the full premium yourself. Your employees are paying a share. Plus, the tax benefits and cost savings from employee retention and productivity gains go a long way towards offsetting the health insurance costs.
4. Exploring Your Group Health Insurance Plan Options
Did you know?
Not all group health insurance plans are created equal…
In fact, you have several different major plan types to choose from, each with its own advantages and disadvantages. Here's a breakdown:
HMO (Health Maintenance Organization): Lower premiums but require using in-network providers. Referrals from primary care doctors required to see specialists. Strong cost controls, but less flexibility in terms of provider choices.
PPO (Preferred Provider Organization): More expensive than HMO plans, but employees can use out-of-network providers for a higher cost. Specialist care doesn't require a referral. This is by far the most popular type of small business health insurance due to its flexibility.
POS (Point of Service): A hybrid between HMO and PPO plans. Employees have a primary care doctor, but can use out-of-network providers at a higher cost. The "sweet spot" in terms of price and flexibility.
HDHP (High Deductible Health Plan): Low monthly premiums, but very high deductibles. Usually comes with a Health Savings Account (HSA) for tax-free medical savings. Good for younger, healthier employees.
The type of plan you want will depend on the health needs of your team and your budget. A startup in the tech industry with young employees may be better suited to an HDHP. A manufacturing business with an older workforce will need more comprehensive PPO coverage.
5. Choosing The Best Plan For Your Small Business
A big mistake that most small business owners make when choosing health insurance is…
They base their decision on price. They opt for the cheapest plan they can find, then wonder why they have high turnover and low morale. While health insurance is expensive, going cheap is only a good solution if your employees don't actually use their insurance.
The first step is to know your workforce. Are you mostly young, single employees? Or do you have a lot of families with kids? Once you have those answers, you can start to make decisions.
Where do your employees work? If you have remote workers in different states, you'll need a plan with a wide network to ensure everyone has access. If everyone is local, you can save money with a regional plan.
Enrollment requirements matter. Most insurance companies require that at least 70% of eligible employees sign up for coverage. If you're not confident you can meet those thresholds, you may need to pay higher premiums.
Look for add-on benefits. Vision and dental coverage are cheap add-ons that employees value.
Alternatives To Group Health Insurance Plans For Small Businesses
If you're not quite ready to dive into group health insurance…
You have some options. Health reimbursement arrangements (HRAs) allow you to reimburse employees for their individual insurance premiums and out-of-pocket medical expenses. HRAs are attractive because they put you in complete control of the budget since you set the reimbursement amount.
Qualified Small Employer HRAs (QSEHRAs) are another option designed for businesses with under 50 employees. They're easy to administer and allow for greater flexibility.
Ready to Take The Next Step?
Health insurance isn't just a box to check. It's a tool to create a company that the best talent wants to work for and stay at. Small businesses with only about 40% offering health insurance right now have a huge opportunity to stand out in the marketplace.
The costs are real, and the health insurance plans themselves can be confusing. But when you balance those expenses against the benefits to recruiting, retaining, productivity, and tax savings – it's a no-brainer.
Sit down with a benefits specialist to review your budget and needs. A good expert will help you identify the right type and level of health coverage for your team. The sooner you get that in place, the sooner you start to see the benefits.
Here's the truth…
In the modern competitive job market, health insurance is not a perk. It's an absolute requirement.
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