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How Much Does Small-Business Health Insurance Cost?

For small-business owners, the cost of providing health insurance to employees depends partly on the plans offered.
By Amrita Jayakumar
Last updated on February 14, 2022
Edited byClaire Tsosie

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⏰ Estimated read time: 6 minutes

For small businesses, providing health insurance to employees can be a significant expense. According to a 2021 Kaiser Family Foundation report, The average annual health insurance premium for small firms was:
  • $7,813 for single coverage, of which employers contributed $6,485, or 83%.
  • $21,804 for family coverage, of which employers contributed $13,737, or 63%.
The report defined “small firms” as those having from three to 199 employees. Businesses with fewer than 50 employees are not legally required to offer health insurance, though 53% did so in 2020 — as did 48% of businesses with three to nine employees.
While it can be costly, offering health insurance to your employees can help you stay competitive as a business, retain workers and take advantage of tax benefits. Here’s what to know.
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How does small-group health insurance work?

Businesses with fewer than 50 full-time equivalent employees may choose to provide health insurance to their employees using small-group health insurance plans.
Small-group insurance providers assess risk for a pool of employees rather than one individual. This allows them to offer lower premiums than many employees would be able to get if they purchased health insurance independently.
Unlike other types of health insurance, you can shop for small-group coverage at any time of the year.
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How much do group health insurance premiums cost employers?

Employer contribution requirements

Most insurers require employers to pay at least half the insurance premium for their employees. Paying 50% of employee premiums is also a requirement if you want to claim the federal small-business health care tax credit.
You can use that 50% requirement as a quick way to estimate how much it will cost you to offer health insurance. For example, using the average annual cost of health insurance for an individual at a small firm, $7,813, you would have to pay about $3,910 a year for a single employee.
Though businesses can reduce their costs by requiring employees to pay a larger portion of their health insurance premiums, risks are involved. Most states require that at least 70% of employees participate in a group health plan, so if too many employees decline, your business may not be able to offer the policy.

Employee profile

Under the Affordable Care Act, the cost of small-group insurance premiums cannot be affected by employees’ medical history and pre-existing conditions. Premiums can be affected only by the following factors:
  • The age of your employees and their dependents.
  • Employees’ tobacco usage habits.
  • Where your employees live.
If most of your employees fall into a certain age group or if many of them use tobacco, for example, you could face higher premiums as an employer.

The type of plan you pick

Under the ACA, insurance plans are divided into four tiers: bronze (least expensive for employer), silver, gold and platinum (most expensive for employer). These tiers are based on how much the insurer contributes to the plan, not the quality of care.
For example, with a platinum plan, the insurer would pay an average of 90% of the cost of care and the employee would pay an average of just 10%. With a bronze plan, the insurer would pay 60% on average while the employee would pay an average of 40%.
Small businesses can also offer employees the option to pick from multiple metal tiers instead of providing just one — while keeping the per-employee cost the same.
The metal tiers apply to common types of health insurance plans, such as preferred provider organizations and health maintenance organizations. PPOs tend to be more expensive than HMOs, but they also provide access to a larger network of doctors.

Industry and location

Premiums can be more costly in some areas than others. For instance, total per capita health spending was highest in New England and Mideast regions of the U.S. in 2014, the most recent data available, according to Centers for Medicare and Medicaid Services. Health care costs can also fluctuate from year to year, so your employer contribution may not be consistent long term.
Specific industries like transportation, health care and utilities also carry higher average employer premiums, according to a 2021 U.S. Bureau of Labor Statistics study.

Where can you buy small-group health insurance?

You can purchase small-group health insurance for your employees in the following ways:
  • Directly from an insurance provider in your state.
  • Using an insurance broker. The broker will shop for policies tailored to your business. They’ll charge a commission (typically a percentage of the premium), and may also charge a broker’s fee. Some payroll products, such as Gusto and QuickBooks Payroll, allow you to buy health insurance from brokers on their platforms.
  • Using the Small Business Health Options Program: SHOP is the federal government's insurance option for businesses with fewer than 50 full-time equivalent employees (up to 100 in some states). Most states require at least 70% of your eligible employees to participate in the SHOP health plan you offer.Businesses with fewer than 25 employees may qualify for a small-business health care tax credit worth up to 50% of premium costs.
  • Using a Professional Employer Organization. A PEO is a company you can hire to administer benefits on your behalf. PEOs can legally become the co-employer of your employees. By serving as co-employer for multiple small companies, PEOs have a combined employee pool equivalent to that of a larger company. This gives them access to more competitive insurance rates than small businesses can typically get on their own.
  • Qualify for QSEHRA. This is an arrangement for small businesses that offers employee reimbursement for qualified health expenses. Employees are not allowed to contribute through their paychecks and employer contribution terms to each employee’s QSEHRA must be the same.
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When you shop for a small-group health plan for your employees, the insurance provider will give you quotes based on the state your business is located in and the number of full-time equivalent employees you have. You can calculate the number of full-time equivalent employees you have using this HealthCare.gov calculator.
Dalia Ramirez, a writer at NerdWallet, contributed reporting to this article.
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