What should founders know about company health insurance?

In 2025, about 154 million Americans under 65 rely on employer-sponsored health insurance, and rising premiums are a major concern for small businesses. For founders, offering health benefits has become essential to attracting and retaining talent.

Founders need to understand the costs, plan types, and compliance requirements of company health insurance. According to KFF’s 2025 Employer Health Benefits survey, average family premiums for small businesses now exceed $26,000, with high deductibles and out-of-pocket costs creating real financial strain. Options range from traditional PPOs and HMOs to HDHPs with HSAs, level-funded plans, and ICHRAs, each with trade-offs in flexibility, cost, and employee satisfaction.

In this guide, we walk founders through the essentials of company health insurance, providing actionable advice on plan selection, cost management, and compliance. 

Do startups commonly provide health insurance in the US?

Yes, employer-sponsored coverage remains the most common way for Americans under 65 to obtain health insurance, with approximately 154 million people relying on it. As a founder, that means health benefits are table stakes if you want to compete with larger employers for talent and signal long-term stability to candidates.

While offering coverage is a significant operating expense, it can also drive retention, productivity, and loyalty in ways pure cash compensation often can’t. Group coverage also brings tax advantages and gives you a clear, predictable way to communicate benefits during hiring and annual open enrollment.

How does employer health insurance work in the USA?

Employer-sponsored health insurance is a group plan in which you, as the founder, and your employees share the cost of coverage. Typically, the company pays a substantial portion of the monthly premium, with employees covering the remainder through pre-tax payroll deductions. This structure makes health care more affordable for your team while providing tax advantages for both the company and employees.

When employees use their coverage, they encounter cost-sharing mechanisms like deductibles (what they pay before the plan starts paying), copays (fixed amounts per visit or prescription), and coinsurance (a percentage of costs after the deductible). These out-of-pocket expenses are capped annually by an out-of-pocket maximum, which helps protect employees from catastrophic costs. Each covered family member or dependent typically has their own deductible and out-of-pocket limit.

You also have flexibility in plan design, including whether to offer self-funded, fully insured, or level-funded plans. For larger employers, self-funded plans are becoming increasingly common, with the latest KFF survey showing that 67% of covered workers are enrolled in them, including 27% at small firms and 80% at large employers.

How much do startups in the US pay for health insurance?

Health insurance costs vary significantly based on plan type, carrier, geography, and company size. The average annual premium for employer-sponsored family health insurance in 2025 is $26,993, with workers contributing about $6,850 and employers covering approximately $20,143. For smaller firms with 10 to 199 workers, average family premiums are similar, at roughly $26,054 in 2025.

Employer-sponsored family premiums climbed 26% between 2019 and 2025, and PwC projects 8.5% medical cost growth for group plans in 2025. Prescription drugs are a major driver, especially GLP-1 medications like Wegovy, with 43% of the largest employers (5,000+ workers) now covering GLP-1s for weight loss, up from 28% in 2024.

For founders, these numbers can feel prohibitive, but you have levers to pull. Plan design, level-funded arrangements, and alternatives like ICHRAs and HRAs can help you manage costs while still offering meaningful benefits, and small-business tax credits may further offset part of the bill.

Which health insurance company is best for startups?

There's no universal "best" health insurance company for every small business or startup. The right choice depends on your specific needs, budget constraints, your small business's employee preferences, and your geographic location.

Major providers in the U.S. health insurance market include UnitedHealthcare, Anthem (part of the Blue Cross and Blue Shield family), Aetna, and Cigna. However, several major insurance carriers have reduced their presence in the small group health insurance market, with Humana withdrawing from group plans entirely and Cigna and Oscar Health discontinuing co-branded small group insurance offerings.

When evaluating health insurance providers and health plan options, small employers should consider: provider networks (doctors and hospitals in-network), coverage options available through each plan, plan flexibility and portability, customer service reputation, and the specific health insurance plan types offered. It's also crucial for small business owners to consult with an insurance broker specializing in small employer health insurance, as brokers can help navigate available plans and negotiate competitive rates for small group coverage.

