Health insurance decisions shouldn’t have to be made blindfolded.
Every business owner is in the same boat when it comes to offering health insurance. The options and choices out there can be overwhelming, and making the wrong decision can cost thousands of dollars and your best employees.
The thing is…
The California small business health insurance landscape is evolving fast, and what made sense five years ago is not necessarily the smartest solution today. Rates for Small business health insurance continue to rise with a 7% median increase for 2025. That’s why it’s more important than ever for business owners to fully understand all of their options.
What you’re about to discover:
- Why Group Plans Are Still The Norm
- Individual Plans: An Emerging Alternative
- Breaking Down The Real Costs
- Which Solution Fits Your Business Best
Group Plans: Why They Are Still The Norm
Group health insurance is the go-to benefit that most employees expect.
Group coverage is a single policy that you purchase through an insurance carrier to cover all of your eligible employees at once. The carrier is assuming the risk for every employee covered by the plan, which generally results in lower premiums per person than if they bought coverage individually.
Group plans work because:
It provides predictable and fixed costs for each month. Since there are no claims and no administration involved on your part, you know exactly how much it will cost and can budget accordingly. And you have the flexibility to purchase group coverage at any time, not just during an open enrollment window like with individual plans.
The biggest benefit is employee retention.
Studies have shown that having a health insurance benefit is so important to employees that 92% of employees say it is essential to them. If you provide a good group plan, your employees will be more likely to stay.
Group plans are also a business expense that you can deduct on your taxes. Employees also receive the coverage through pre-tax dollars, reducing their taxable income.
The big downside to group coverage is that it has participation minimums.
The insurance company offering the group plan requires a minimum percentage of your employees to be covered – usually at least 70% of your eligible employees. For small teams or businesses where many employees already have coverage elsewhere, this can be difficult to achieve.
Individual Plans: An Emerging Alternative
Employee individual health insurance plans are when employees buy their own insurance directly from an insurance carrier.
This was historically not a practical option for most businesses, but that has been changing in recent years as there are now several products on the market like ICHRAs and QSEHRAs that allow employers to offer and reimburse employees for individual plan premiums.
Individual plans are gaining popularity for a few reasons:
Employees have complete freedom of choice.
They are allowed to select the plan that best fits their personal and family needs, regardless of what the employer offers. This is especially true with QSEHRAs and other reimbursement plans, where the employee can choose any individual plan they want and get reimbursed for the full premium or some other fixed dollar amount.
They also avoid the minimum participation requirement.
There is no set threshold for how many employees need to enroll in the benefit. If you have one employee and one employee only, you can still offer this to your employee. If someone leaves the company, their individual coverage can even move with them.
The primary issue is that individual health insurance plans typically cost more per person.
Without the carrier having a pool of employees to spread the risk across, premiums are higher. The carrier is only responsible for a single employee’s claims, so they charge a higher rate to compensate for the risk. Also, without the assistance of an employer, it is up to the employee to shop around and find their own coverage.
Breaking Down The Real Costs
Of course, the real reason any business owner is evaluating their options is the bottom line.
Group health insurance averaged $8,951 per year for single coverage and $25,572 per year for family coverage in 2024. That’s about $746 per month for singles and $2,131 for families.
You are not on the hook for 100% of that total. Most employers cover about 70-80% of the premium and the employee pays the rest. Still a significant chunk of change for you and climbing each year as premiums increase.
Individual plans will vary widely based on each employee’s age, where they live, and what specific plan they choose. Younger and healthier employees may be able to find very affordable options, especially if they qualify for tax credits to help pay the premium.
One more interesting detail…
With Health Reimbursement Arrangements, the employer sets a fixed allowance for each employee each month. The employee is responsible for purchasing their own individual health plan and then sending in proof of purchase, and the employer reimburses up to the full amount of the allowance. If they don’t use all of the allowance, it does not roll over to the next month and remains the property of the employer.
This provides employers much more cost control than is possible with traditional group coverage. You know your exact cost each month, and it is fixed, not subject to going up or down based on claims or plan use.
Which Solution Is Right For Your Business?
Determining whether to offer group or individual health insurance depends on your specific circumstances.
Group coverage makes the most sense if you:
- Have 5 or more full-time employees that require coverage
- Want an easier administration burden with one policy
- Can meet minimum participation requirements
- Prefer predictable and fixed monthly premiums
- Want to offer a traditional and familiar benefit
Group health insurance remains the clear favorite among most small businesses, particularly more established businesses with a stable full-time team. They’re simple to offer and easy for employees to understand. Group plans also provide more comprehensive coverage with little employee hassle.
Individual plans and reimbursements work best if you:
- Have fewer than 5 employees
- Employ remote employees that live in different states
- Cannot meet your group plan’s minimum participation rate
- Need better cost control with a fixed allowance
- Need more flexibility to meet the diverse needs of your employees
We’ve seen a significant increase in smaller startups and very small businesses choosing individual plans with ICHRAs or QSEHRAs. The flexibility and cost control is worth the higher individual premiums for many small business owners.
Something most people don’t know…
You are not limited to just one type of plan. You can offer group coverage to full-time employees and ICHRAs for part-time workers and contractors. Hybrid solutions like this are becoming more common as employers balance flexibility and the need to offer some traditional benefits.
How To Decide
The best way to decide between group and individual health insurance is to get input from your employees.
What are they most concerned with? Maximum coverage with minimal hassle? Or choice in doctors and flexibility in plans?
Then, work out the math for both options. Get quotes for group plans from your insurance broker and calculate out what it would cost with individual plans and reimbursements. Don’t forget to account for the administrative overhead as well.
Finally, consider your plans for the future. If you will be scaling up and hiring aggressively, group plans can work better at that scale. If you are staying small or hiring remote employees from across the country, individual plans provide more flexibility.
What This Means For You
Small business health insurance is only getting more expensive and complex.
Regardless of whether you choose to offer group plans, individual plans, or a combination of both, the most important thing is to offer something. Health benefits are no longer optional if you want to attract and retain good employees.
Group health insurance plans are still the gold standard and preferred option for most small businesses. They provide familiar and comprehensive coverage without too much hassle. However, individual plans with reimbursement arrangements are gaining ground as a viable alternative.
The key is to match your decision to the needs of your business, your budget, and your employees. Take the time to weigh the pros and cons of both options before deciding. Your team’s health coverage and your bottom line depend on it.
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