Health Insurance Options for Small Businesses with Fewer Than 10 Employees

Navigating the landscape of health insurance can be daunting for small business owners, especially when you have fewer than 10 employees. However, providing health insurance is a valuable benefit that can help attract and retain top talent, boost morale, and ensure a healthier workforce. This blog post will guide you through the various health insurance options available to small businesses with fewer than 10 employees.

Health Insurance Options for Small Businesses with Fewer Than 10 Employees

1. Small Business Health Options Program (SHOP)

The SHOP marketplace is designed specifically for small businesses with 1 to 50 employees. For businesses with fewer than 10 employees, SHOP can be an excellent option due to its flexibility and potential for tax credits.

  • Benefits: SHOP plans are typically more affordable than individual plans and offer a range of coverage options. Small businesses with fewer than 25 employees may qualify for the Small Business Health Care Tax Credit, which can cover up to 50% of the premium costs.
  • Considerations: The administrative process can be complex, and not all states have SHOP marketplaces.

2. Qualified Small Employer Health Reimbursement Arrangement (QSEHRA)

A QSEHRA allows small businesses to reimburse employees for medical expenses, including premiums for individual health insurance, tax-free.

  • Benefits: Offers flexibility to employees to choose their own insurance plans and can be tailored to fit the budget of the business.
  • Considerations: There are annual contribution limits, and setting up a QSEHRA requires adherence to specific legal requirements.

3. Individual Health Insurance

In some cases, small business owners might decide to encourage their employees to purchase individual health insurance plans through the Health Insurance Marketplace.

  • Benefits: Employees can choose a plan that best suits their needs. Additionally, premium subsidies may be available to eligible employees, making the plans more affordable.
  • Considerations: The employer does not directly contribute to the premiums, which might be a less attractive benefit compared to employer-sponsored plans.

4. Association Health Plans (AHPs)

AHPs allow small businesses to band together to purchase insurance as if they were a single large employer, often resulting in lower premiums and better coverage options.

  • Benefits: Potentially lower costs and access to a broader range of plan options.
  • Considerations: AHPs are subject to varying state regulations, and the long-term viability of these plans can be uncertain.

5. Professional Employer Organizations (PEOs)

PEOs allow small businesses to outsource their human resources functions, including health benefits administration. By pooling multiple small businesses, PEOs can often secure better rates on health insurance.

  • Benefits: Simplifies HR functions and often provides access to high-quality health insurance at lower rates.
  • Considerations: Can be expensive, and businesses must cede some control over their HR policies.

6. Health Savings Accounts (HSAs) and High-Deductible Health Plans (HDHPs)

Pairing an HDHP with an HSA can be a cost-effective way to provide health benefits. HDHPs typically have lower premiums, and HSAs offer tax advantages.

  • Benefits: Lower premiums and tax savings on contributions to HSAs. Employees can use HSA funds for a wide range of medical expenses.
  • Considerations: High deductibles might be a deterrent for some employees, and managing HSAs requires additional administrative effort.

Tips for Choosing the Right Option

  1. Assess Your Budget: Determine how much your business can afford to spend on health benefits without compromising other essential operations.
  2. Understand Employee Needs: Survey your employees to understand their healthcare needs and preferences. This will help you choose a plan that offers the most value.
  3. Consult a Broker: Insurance brokers can provide valuable insights and help you navigate the complexities of different health insurance options.
  4. Stay Informed: Health insurance regulations can change, so it’s important to stay updated on any new laws or tax incentives that could benefit your business.

Providing health insurance for your small business with fewer than 10 employees is not only a valuable investment in your team but also a strategic move for the long-term success of your business. By carefully evaluating your options and considering the needs of your employees, you can choose a plan that offers the best coverage and benefits within your budget.

Do small businesses have to offer health insurance in California?

No, in California, small businesses with fewer than 50 full-time equivalent (FTE) employees are not required to offer health insurance to their employees. There is no penalty for not providing health insurance under these circumstances.


Providing health insurance for a small business with fewer than 10 employees is a significant step towards ensuring the well-being and satisfaction of your team. It’s a critical investment that can lead to higher employee retention, increased productivity, and a competitive edge in the job market.

When exploring health insurance options, consider the following key points:

  1. Flexibility with SHOP Plans: The Small Business Health Options Program offers a range of plans that may be affordable and come with potential tax credits.
  2. Customization with QSEHRA: The Qualified Small Employer Health Reimbursement Arrangement allows for tax-free reimbursements and gives employees the freedom to choose their own plans.
  3. Employee Choice through Individual Health Insurance: Encouraging employees to buy individual plans can be cost-effective and provide them with the flexibility to select the best coverage.
  4. Collective Benefits with AHPs: Association Health Plans enable small businesses to pool together for better rates and coverage.
  5. Efficiency via PEOs: Professional Employer Organizations simplify HR functions and can secure better health insurance rates by pooling multiple small businesses.
  6. Cost Savings with HSAs and HDHPs: Combining High-Deductible Health Plans with Health Savings Accounts offers tax advantages and lower premiums.

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