Health benefits matter to your team—and to your bottom line. But for a small business, choosing the “right” approach can feel like guesswork: premiums keep rising, compliance rules shift, and employees want real coverage, not window dressing. You’re weighing group plans against HRAs, wondering if self-funding is worth the risk, and trying to figure out whether you qualify for tax credits that could make coverage affordable. The stakes are high for hiring, retention, and cash flow, and you don’t have time for trial and error.
This guide cuts through the noise. We’ll compare five practical small business health benefits strategies—partnering with an outsourced HR team (Soteria HR), traditional small group plans (SHOP or direct), QSEHRA, ICHRA, and level- or self-funded plans. For each option, you’ll get what it is, how it works, who it’s best for, potential costs, tax savings (including the Small Business Health Care Tax Credit), eligibility and compliance notes, pros and cons, and clear next steps. Ready to find a fit that protects your people and your budget? Let’s get into it.
1. Partner with an outsourced HR team (Soteria HR) to design and manage benefits
If you want great small business health benefits without drowning in fine print, partnering with an embedded HR team like Soteria HR lets you offer competitive coverage while staying compliant and in control of costs.
What it is
A hands-on HR partner that designs, implements, and manages your benefits program end to end—evaluating group plans, HRAs, and funding models—so you get a right-sized, compliant package that supports hiring and retention.
How it works
We assess your workforce, budget, and goals, then compare carriers and plan types (SHOP or direct group plans, QSEHRA/ICHRA, level- or self-funded). We handle enrollment, employee education, and ongoing administration, plus renewals and compliance monitoring.
- Plan design and modeling
- Implementation and enrollment
- Ongoing admin and renewals
Who it’s best for
Leaders at growing companies (roughly 10–250 employees) who want strategic guidance, a better employee experience, and fewer compliance risks—without the overhead of building an internal benefits function.
Costs and tax savings
You’ll pay a predictable advisory/administration fee plus your chosen plan costs (premiums or HRA allowances). If you have fewer than 25 full-time equivalents, pay average wages around $56,000 or less, and cover at least 50% of premiums, you may qualify for the Small Business Health Care Tax Credit—typically available when you buy through SHOP.
Eligibility and compliance notes
Group plans commonly require offering coverage to full-time employees (30+ hours), meeting minimum participation (often about 70%), and having a work site in the plan’s state. HRAs follow federal rules: QSEHRA is for employers with fewer than 50 employees; ICHRA is available to employers of any size and can reimburse individual coverage on a tax-free basis.
Pros and cons
- Pros: Expert plan design, time savings, better employee support, compliance risk reduction, access to tax-credit pathways when eligible.
- Cons: Advisory fees, decisions still require executive input, not a single-carrier “set-and-forget” solution.
How to get started
Define your budget, objectives, and headcount by state and status. Then:
- Share a census and priorities.
- Review side-by-side plan and HRA scenarios with modeled costs.
- Select, implement, and launch open enrollment—while we manage the details year-round.
2. Traditional small group health insurance (SHOP or direct)
What it is
Employer-sponsored group coverage you buy on the ACA Small Business Health Options Program (SHOP) or directly from an insurer or broker. Employees get group rates.
How it works
You pick plan types (HMO, PPO, EPO, or an HDHP) and set your employer contribution. You can enroll year‑round; apply by the 15th for first‑of‑next‑month starts.
Who it’s best for
Employers that can meet participation rules and want straightforward, recognizable coverage. Ideal for teams that value provider networks and simple payroll deductions.
Costs and tax savings
Premiums vary by plan, network, and demographics; you fund part, employees pay the rest. With fewer than 25 FTEs, average wages around $56,000 or less, and at least 50% employer share, you may qualify for the SHOP‑only Small Business Health Care Tax Credit.
Eligibility and compliance notes
SHOP generally serves 1–50 employees (state rules vary; some require 2–50, some allow a group of one). Expect requirements to offer to full‑time employees (30+ hours), meet about 70% participation, and have a worksite in the purchasing state.
Pros and cons
This route is easy to understand and administer, but participation and cost trends can be constraints. Balance simplicity with flexibility needs.
- Pros: Familiar networks, predictable admin, potential SHOP tax credit.
- Cons: Participation thresholds and rising premiums.
How to get started
Collect a census and budget, then compare SHOP and direct quotes across plan types. Confirm eligibility and your contribution strategy, then select a start date.
3. Qualified small employer HRA (QSEHRA)
What it is
A QSEHRA is a health reimbursement arrangement for employers with fewer than 50 employees. Instead of sponsoring a group plan, you give employees a monthly, tax-free allowance to buy their own individual health insurance and get reimbursed for eligible medical expenses.
How it works
You set a monthly allowance and define eligible expenses. Employees purchase individual ACA-compliant coverage and submit proof of expenses; you reimburse up to the allowance on a tax-free basis. Administration requires clear plan documents and a simple, compliant claims process.
Who it’s best for
Small teams that want predictable costs, can’t meet group plan participation rules, or have a distributed workforce across multiple states. It’s also helpful when employees value choice and flexibility over a one-size-fits-all group plan.
Costs and tax savings
You control spend by capping the allowance. Current contribution limits allow up to $487.50 per month for single employees and $983.33 per month for families, tax-free to employees. Note: QSEHRA does not unlock the SHOP Small Business Health Care Tax Credit, which applies to SHOP group plans.
