Small Business Health Insurance Programs: Your Options, Explained

Quick answer

Small business health insurance programs let you offer employees a health plan or help reimburse eligible medical expenses, including individual insurance premiums. Your main options include SHOP coverage, other group plans, QSEHRAs, and CHOICE Arrangements. The right fit depends on your workforce, budget, and whether employees will choose their own coverage.

Small business health insurance programs let you offer employees a health plan or help reimburse eligible medical expenses, including individual insurance premiums. Your main options include SHOP coverage, other group plans, QSEHRAs, and CHOICE Arrangements. The right fit depends on your workforce, budget, and whether employees will choose their own coverage.

How do small business health insurance programs work?

You can offer employees group insurance or use a reimbursement arrangement that helps pay eligible expenses, sometimes including premiums for their own individual coverage.

With traditional group coverage, your business offers a health plan or a selection of plans. With a reimbursement arrangement, your business helps pay qualifying expenses under the arrangement’s rules.

Health reimbursement arrangements, or HRAs, are themselves a type of group health plan. That terminology can be confusing: an arrangement can help employees buy individual coverage without your business offering traditional group health insurance.

Option	How it works	Main decision for your business
SHOP	Offers small-employer health coverage, dental coverage, or both	Whether available plans fit your employees and potential tax-credit eligibility
Group coverage outside SHOP	Offers group insurance outside the SHOP program	Whether available group plans fit your business
QSEHRA	Pays or reimburses eligible medical expenses, including insurance premiums	Whether you qualify and can work within the reimbursement limits
CHOICE Arrangement	Reimburses qualified expenses for employees who have individual insurance	Whether employee-selected coverage fits your workforce

For example, offering employees a selection of group plans keeps the benefit within your employer’s plan offering. A CHOICE Arrangement instead requires employees to have their own individual insurance to use the funds.

Don’t choose based on the program’s name alone. Start with who will buy the policy, which expenses your business will help pay, and what employees must do to use the benefit. Our small business health insurance guide provides broader context for that decision.

Is SHOP the right place to start?

SHOP is worth considering if you want to offer group health or dental insurance and potentially qualify for the small business health care tax credit.

The Small Business Health Options Program, usually called SHOP, is designed for small employers. HealthCare.gov’s guidance checked in September 2026 says businesses and nonprofit organizations generally need 1 to 50 employees to purchase SHOP insurance.

SHOP gives you choices about the benefit you offer. You can:

• Offer a single plan or let employees choose among multiple plans.
• Offer health coverage, dental coverage, or both.
• Choose how much your business contributes toward employee premiums.
• Decide whether to offer dependent coverage.
• Decide how long new employees must wait before enrolling.

For example, you could offer health coverage and let employees choose among available plans, rather than offering dental coverage as well. Those are separate benefit decisions.

Eligible businesses don’t have to wait for an Open Enrollment Period. They can start offering SHOP coverage at any time of year. Enrollment happens directly through the insurer or with help from a SHOP-registered agent or broker.

Availability matters, though. If SHOP plans aren’t available in your area, you can ask an insurer or licensed insurance professional what other group plans are available.

You also don’t have to replace existing coverage simply because it isn’t through SHOP. HealthCare.gov says employers can keep non-SHOP coverage. The practical question is whether SHOP offers something useful for your business, especially access to the potential tax credit.

Could your business qualify for the health care tax credit?

Your business may qualify if it meets workforce, wage, premium contribution, and SHOP coverage requirements, but the maximum credit isn’t available to every employer.

Under HealthCare.gov’s guidance checked in September 2026, the Small Business Health Care Tax Credit could cover up to 50% of employer-paid employee premiums, or 35% for nonprofit employers.

The eligibility criteria listed in that guidance include:

• Fewer than 25 full-time equivalent employees, or FTEs.
• Average employee salaries of about $65,000 per year or less.
• Employer payment of at least 50% of full-time employees’ premium costs.
• SHOP coverage offered to all full-time employees.

The same guidance says you don’t have to offer coverage to dependents or employees working fewer than 30 hours per week to qualify for the credit.

Why the maximum isn’t your expected credit

The credit works on a sliding scale. HealthCare.gov’s guidance checked in September 2026 says it is highest for businesses with fewer than 10 employees whose average pay is $27,000 or less.

For example, meeting the basic employee-count and wage criteria doesn’t mean your business receives the maximum percentage. Employer size and average pay still affect the amount.