What are the primary health insurance plan types for small businesses?

When choosing a health insurance plan for your startup or founder-led company, you'll typically encounter these common health plan types:

PPO (Preferred Provider Organization)

PPO health insurance plans remain the most popular type among employees. They offer maximum flexibility in choosing doctors and hospitals—no referral is required to see specialists. Employees can visit both in-network and out-of-network providers, though care from in-network providers costs less. 

PPO plans appeal to employees who want provider flexibility and broader health coverage options. This plan type works well for small employers wishing to attract employees who value choice in their healthcare providers.

HMO (Health Maintenance Organization)

HMO health insurance plans typically feature lower monthly premiums than PPO plans but require strict network compliance. Employees must use doctors, hospitals, and specialists exclusively within the HMO provider network, and they must designate a primary care physician (PCP) who provides referrals for specialist visits and coordinates preventive care. 

HMO health plan options work well for employees who are comfortable with a defined provider network in exchange for lower premium costs. Many small employers choose HMO plan types to control health insurance costs.

HDHP (High-Deductible Health Plan)

A high-deductible health plan is a type of health insurance that requires members to pay a larger amount out of pocket before insurance coverage kicks in. While HDHPs reduce monthly premiums, this health plan type shifts more health care costs to employees through higher deductibles. 

However, when paired with an HSA (Health Savings Account), high-deductible health plans enable tax-advantaged savings for qualified medical expenses, making them attractive to cost-conscious small employers and employees.

Level-Funded Plans

Level-funded arrangements combine a relatively small self-funded component with stop-loss insurance, which limits the small employer's liability and transfers substantial risk to insurers. 

These plans have gained traction among small employers because they offer more predictable costs than fully insured plans while maintaining some self-funding benefits. Level-funded health insurance plans are an increasingly popular alternative for small-group health insurance.

ICHRA (Individual Coverage Health Reimbursement Arrangement)

ICHRA is an innovative alternative for small business health insurance, and its popularity has been growing among small employers. 

With an ICHRA, employers set a monthly allowance that employees use to purchase individual health insurance plans on the health insurance marketplace.

ICHRA reimbursements are tax-free for employees and tax-deductible for employers, providing predictable costs and employee choice in selecting a health plan.

HRA (Health Reimbursement Arrangement)

Beyond ICHRAs, other health reimbursement arrangements, such as QSEHRAs (Qualified Small Employer Health Reimbursement Arrangements) and EBHRAs (excepted benefit HRAs), offer small employers flexible alternatives to traditional group health insurance. 

These health reimbursement arrangement options allow employers to reimburse employees for individual health plan premiums and qualified medical expenses on a tax-advantaged basis.

How should founders choose the right health insurance plan?

Selecting the right health insurance mix as a founder means balancing burn, runway, and recruiting goals against what your team actually needs. Here are the key steps to make that decision easier:

1. Survey your small business employees

Understand what your small business team values in health insurance coverage and health plan options. Do your small business employees have preferred doctors or hospitals? How important is premium cost versus coverage flexibility? Are there specific health services, mental health coverage, prescription drug coverage, or coverage needs that matter most to your small business workforce?

2. Evaluate your small business budget

Calculate how much your small business can sustainably contribute to employee health insurance and health benefits. Factor in not just monthly premiums, but also administrative costs, health insurance broker fees, compliance expenses, and potential small employer wellness program investments. Use financial management tools like Rho to track and forecast health benefit expenses alongside other operational costs.

3. Compare different health plan options and coverage options

Work with an insurance broker to evaluate various health insurance plans and plan types from different insurance companies. Compare premiums, deductibles, copays, coinsurance, out-of-pocket maximums, provider networks, and coverage for prescription drugs, preventive care, mental health services, and dependents. Consider both traditional group health insurance plans and alternatives like ICHRAs and health reimbursement arrangements.

