If you run a small business, you may assume a traditional group plan is the only way to offer health insurance. For a team under 30 employees, it is often the most expensive way. This guide explains, in plain English, why group plans cost so much and how two alternatives, the QSEHRA and the ICHRA, can get your employees good coverage on a budget you control.
You Are Not Required to Offer Coverage
Federal law only requires a business to offer health insurance once it has 50 or more full-time employees. Full-time means 30 or more hours a week, and part-time employees’ hours are added together toward that count. Under 50, there is no federal penalty for not offering coverage, so you are free to choose the approach that fits your budget.
Some states, such as Hawaii, have their own employer requirements, so check the rules where you operate.
Why Traditional Group Plans Cost So Much
- You pay a big share. Insurance companies usually require the business to pay at least half of each employee’s premium.
- Enough people have to join. Most carriers need a set share of your team, often around 70%, to sign up before they will offer the plan.
- One plan for everyone. Your 25-year-old and your 58-year-old get the same choices, even though their needs, and prices, are very different.
- Prices go up every year. The business absorbs the renewal increase.
- Employees can lose tax credits. Once you offer an affordable group plan, your team generally cannot use Marketplace tax credits, which might have made their own coverage cheaper.
The Smarter Alternative: A Health Allowance
Instead of buying one plan for everyone, you set a monthly allowance. Each employee picks their own individual health plan, and you reimburse them, tax-free, up to that amount. You control the budget, and they choose the doctors and coverage that fit their life. These arrangements are called health reimbursement arrangements (HRAs), and there are two main kinds.
QSEHRA: The Simple Start
A Qualified Small Employer HRA (QSEHRA) is made for businesses with fewer than 50 employees that do not offer a group plan.
- You choose the allowance, up to a yearly IRS limit. For 2026, that is $6,450 for one person and $13,100 for a family.
- It must be offered on the same terms to all eligible employees.
- Employees who qualify may still get a smaller Marketplace tax credit.
ICHRA: The Most Flexible
An Individual Coverage HRA (ICHRA) works for a business of any size, so it can grow with you.
- There is no dollar cap. You set the allowance.
- You can offer different amounts to different groups, such as full-time and part-time employees.
- Employees must have an individual health plan to use it.
With either one, the allowance is tax-deductible for the business and tax-free for employees, there is no minimum number of sign-ups, and employees keep their plan if they leave. You cannot offer an HRA alongside a traditional group plan to the same employees.
At a Glance
| Group plan | QSEHRA | ICHRA | |
|---|---|---|---|
| Who picks the plan | The business, for everyone | Each employee | Each employee |
| Your cost | Set by the carrier, rises at renewal | A fixed budget you set | A fixed budget you set |
| How much you put in | Usually 50%+ of each premium | Your choice, up to the IRS cap | Your choice, no cap |
| Sign-up minimum | Usually required | None | None |
| Business size | Any | Under 50 | Any |
Cost Example: A 35-Year-Old in Florida
Say your business budgets $375 a month for a single 35-year-old employee, which is half of a typical group premium for his age. Here is what that same $375 gets him each way:
| Option | Monthly premium | Business pays | Employee pays | Employee pays per year |
|---|---|---|---|---|
| Group plan | About $750 | $375 | $375 | $4,500 |
| ICHRA | About $585 | $375 | $210 | $2,520 |
| Private plan + QSEHRA | About $415 | $375 | $40 | $480 |
The business spends the same $4,500 a year in all three. The difference is what the employee pays. A group plan’s price is set for your whole group, while an HRA lets each employee shop the individual market, where a younger employee can often find a lower price on their own.
- ICHRA: the employee picks any ACA individual plan. At this allowance, he generally would not also get a Marketplace tax credit.
- Private plan: a plan priced on the employee’s health that needs approval and is available year-round. It is often the lowest price for healthy employees, but not everyone qualifies.
These are illustrative 2027 estimates, rounded, not a quote. The group premium is based on the 2026 national average single premium ($9,804 a year, KFF) adjusted for age 35. Individual and private prices are midpoints of our Florida estimate ranges (ICHRA about $325–$840, private about $235–$600). Actual prices depend on location, plan, health and carrier. QSEHRA reimbursements are tax-free only if the employee has minimum essential coverage; some private plans do not count, which makes reimbursements taxable income.
Which Option Fits Your Business?
- A group plan may still make sense if your team wants one shared plan and you can meet the contribution and sign-up rules.
- A QSEHRA is often the easiest way for a business under 50 to start offering help with health costs.
- An ICHRA fits businesses that want no cap on contributions, different amounts for different groups, or room to grow past 50.
If you work for yourself with no employees, see our guide to health insurance for the self-employed. For employees using Marketplace plans, the 2027 income limit for tax credits matters too.
Compare Real Numbers for Your Team
Send us your employees’ ages and ZIP code, and a licensed agent will compare a group plan, a QSEHRA and an ICHRA side by side, with real quotes from carriers in your area.
This article is general information, not tax or legal advice. Figures were current as of November 3, 2026, and IRS limits change each year. Ask a tax professional how these rules apply to your business.
Sources: IRS employer size rules, IRS Rev. Proc. 2025-32 (2026 QSEHRA limits), HealthCare.gov on ICHRAs, HealthCare.gov for small businesses, KFF 2026 Employer Health Benefits Survey