Why you shouldn’t build a permanent budget around it

The IRS tax credit guidance, checked in September 2026, says eligible employers can claim the credit for two consecutive taxable years.

SHOP enrollment is generally required to claim it. Before choosing coverage because of the credit, have a tax professional check your eligibility and estimated amount. Then consider whether the contribution remains affordable for your business when the credit is no longer available.

When should you consider a QSEHRA?

A QSEHRA may fit an eligible small employer that wants to reimburse medical expenses rather than offer employees a separate group health plan.

A Qualified Small Employer Health Reimbursement Arrangement, or QSEHRA, allows eligible small employers to pay or reimburse medical care expenses for eligible employees and their family members. Those expenses can include health insurance premiums.

The key distinction is that you’re providing an expense-reimbursement arrangement, rather than selecting a traditional group insurance policy for employees.

Your business supplies the funding

Under the IRS’s 2026 guidance, the employer funds the arrangement entirely. Employees can’t contribute through salary reductions.

For example, a QSEHRA isn’t an arrangement where employees agree to reduce their pay to build the reimbursement fund. The business supplies that funding.

For 2026, payments and reimbursements cannot exceed:

• $6,450 for individual coverage.
• $13,100 for family coverage.

Those are reimbursement limits, not estimates of what an employee’s insurance will cost. Keep that distinction clear when discussing the benefit with employees.

Other group benefits can rule it out

The IRS’s 2026 guidance also says an eligible employer must not offer a group health plan to any employees, including another HRA or a health flexible spending arrangement.

For example, keeping a separate group health plan for some employees while adding a QSEHRA for others conflicts with that restriction.

Before choosing a QSEHRA, have a benefits or tax professional confirm your employer eligibility, eligible employees, existing benefit arrangements, and intended reimbursements. Calling your business “small” isn’t enough to establish that the arrangement fits.

How does a CHOICE Arrangement differ?

A CHOICE Arrangement lets employers reimburse employees with individual insurance, without annual contribution limits, but employee eligibility and Marketplace tax credits need careful attention.

HealthCare.gov’s guidance checked in September 2026 calls these CHOICE Arrangements, formerly known as Individual Coverage Health Reimbursement Arrangements, or ICHRAs.

They provide tax-free reimbursements for qualified medical expenses up to an annual amount you set. Eligible expenses include monthly premiums and out-of-pocket costs. Employees must have their own individual health insurance to use the funds.

Employers of any size can generally offer the arrangement if they have at least one employee who isn’t a self-employed owner or that owner’s spouse. These arrangements are for employees, not self-employed individuals.

You choose the contribution and eligible employee types

The guidance checked in September 2026 sets no annual minimum or maximum contribution requirement.

You can offer the arrangement to eligible employees or certain types of employees. But you can’t give the same employee type a choice between traditional group coverage and a CHOICE Arrangement.

For example, HealthCare.gov says you could offer traditional group coverage to full-time employees and a CHOICE Arrangement to part-time employees.

Affordability affects Marketplace assistance

For 2026 plans, the arrangement is considered affordable when the employee’s monthly cost for the self-only, lowest-cost Silver plan in their area, after reimbursement, is less than 9.96% of one-twelfth of yearly household income.

If the offer is affordable, the employee and household members aren’t eligible for the Marketplace premium tax credit, even if the employee doesn’t use the arrangement.

That makes the contribution more than a budget decision. Have a benefits professional check the affordability calculation and help explain its consequences before employees choose coverage.

What changes as your workforce grows?

Workforce size can affect continuation coverage and employer responsibility rules, but different requirements use different employee counts, so a simple headcount isn’t enough.

The thresholds below come from federal guidance checked in September 2026. They answer different questions and shouldn’t be treated as interchangeable.

Continuation coverage requirements

The Department of Labor says COBRA generally applies to group health plans sponsored by employers with 20 or more employees in the prior year.

It requires an opportunity for employees and families to temporarily continue coverage in certain circumstances when it would otherwise end.

For example, deciding to sponsor a group plan means considering not just enrollment, but also whether continuation coverage requirements apply when someone’s coverage ends.

Employer responsibility requirements

The IRS says an employer with fewer than 50 full-time employees, including full-time equivalents, on average during the prior year isn’t an applicable large employer for the current calendar year.

Such employers aren’t subject to the employer shared responsibility provisions or associated employer information reporting provisions for that year.

Certain employers at or above that threshold may face an Employer Shared Responsibility Payment if they don’t offer coverage meeting applicable minimum standards.