4. Explore ICHRA and other health reimbursement arrangement options

If you're a small employer struggling with group health insurance plan costs or complexity, consider whether an ICHRA, QSEHRA, or excepted benefit HRA might be a better fit for your small business. These health reimbursement arrangements often provide more flexibility and cost control than traditional group health plans for small employers.

5. Investigate small business tax credits

The Small Business Health Care Tax Credit provides eligible small employers—those with fewer than 25 full-time equivalent employees and average annual wages under an indexed limit—with tax credits up to 50% of health insurance premium costs when purchasing coverage through the federal SHOP marketplace. Small employers must file IRS Form 8941 to claim this valuable tax credit, which can significantly offset health insurance costs.

6. Consider a Professional Employer Organization (PEO) or insurance broker

PEOs can give small employers access to a broader range of health insurance plan options and more competitive rates by pooling employees across multiple small businesses. Insurance brokers specializing in small-employer health insurance can also help small business owners navigate health plan options, negotiate rates, and manage open enrollment periods for small-group coverage.

7. Understand open enrollment requirements

During the annual open enrollment period for health insurance, small employers who offer health insurance must communicate available health plan options to employees and allow them to select coverage. Understanding open enrollment periods and deadlines is essential for small business compliance.

8. Implement wellness programs

To help manage health care costs and support employee health, consider offering wellness programs that promote preventive care, mental health resources, and healthy lifestyle choices. Wellness programs can reduce health insurance claims costs over time while improving employee satisfaction and engagement at your small business.

How can small employers manage health care costs, out-of-pocket maximums, and dependents?

For small employers and employees alike, understanding cost-sharing elements is essential to effectively managing health insurance. According to the 2025 KFF analysis, a large majority of workers face out-of-pocket maximums above several thousand dollars per year, with about one in five having an out-of-pocket maximum above $6,000 for single coverage. When employees have dependents or family coverage, these out-of-pocket costs multiply across all covered family members.

To manage these costs effectively for your small employer or small business:

• Promote preventive care: Encourage small business employees to use preventive care services, which are typically covered at no cost under ACA requirements, helping them catch health issues early and avoid expensive conditions.

• Implement health reimbursement arrangements: Health reimbursement arrangements, including ICHRAs and excepted benefit HRAs, allow small employers to set predictable budgets for employee health expenses across their entire workforce.

• Offer high-deductible health plans paired with HSAs: When combining high-deductible health plans with Health Savings Accounts, small business employees gain tax-advantaged savings vehicles for qualified medical expenses, helping offset higher deductibles.

• Manage prescription drug costs: Work with your health insurance provider to review prescription drug formularies and develop cost-management strategies to control this growing expense for small employers.

• Communicate about dependent coverage: Help small business employees understand how dependent coverage works, how out-of-pocket maximums apply to dependents, and what coverage options exist for family members.

How should small employers handle special coverage needs for different employee groups?

Small employers face unique challenges when addressing the diverse health coverage needs of their workforce. From part-time and low-wage employees to dependents and supplemental benefits, understanding the right strategies helps provide meaningful coverage while managing costs. Here are key approaches small employers can take to meet these needs effectively:

Part-time and low-wage employees: expanding coverage options

Part-time and low-wage employees often struggle to access affordable health insurance. Medicaid fills critical gaps in health coverage for this population, with roughly 55% of Medicaid enrollees working full or part-time and either ineligible for health insurance through their jobs or unable to afford the coverage offered. However, small employers typically don't extend traditional group health insurance coverage to part-time employees due to cost constraints and participation minimums.

ICHRAs and other health reimbursement arrangements offer a solution, allowing small employers to extend health benefits to part-time employees and low-wage workers more affordably by reimbursing individual market health insurance premiums rather than maintaining expensive group plans. This flexibility makes ICHRAs particularly valuable for small businesses with diverse workforce demographics.

