Health insurance for employees: options for small, mid-size and large businesses

Am I required to offer health insurance to my employees?

According to the IRS, the rule applies to “applicable large employers”: those that averaged at least 50 full-time employees, including full-time equivalents, during the prior year. For this rule, full-time means an average of 30 hours per week or 130 hours per month.

A large employer may owe a payment to the IRS in two cases: if it doesn’t offer coverage to at least 95% of its full-time employees, or if the coverage it offers isn’t affordable or doesn’t provide minimum value. In both cases, the payment applies only if at least one full-time employee receives the premium tax credit for buying a Marketplace plan.

If you have fewer than 50 full-time equivalent employees, federal law doesn’t require you to offer insurance, although many businesses offer it anyway as a benefit for their team.

Option 1: a group health plan

This is traditional job-based insurance: the business chooses one or more plans with an insurance company, pays part of the premium and the employee pays the rest, usually through payroll deduction. It works for businesses of any size, and participation and contribution rules are set by each insurance company and each state.

Option 2: SHOP and the small business tax credit

SHOP is HealthCare.gov’s health insurance program for small businesses. According to HealthCare.gov, enrolling in a SHOP plan is generally the only way to claim the Small Business Health Care Tax Credit.

According to the IRS, to get that credit the business must have fewer than 25 full-time equivalent employees, pay average wages below the limit the IRS adjusts each year, pay at least 50% of the premium for employee-only coverage and offer the plan through SHOP to all its full-time employees. The credit can be up to 50% of the premiums the business pays (35% for tax-exempt organizations), lasts two consecutive years and is claimed on Form 8941.

Option 3: reimbursing premiums (QSEHRA or CHOICE)

Instead of a group plan, the business can reimburse each employee, tax-free and up to a set amount, for medical costs such as the premium for their own insurance:

• QSEHRA: for businesses with fewer than 50 full-time employees that don’t offer a group plan. In 2026, according to HealthCare.gov, the maximum is $6,450 a year for employee-only and $13,100 for an employee with family; the IRS adjusts these amounts each year and, as of November 10, 2026, had not published the 2027 amounts. It is offered on the same terms to all full-time employees, and the employee must have qualifying health coverage to use it.
• CHOICE (formerly ICHRA): for employers of any size. The employee must have their own individual plan, for example from the Marketplace; short-term plans and dental- or vision-only coverage don’t count. It lets you offer different amounts to classes of employees defined by the rule, such as full-time, part-time or work location; the business can’t create its own classes.
• In both cases, the business must give current employees written notice 90 days before the plan year starts, and new employees when they become eligible.
• Watch the Marketplace tax credit: according to HealthCare.gov, with a QSEHRA the reimbursement amount generally reduces the employee’s credit or brings it to zero; with CHOICE, if the reimbursement is affordable, the employee and their household can’t get the credit, and if it isn’t, they must choose between the reimbursement and the credit.

How to choose the option for your business

It depends on how many employees you have, how much you want to contribute, whether your employees live in several states and whether you need to meet the large-employer rule. A small business that wants the tax credit may look at SHOP; one that prefers a fixed contribution may look at QSEHRA or CHOICE; and a mid-size or large business may compare group plans and CHOICE.

Besides health insurance, many businesses add dental, life or legal protection as a benefit for their team.

Frequently asked questions