Health insurance for small business usually comes in one of four forms: a small-group plan bought through an insurer or the SHOP Marketplace, an ICHRA (now called a CHOICE Arrangement), a QSEHRA, or no employer plan at all, with workers buying their own Marketplace coverage. Firms under 50 full-time-equivalent employees aren’t required to offer coverage.
Updated October 2026 for the 2027 plan year
Key facts (2027 plan year)
- The SHOP Marketplace is for employers with generally 1 to 50 employees; owners’ spouses and family members don’t count, and coverage can start any time of year (HealthCare.gov SHOP).
- Employers enroll in SHOP coverage directly through an insurance company or with a SHOP-registered agent or broker (HealthCare.gov).
- The Small Business Health Care Tax Credit is worth up to 50% of premiums paid (35% for tax-exempt employers) for firms with fewer than 25 full-time-equivalent employees that pay at least 50% of employee-only coverage through SHOP, for two consecutive years (IRS).
- The employer mandate applies only to applicable large employers: 50 or more full-time employees, including full-time equivalents, on average in the prior year (IRS).
- Job-based coverage is affordable for 2027 if the employee’s share of the lowest-cost plan’s premium is under 10.22% of household income, up from 9.96% for 2026 (HealthCare.gov).
- A QSEHRA is limited to employers with fewer than 50 full-time employees and no group plan; 2026 caps are $6,450 self-only and $13,100 family (IRS Rev. Proc. 2025-32).
- What are the health insurance options for a small business?
- Are small businesses required to offer health insurance?
- What is the SHOP Marketplace and is it still available?
- Who qualifies for the Small Business Health Care Tax Credit?
- How do ICHRA and QSEHRA work for small employers?
- Which health insurance for small business fits: group plan, ICHRA or QSEHRA?
- What if the business is just the owner?
- What should employees of a small business do?
- Frequently asked questions
What are the health insurance options for a small business?
A small employer has four realistic paths: a small-group plan, an individual coverage HRA, a qualified small employer HRA, or nothing, with employees buying their own coverage. Each splits cost, paperwork and choice differently.
Not every option of health insurance for small business is open to every firm: a business whose only workers are the owner and family members can’t use any of the employer options.
- Small-group health plan. The business picks plans from an insurer, pays part of the premium and enrolls employees as a group, directly or through SHOP.
- ICHRA (CHOICE Arrangement). The business sets a tax-free allowance, and each employee buys an individual plan and gets reimbursed. See our full ICHRA guide.
- QSEHRA. A capped, tax-free allowance for firms with fewer than 50 full-time employees that offer no group plan.
- No employer plan. Employees shop on HealthCare.gov or a state exchange, where many qualify for a premium tax credit based on household income.
Small firms are less likely to offer benefits than big ones. In KFF’s 2025 Employer Health Benefits Survey, 59% of firms with 10 to 199 workers offered health benefits to at least some workers, compared with 97% of firms with 200 or more (KFF).
Are small businesses required to offer health insurance?
No, not under federal law if the business has fewer than 50 full-time employees, counting full-time equivalents. The employer shared responsibility rules, often called the employer mandate, apply only to applicable large employers (IRS).
The IRS uses the prior year’s average workforce. A full-time employee averages at least 30 hours of service a week or 130 hours a month (IRS). To count full-time equivalents, the employer adds up the monthly hours of all non-full-time employees, counting no more than 120 hours for any one person, and divides the total by 120 (IRS).
Commonly controlled businesses are generally combined for the 50-employee test, and a workforce that tops 50 for 120 days or fewer only because of seasonal workers isn’t treated as large.
A large employer can owe a payment if it doesn’t offer coverage to at least 95% of full-time employees and dependents, or its coverage is unaffordable or lacks minimum value, and a full-time employee gets a premium tax credit. Minimum value means the plan pays at least 60% of covered costs and substantially covers doctor and hospital care (HealthCare.gov).
Other federal rules still apply to smaller plans. COBRA continuation coverage generally applies to employers with 20 or more employees in the prior year (U.S. Department of Labor), and a group plan can’t make new hires wait more than 90 days for coverage (45 CFR 147.116).
Honesty.AI compares individual plans for you and your employees’ ZIP codes and checks who qualifies for a premium tax credit.
What is the SHOP Marketplace and is it still available?
Yes. The Small Business Health Options Program (SHOP) is the Marketplace for small-group coverage, and HealthCare.gov still describes it as open to employers with generally 1 to 50 employees. What changed is how you sign up: employers now enroll through an insurance company or a SHOP-registered agent or broker (HealthCare.gov).
According to HealthCare.gov’s SHOP overview, a SHOP employer can:
- Start coverage any time of year, not just during Open Enrollment.