Eligibility and compliance notes
Available to employers with fewer than 50 full-time employees. Reimbursements must follow federal HRA rules and be substantiated, and the plan must be documented and communicated to employees. Eligible expenses typically include individual premiums and qualified out-of-pocket costs.
Pros and cons
QSEHRA can simplify benefits while protecting your budget, but employees must shop for their own policies.
- Pros: Budget control, tax-free reimbursements, employee choice across carriers.
- Cons: No SHOP tax credit; employees handle plan selection; annual allowance caps.
How to get started
Set your monthly allowance within QSEHRA limits, draft compliant plan documents, and choose an administrator. Then:
- Communicate eligibility and how reimbursements work.
- Verify employees’ coverage and substantiate claims.
- Reimburse on payroll and track totals for year-end reporting.
4. Individual coverage HRA (ICHRA)
ICHRA gives employers of any size a flexible way to offer small business health benefits without sponsoring a traditional group plan. You reimburse employees tax‑free for individual market premiums (or Medicare, when eligible) and qualified medical expenses—there’s no federal annual cap on the allowance.
What it is
An employer-funded, tax-advantaged reimbursement arrangement that lets employees buy their own ACA-compliant individual coverage (or Medicare) and get reimbursed up to a monthly allowance you set.
How it works
You define a monthly allowance and eligible expenses, publish plan documents, and put a compliant substantiation process in place. Employees select individual policies that fit their needs and submit proof of premiums/expenses; you reimburse up to the allowance on a tax-free basis.
Who it’s best for
Organizations that want predictable budgets and employee choice, especially multi-state teams or fast-growing companies that need a scalable alternative to a one-size-fits-all group plan.
Costs and tax savings
You control spend by setting the allowance; reimbursements are generally tax-free for you and employees. There’s no federal annual limit on ICHRA allowances. Note: ICHRA does not use the SHOP Small Business Health Care Tax Credit, which applies to eligible SHOP group plans.
Eligibility and compliance notes
Available to employers of any size. You must maintain written plan documents, communicate terms, and substantiate all reimbursements. Only ACA-compliant individual coverage (or Medicare) qualifies for premium reimbursement.
Pros and cons
ICHRA trades group-plan complexity for flexibility and budget control, but employees must shop for their own coverage.
- Pros: Budget control, no annual allowance cap, works across states, broad employee choice.
- Cons: No SHOP tax credit, employee shopping burden, requires clear communication and admin.
How to get started
Set your monthly allowance and eligible expenses, draft plan documents, and choose an HRA administrator. Then:
- Educate employees on choosing individual coverage.
- Verify coverage and substantiate claims.
- Reimburse through payroll and track totals for compliance.
5. Level-funded or self-funded health plans
If you’re weighing small business health benefits that can beat fully insured premiums, level-funded and self-funded setups let you pay for your team’s care more directly—with safeguards to limit downside. They can lower costs if claims run light, but they demand stronger cash-flow discipline and benefits oversight.
What it is
Self-funded means you, not an insurer, pay employees’ health claims as they occur, with an administrator handling the processing. Level-funded is a structured version of self-funding: you make a predictable monthly payment that covers expected claims, admin fees, and stop‑loss protection to cap large risks.
How it works
You partner with a third‑party administrator for claims and a stop‑loss carrier to limit exposure on big or aggregate claims. For level‑funded plans, the carrier sets a fixed monthly rate and periodically reconciles performance; if claims are lower than expected, you may see favorable adjustments per your agreement.
Who it’s best for
Employers that want more control over costs, have relatively stable headcount, and are comfortable managing some risk with professional support. It’s a fit when fully insured quotes feel high and your team’s claims experience is typically moderate.
Costs and tax savings
Monthly spend includes claims funding, admin fees, and stop‑loss premiums; savings are possible if actual claims come in below expectations. These arrangements do not use the SHOP Small Business Health Care Tax Credit, which generally applies to eligible SHOP group plans.
Eligibility and compliance notes
Employers with 50+ full‑time employees must offer coverage; under 50, it’s optional. Self‑funded plans require formal plan documents, compliant claims substantiation, and ongoing oversight under applicable federal rules. Many small employers rely on experienced TPAs and brokers for setup and monitoring.
Pros and cons
- Pros: Potential cost savings, data transparency, plan design flexibility, predictable billing with level-funded.
- Cons: Financial risk and volatility, more oversight required, no SHOP tax credit.
How to get started
Assemble a clean census and recent plan/claims history if available, then request side‑by‑side proposals: fully insured vs. level‑funded vs. self‑funded with stop‑loss. Stress‑test scenarios, confirm administrative partners and protections, and pilot with clear employee communications before annual renewal season.
Next steps
You don’t need a perfect plan on day one—just a smart, compliant path that fits your headcount, budget, and hiring goals. Use the five options above as a menu: sponsor a group plan (and check for the SHOP tax credit), fund an HRA for flexibility, or consider level‑funding for savings upside with guardrails.
- Define objectives: Must‑haves and a monthly per‑employee budget range.
- Build a census: Locations, ages, dependents, full‑time status.
- Shortlist two paths: Group (SHOP/direct) vs. QSEHRA/ICHRA vs. level‑funded.
- Validate rules: Eligibility, participation, compliance; choose admin and timelines.
- Launch well: Clear employee education; measure experience and renewal risks.
Want an expert to shoulder the heavy lifting? Partner with Soteria HR to design, implement, and manage benefits that protect your people and your margins.