The IRS guidance defines a full-time employee as averaging at least 30 hours of service per week, or 130 hours during a calendar month.

For example, looking only at employees you label “full-time” can miss the role of full-time equivalents in the threshold calculation. If your workforce is growing toward the threshold, ask a benefits or tax professional to check the count.

Separately, employers offering health insurance must offer it to all eligible employees when they become eligible and provide a standard Summary of Benefits and Coverage explaining coverage and costs.

How should you compare the cost and employee experience?

Compare what your business will contribute, what employees must arrange themselves, and whether each option’s eligibility rules match the workforce you actually have.

Start with the structure, then compare the money. A contribution toward a group premium and an individual-coverage reimbursement aren’t the same employee experience.

Match the arrangement to the decision

SHOP deserves attention when you want group coverage and may qualify for the tax credit. Other group coverage is worth examining when SHOP isn’t available or you want to compare available plans.

A QSEHRA deserves a closer look when you’re an eligible small employer willing to work within its reimbursement limits and restriction on other group coverage.

A CHOICE Arrangement may fit when you want employees to select individual insurance and want flexibility in the contribution amount. Its affordability and employee-type rules still need review.

For example, a business keeping traditional group coverage for full-time employees could explore CHOICE coverage for part-time employees. It shouldn’t assume a QSEHRA can be added in the same way.

Treat survey premiums as context, not a quote

KFF’s 2025 survey reported average annual premiums of $9,211 for single coverage and $26,054 for family coverage at firms with 10 to 199 workers.

Those are total premiums, not necessarily the employer’s contribution. That survey category also includes businesses larger than the audience of this guide, so the figures aren’t a price prediction for your business.

Actual plan comparisons matter more. Our page for comparing small business health insurance quotes is another reference when you’re reviewing group coverage options.

Before buying: your coverage checklist

The best comparison is between arrangements your business can actually use. Set aside options that conflict with your workforce or existing benefits before comparing contributions.

For example, if you plan to keep an existing group health plan, don’t budget for a QSEHRA alongside it. If you’re considering CHOICE, don’t assume employees can use reimbursement funds without individual insurance.

Before selecting a program, review:

• Employer eligibility: Check the program’s employer requirements rather than relying on the everyday meaning of “small business.”
• Employee counts: Confirm which workers and measurement period apply to each relevant rule.
• Available coverage: Check SHOP availability and the other group plans available to your business.
• Employer contributions: Decide what the business will pay toward premiums or eligible reimbursements.
• Dependent benefits: Decide whether dependent coverage is part of your group offering.
• Existing arrangements: Identify any group health plan, HRA, or health flexible spending arrangement that could affect your choice.
• Tax-credit assumptions: Have a tax professional check eligibility, the expected amount, and the limited claiming period.
• Employee responsibilities: Explain whether employees choose among employer-offered plans or obtain individual insurance.
• Required information: Confirm how eligible employees will receive coverage information, including the Summary of Benefits and Coverage where required.
• Ongoing obligations: Review continuation coverage, employer responsibility rules, and CHOICE affordability with a qualified professional where relevant.

Choose based on both the benefit you’re offering and the rules you’ll need to follow, not just the contribution amount.

Frequently Asked Questions

Can I use these programs if I have no employees?

HealthCare.gov says business owners without employees can use the Marketplace for individuals and families to obtain coverage. CHOICE Arrangements are for employees, not self-employed individuals. If you’re buying only for yourself, start with individual coverage rather than assuming an employee health benefit program applies.

Do I have to use SHOP to offer group insurance?

No. HealthCare.gov says employers can keep health coverage that isn’t through SHOP. If SHOP plans aren’t available in your area, you can explore other group plans with an insurer or licensed insurance professional. SHOP matters particularly when you’re considering the Small Business Health Care Tax Credit, because enrollment is generally required.

Can employees choose between a group plan and a CHOICE Arrangement?

You can’t offer the same type of employees a choice between traditional group coverage and a CHOICE Arrangement. HealthCare.gov gives the example of offering group coverage to full-time employees and a CHOICE Arrangement to part-time employees. Have a benefits professional review the proposed employee categories before setting up the arrangement.

Does a small business have to offer health insurance?

Under federal guidance checked in September 2026, employers generally below 50 full-time employees, including full-time equivalents, aren’t subject to the Employer Shared Responsibility Payment. That doesn’t eliminate the rules attached to coverage you voluntarily offer. Confirm the employee-count calculation and the obligations that apply to your chosen benefit with a qualified professional.