- Offer employees one plan, or let them choose from several.
- Possibly claim the Small Business Health Care Tax Credit, which is only available for SHOP coverage.
Owners’ spouses and family members don’t count toward the total. HealthCare.gov counts “employees” as workers whose income you report on a W-2; hiring independent contractors doesn’t make you an employer for SHOP (HealthCare.gov self-employed).
Insurers may set their own participation and contribution rules for small groups, so ask before you commit. The Centers for Medicare & Medicaid Services (CMS) oversees federal SHOP rules, and plans available depend on your state.
Who qualifies for the Small Business Health Care Tax Credit?
A small employer qualifies if it has fewer than 25 full-time-equivalent employees, pays average annual wages below an inflation-adjusted limit set by the IRS, covers at least 50% of the cost of employee-only coverage, and offers a qualified health plan through SHOP. The credit is up to 50% of premiums paid, or 35% for tax-exempt employers (IRS).
The credit has limits worth knowing before you plan around it:
- Two years only. It’s available for two consecutive tax years.
- It phases down above 10 full-time equivalents and as average wages rise.
- A different FTE count. For this credit, one full-time equivalent is 2,080 hours a year, not the 30-hour weekly test used for the employer mandate.
- Employee-only coverage. The 50% contribution test looks at employee-only coverage; paying toward family coverage doesn’t count toward it.
Businesses figure the credit on IRS Form 8941, Credit for Small Employer Health Insurance Premiums, as part of the general business credit; tax-exempt employers use Form 990-T. The wage limit changes yearly, so confirm it with the IRS or a tax professional.
How do ICHRA and QSEHRA work for small employers?
Both are health reimbursement arrangements: the business sets an allowance, employees buy their own coverage, and the business reimburses them tax-free up to that amount. The difference is flexibility. An ICHRA has no size limit or cap, while a QSEHRA is capped and limited to firms with fewer than 50 full-time employees that offer no group plan.
ICHRA (individual coverage HRA). In September 2026, CMS and the U.S. Small Business Administration began calling it a CHOICE Arrangement (HealthCare.gov). Any size employer can offer one, with no contribution limit, and the allowance can vary by set employee classes. Employees must enroll in individual coverage or Medicare to use it.
QSEHRA (qualified small employer HRA). The IRS caps the yearly amount; for 2026 that’s $6,450 for self-only and $13,100 for family coverage (IRS Rev. Proc. 2025-32). The IRS had not published 2027 limits as of mid-October 2026. Employees need minimum essential coverage, and a QSEHRA reduces any premium tax credit they claim (HealthCare.gov QSEHRA).
Don’t improvise. The IRS says an employer simply reimbursing employees’ individual premiums outside an approved arrangement is treated as a group health plan that fails ACA market reforms and can trigger an excise tax (IRS). A QSEHRA or ICHRA set up with proper documents is the compliant route.
With any HRA, the employee’s premium tax credit matters. An affordable ICHRA blocks the credit even if the employee declines it; an unaffordable one lets the employee opt out and claim it. For 2027, premium tax credits also stop above 400% of the federal poverty level, so see our 2027 subsidy guide before choosing.
Which health insurance for small business fits: group plan, ICHRA or QSEHRA?
A small-group plan suits a team in one area that wants one shared network. An ICHRA suits a fixed budget and employees in different places. A QSEHRA suits a very small firm wanting a simple, capped benefit. Offering no plan can make sense when most employees qualify for large premium tax credits.
| Feature | Small-group plan (incl. SHOP) | ICHRA (CHOICE Arrangement) | QSEHRA | No employer plan |
|---|---|---|---|---|
| Employer size | Generally 1–50 employees for SHOP | Any size | Fewer than 50 full-time employees | Any size under 50 FTEs without penalty |
| Who picks the plan | Employer picks one or several | Each employee | Each employee | Each employee |
| Employer cost control | Share of premium; renewal changes | Fixed allowance, no cap | Fixed allowance, IRS cap | None |
| Tax credit for employer | Possible through SHOP (under 25 FTEs) | No | No | No |
| Employee premium tax credit | Blocked if affordable and minimum value | Only if unaffordable and declined | Reduced by the allowance | Available if eligible by income |
| Can owner use it for themselves | Yes, with employees on the plan | No (employees only) | No (employees only) | Owner buys individual coverage |
| Start date | Any time of year in SHOP | Any time; 90-day notice | Any time; 90-day notice | Open Enrollment or a Special Enrollment Period |
Sources: HealthCare.gov SHOP, HealthCare.gov ICHRA, HealthCare.gov QSEHRA and the IRS.
What if the business is just the owner?
