Group Health Insurance for Small Businesses: What Owners Need to Know in 2025

Offering health insurance is one of the most powerful tools small business owners have for attracting talent, reducing turnover, and protecting their own family. Here’s how to navigate it without overpaying.

The Competitive Landscape Has Changed

If you own a small business — even with 2 to 10 employees — group health insurance is more accessible, more flexible, and more strategically valuable than it was five years ago. New plan designs, funding options, and tax structures mean small employers can now compete with large corporations for talent by offering strong health benefits.

And yet, many small business owners are paying far too much for coverage that doesn’t fit their workforce, or they’ve avoided offering coverage entirely because they thought it was too expensive or complicated.

This guide will change that.

Why Offer Group Health Insurance?

Before diving into how, let’s be clear on why this decision matters so much:

Talent Attraction and Retention

Health insurance is consistently ranked among the top factors employees consider when evaluating a job offer. In a tight labor market, not offering health benefits means you’re competing with companies that do — with one hand tied behind your back.

Tax Advantages (For Both Owner and Business)

Employer contributions to group health premiums are 100% tax-deductible as a business expense. Employees pay their share of premiums with pre-tax dollars, effectively giving them a raise without increasing your payroll costs.

Small employers may also qualify for the Small Business Health Care Tax Credit — up to 50% of premiums paid for businesses with fewer than 25 full-time equivalent employees earning average wages below a threshold. This can dramatically reduce your net cost.

The Owner’s Own Coverage

As a business owner, group health coverage is often the most cost-effective way to insure yourself and your family. The business can deduct the full premium cost as a business expense.

How Group Health Insurance Works

Group health insurance pools the health risk of all your employees together. Because the risk is spread across a group, carriers can offer coverage at rates that are typically lower than what individuals would pay on the open market.

The employer:

Chooses the plan design(s) and carrier
Pays a portion of the monthly premium (most states require employers to contribute at least 50%)
Deducts premiums as a business expense
Administers enrollment with the carrier’s support

Employees:

Elect coverage during open enrollment
Pay their portion of premiums pre-tax through payroll deduction
Use the coverage for medical care, prescriptions, and preventive services

Types of Group Health Plans

Understanding the plan types is crucial to choosing the right fit for your team.

HMO (Health Maintenance Organization)

Employees use a network of providers and typically need referrals to see specialists. HMOs generally have lower premiums and out-of-pocket costs, but less flexibility in provider choice.

Best for: Cost-conscious groups in metro areas with strong HMO networks

PPO (Preferred Provider Organization)

Employees can see any provider — in-network for lower cost, out-of-network at higher cost. No referrals needed. PPOs offer more flexibility but typically come with higher premiums.

Best for: Groups with diverse healthcare needs or employees spread across a wider geography

HDHP (High-Deductible Health Plan) with HSA

HDHPs have lower premiums but higher deductibles. They pair with a Health Savings Account (HSA), which lets both employers and employees contribute pre-tax dollars that can be invested and used tax-free for medical expenses. Unused funds roll over year after year.

Best for: Healthier, younger workforces who want lower monthly costs and long-term savings; great for owners who want to build a medical nest egg

Level-Funded Plans

A popular option for small businesses (typically 5-50 employees). You pay a fixed monthly amount that covers expected claims plus a stop-loss buffer. If your group has low claims, you get a refund at year-end. If claims are high, the stop-loss insurance caps your exposure.

Level-funded plans can save 15-30% compared to fully-insured plans for healthy groups — and they provide transparent claims data.

Best for: Groups with relatively healthy employees who want self-insurance economics without the full risk

What Group Health Plans Cover

Under the Affordable Care Act (ACA), group health plans must cover 10 essential health benefits:

Ambulatory (outpatient) services
Emergency services
Hospitalization
Maternity and newborn care
Mental health and substance use disorder services
Prescription drugs
Rehabilitative services and devices
Laboratory services
Preventive and wellness services (no cost-sharing)
Pediatric services, including dental and vision for children

Group plans can add dental and vision for adults as supplemental coverage — and we generally recommend it. These ancillary benefits are low-cost and highly valued by employees.

Adding Dental and Vision Coverage

Most employees strongly prefer working for a company that offers dental and vision in addition to medical. The good news: adding dental and vision coverage is relatively inexpensive.

Group dental plans typically run $25–$50 per employee per month (employer cost)
Group vision plans can cost as little as $8–$15 per employee per month

When employees compare offers, the presence of dental and vision can be the tiebreaker. We recommend bundling these into your benefits package.

What Does Group Health Insurance Cost a Small Business?

Costs vary significantly based on location, plan design, carrier, group size, and workforce demographics. Here are general benchmarks for 2025:

Group Size	Avg. Monthly Premium (Employee Only)	Avg. Employer Share
2-10 employees	$550–$700	$325–$425 (60-65%)
11-25 employees	$500–$650	$300–$400 (60-65%)
26-50 employees	$480–$620	$290–$380 (60-65%)

Employee + spouse and family coverage adds significantly. The employer’s share is flexible — you decide how much you want to contribute beyond the required minimum.

FICA savings note: Employer health premium contributions reduce the W-2 income base for FICA taxes — saving both employer and employee Social Security and Medicare taxes on those dollars.

The SHOP Marketplace

Small businesses with 1-50 employees can purchase group coverage through the Small Business Health Options Program (SHOP), the ACA’s marketplace for small employers. SHOP plans are the only way to access the Small Business Health Care Tax Credit.

Not all states operate a SHOP marketplace — some use Healthcare.gov’s SHOP portal. We can help you determine whether SHOP or the private market offers better value for your specific group.

ICHRA: A Modern Alternative

If you want to offer benefits without the complexity of a traditional group plan, consider an Individual Coverage HRA (ICHRA). Instead of purchasing a group plan, you reimburse employees tax-free for their individual health insurance premiums and eligible medical expenses.

Advantages of ICHRA:

Set your own contribution limits by employee class
No minimum participation requirements
Works for groups of any size
Tax-deductible for the business; tax-free for employees
Employees choose their own plan and provider network

ICHRA is a particularly strong option for companies with remote employees in multiple states, where a single group plan may not have network coverage everywhere.

Enrollment, Administration, and Compliance

One concern many small business owners have is the administrative burden. Here’s the reality: with the right broker, administration is minimal.

Most group plans include online enrollment portals, carrier-managed billing, and HR support tools. Your broker handles the application, carrier negotiations, renewal analysis, and employee communication.

Compliance requirements include:

ERISA (Employee Retirement Income Security Act) — Plan document requirements
COBRA — Offering continuation coverage when employees lose coverage
ACA reporting — Required for employers with 50+ full-time equivalents (ALEs)
Summary of Benefits and Coverage (SBC) — Distributing standardized plan summaries

For businesses under 50 employees, ACA reporting requirements are significantly lighter.

The Legacy Wealth Services Advantage: Shopping the Market

We work with multiple group health carriers, which means we’re not locked into recommending one company’s products. When you work with us:

We analyze your workforce demographics to identify the plan designs that will provide the best value
We submit your group to multiple carriers and present the competitive quotes
We help you compare not just premiums, but networks, plan designs, dental and vision add-ons, and ancillary benefits
We manage the renewal process each year so you’re always on the most competitive plan

Your employees deserve great coverage. Your business deserves a benefit structure that doesn’t break the bank.

Ready to see what group health coverage would cost for your team? Request a group health quote — no obligation, and we’ll have options in front of you quickly.

Legacy Wealth Services offers group health and dental coverage from multiple leading carriers. Coverage available in 26 states. Tax references are general in nature — please consult a tax professional regarding your specific situation.