Dependents and family coverage planning

When small employers offer health benefits, employees with dependents must navigate family coverage options. Dependent coverage extends health benefits to an employee's spouse and children. Understanding how dependents affect premiums, deductibles, and out-of-pocket maximums is critical when small business employees select family coverage options versus individual coverage.

Life insurance and supplemental benefits

Beyond health insurance, small employers may consider offering supplemental benefits (i.e., life insurance) to round out their small employer benefits package. Group life insurance provides another layer of employee financial security and demonstrates a small business's commitment to employee well-being. Offering life insurance alongside health insurance strengthens your small employer benefits offering in a competitive labor market.

How do ACA rules and Medicare or Medicaid affect small-employer health coverage?

Under the Affordable Care Act, large employers with 50 or more full-time equivalent employees must provide affordable health insurance meeting minimum essential coverage requirements. For small employers below this threshold, health insurance coverage is optional but increasingly expected by employees and beneficial for recruitment and retention.

For small-business employees nearing retirement, understanding how employer-sponsored health insurance interacts with Medicare becomes essential. Medicare is the federal health insurance program for people age 65 and older, while Medicaid serves low-income individuals and families. 

Some small business employees may be eligible for Medicare before traditional retirement age due to disability, and small employers should understand the coordination of benefits when employees become Medicare-eligible. Small employers should also understand how the federal government regulates health insurance and compliance requirements.

How can the SHOP marketplace and federal programs support small-employer health insurance?

The federal SHOP marketplace (Small Business Health Options Program) is a federal government resource specifically designed to help small employers find and compare health insurance plan options. Small employers can use the SHOP marketplace to purchase group health insurance plans and qualify for the Small Business Health Care Tax Credit, which provides tax credits up to 50% of premiums for eligible small businesses.

To qualify for the small business tax credit through the SHOP marketplace, your small employer must have fewer than 25 full-time equivalent employees and cover at least 50% of each enrolled employee's premium cost, with the average annual employee wage limit indexed for inflation. Small employers must file Form 8941 (Credit for Small Employer Health Insurance Premiums) to claim this valuable small business tax credit on their federal tax return.

Small employers should evaluate whether the SHOP marketplace, level-funded plans, or health reimbursement arrangements, such as ICHRAs, best fit their small business needs, budget, and employee population.

Control your health spend with Rho

Managing health insurance is just one piece of running a small business. As a founder, you need a platform that keeps pace with your company while helping you control cash flow, spending, and reimbursements.

Rho simplifies these tasks by giving founders and finance teams tools to automate workflows, manage corporate cards with real-time visibility, and handle payments, including health insurance premiums and employee reimbursements. By reducing administrative work, Rho lets you focus on growing your company and supporting your team. 

Get started with us today, and learn how Rho can streamline your small business finances and manage health benefits with confidence.

FAQs

What is group health insurance, and how does it differ from other health insurance coverage options?

Group health insurance is coverage provided to a group of people, usually employees of a company, under a single policy. Because risk is pooled across many people, group plans are often more affordable and offer better benefits than buying coverage individually, which is why small group plans are a common option for small employers.

What is an ICHRA, and is it right for my small business or startup?

An Individual Coverage Health Reimbursement Arrangement (ICHRA) lets employers reimburse employees tax-free for individual health insurance premiums and qualified medical expenses. ICHRAs can give small employers predictable budgets and employees more choice in plan selection, and they are available to organizations of any size.

What are exclusions in health insurance plans?

Exclusions are services or conditions that a health plan does not cover—for example, cosmetic procedures or specific experimental treatments. Employers and employees should review a plan’s exclusions carefully so there are no surprises when care is needed.

What is the Small Business Health Care Tax Credit, and how can my small employer benefit?

The Small Business Health Care Tax Credit can cover up to 50% of employer-paid premiums for eligible small businesses, significantly reducing the net cost of offering coverage. To qualify, you generally need fewer than 25 full-time equivalent employees, relatively low average wages, and SHOP Marketplace coverage, and you claim the credit by filing IRS Form 8941.