If you have no employees other than yourself, a spouse or family members, HealthCare.gov treats you as self-employed, and you buy coverage in the individual Marketplace, not SHOP (HealthCare.gov). Owners can’t reimburse themselves through an ICHRA or QSEHRA either.
Open Enrollment for 2027 coverage runs November 1, 2026 to January 15, 2027 on HealthCare.gov; enroll by December 15, 2026 for coverage starting January 1 (HealthCare.gov). Any premium tax credit depends on your household income estimate. Our health insurance for self-employed guide covers income estimates and the self-employed health insurance deduction, and our individual health insurance guide explains on- vs off-exchange plans.
What should employees of a small business do?
Start with what your employer actually offers, because health insurance for small business employees depends on it. If you’re offered an affordable group plan that meets minimum value, you generally can’t get a premium tax credit for a Marketplace plan. If your employer offers nothing, offers coverage that’s unaffordable, or gives you an HRA allowance, you shop the individual market.
- Get the details in writing. Ask for the plan’s premium share, or the HRA notice with your allowance and start date.
- Check affordability. For 2027, compare your share of the lowest-cost employee-only premium with 10.22% of household income.
- Estimate your household income. Use your expected 2027 income; see the federal poverty level chart for where you fall.
- Compare total cost. Weigh premium, deductible, out-of-pocket maximum, doctors and drugs. Our guide to comparing health insurance plans walks through it.
- Enroll in time. A new HRA offer or losing job-based coverage opens a Special Enrollment Period; otherwise use Open Enrollment.
Part-time employees often aren’t offered the group plan at all; our guide to health insurance for part-time workers covers that case. Leaving a small employer? Compare COBRA with a Marketplace plan in our COBRA vs Marketplace guide.
ACA Marketplace premiums for a given plan are the same whether you enroll on HealthCare.gov directly or with a licensed agent or broker; your income, age, ZIP code and tobacco use drive the price.
How Honesty helps small business owners and employees
Honesty®, a licensed AI insurance agent from Honesty® Insurance Services, LLC (NPN 21094885, licensed in 49 states and DC, not New York), helps owners and their employees compare individual health insurance options when a group plan isn’t the answer. It compares ACA, alternative and ancillary plans by each family’s needs, checks premium tax credit eligibility and helps an employee weigh an HRA allowance against a credit.
Honesty is unbiased, never steers you to a carrier, never sells or shares your data, makes no spam calls and enrolls you in minutes, 24/7. Setting up a group plan or HRA is employer-side work for a benefits adviser or SHOP-registered broker; Honesty focuses on the individual plan each person chooses. Learn how Honesty.AI works or follow our guide on how to shop for health insurance.
Compare individual plans for your team
Honesty®, a licensed AI insurance agent from Honesty® Insurance Services, LLC (NPN 21094885), compares ACA, alternative and ancillary plans by your family’s needs and enrolls you in minutes. Chat, voice or text, 24/7.
Frequently asked questions
Do small businesses have to offer health insurance?
Not under federal law if they have fewer than 50 full-time employees, including full-time equivalents, on average in the prior year. The employer mandate applies only to applicable large employers with 50 or more.
Can a small business still use the SHOP Marketplace?
Yes. Employers with generally 1 to 50 employees can buy SHOP coverage any time of year, enrolling through an insurance company or a SHOP-registered agent or broker. SHOP coverage is required for the Small Business Health Care Tax Credit.
How much is the small business health insurance tax credit?
Up to 50% of the premiums the employer pays, or 35% for tax-exempt employers, for two consecutive years. The employer needs fewer than 25 full-time-equivalent employees, average wages under the IRS limit and a SHOP plan, and uses IRS Form 8941.
Can a business owner with no employees buy small business health insurance?
No. If your only workers are you, a spouse or family members, you’re considered self-employed and buy coverage in the individual Marketplace, where you may qualify for a premium tax credit based on household income.
What is the difference between ICHRA and QSEHRA for a small business?
A QSEHRA is for employers with fewer than 50 full-time employees and no group plan, and the IRS caps the amount. An ICHRA, now also called a CHOICE Arrangement, works for any size employer, has no cap and can vary by employee class.
Can my employer just pay for my individual health insurance?
Only through a compliant arrangement such as a QSEHRA or ICHRA. The IRS treats informal premium reimbursement as a group health plan that fails ACA market reforms and can trigger an excise tax on the employer.
Do employees of a small business qualify for Marketplace subsidies?
Often, yes. If the employer offers no plan, or its plan is unaffordable or lacks minimum value, employees can get a premium tax credit if their household income qualifies. For 2027, credits stop above 400% of the federal poverty level.
Keep learning: health insurance brokers, premiums, Open Enrollment 2027, cost-sharing reductions.
