The short answer
A startup with at least one employee who is not a founder or founder's spouse can usually buy a small group plan. Teams that are tiny, remote or spread across states often use a QSEHRA or ICHRA allowance instead, or join a PEO's plan. The right choice depends on headcount, where people live and how much you can contribute.
Health cover is one of the first real benefits decisions a startup makes, often when there are only a handful of people and no HR team. The options are the same as for any small business, but a few of them suit startups particularly well.
Before your first hire: the founders
If the company is only its founders, a group plan is usually not available: carriers want at least one enrolled employee who is not an owner or an owner’s spouse. Founders in this position generally buy individual plans on the Marketplace, or stay on a spouse’s employer plan, until the first hire.
Option 1: a small group plan
Once you have at least one non-founder employee on payroll, you can usually buy a small group plan. In the fully insured small group market:
- No one answers health questions, and the carrier cannot refuse the group.
- Premiums are built from each person’s age, ZIP code and cover tier.
- Carriers usually ask you to pay at least half of employee-only cover and expect most eligible staff to enroll.
A small group plan is the most familiar choice for candidates, especially experienced hires who expect “a normal plan”. For a sense of scale, the KFF 2026 Employer Health Benefits Survey puts the average single premium at $9,804 a year, of which workers paid $1,672 on average. These are national averages across firms with 10 or more workers, not a quote.
If you have fewer than 25 full-time equivalent employees with modest average wages and buy through the SHOP Marketplace, check the small business health care tax credit. Many funded startups pay salaries above its wage limit, but early teams sometimes qualify.
Option 2: an allowance (QSEHRA or ICHRA)
Instead of a group plan, the company gives each employee a monthly tax-free allowance, and employees buy their own individual plans. The two main types:
QSEHRA
For employers with fewer than 50 full-time employees that do not offer a group health plan (IRS Notice 2017-67). The allowance has an annual cap set by the IRS each year and must be offered on the same terms to all eligible employees, with some variation allowed for age and family size.
ICHRA
No size limit and no cap on the allowance. You can set different amounts for classes of employees, such as those in different states. Employees must have individual health cover to take part.
Allowances suit startups with a remote team spread across several states, very small teams that cannot meet a carrier’s participation rule, and companies that want a fixed, predictable benefit cost. The trade-off is that employees choose and manage their own plan, which some prefer and some do not.
Option 3: a PEO
A professional employer organization becomes your co-employer and puts your staff on its pooled plan, alongside payroll and HR services, for a fee. Many venture-backed startups use one early, because it handles multi-state payroll and compliance as well as benefits. The cost is less control over plans, and leaving later means moving everyone to new cover. We compare the two routes in PEO vs broker.
How the options compare for a small team
| Small group plan | QSEHRA | ICHRA | PEO | |
|---|---|---|---|---|
| Minimum team | One non-owner employee | One employee | One employee | Varies by PEO |
| Size limit | Small group to 50 (100 in four states) | Under 50 full-time | None | None |
| Employer cost | Share of premiums | Allowance, capped | Allowance, uncapped | Fees plus premiums |
| Works across states | Network-dependent | Yes | Yes | Usually |
Rules to keep an eye on as you grow
- 20 employees: federal COBRA continuation applies to group health plans.
- 25 full-time equivalents: the small business tax credit ends.
- 50 full-time equivalents: ACA employer rules and IRS reporting begin, and QSEHRA is no longer available.
Fast-growing startups can cross several of these in a year, so it is worth deciding early who will track headcount. The table on our homepage sets out what applies at each size.
Where a broker fits
A licensed broker can quote small group plans, explain allowance options and review a PEO proposal against a stand-alone plan, so you can compare like with like. For most small groups the broker is paid by the carrier. Our small business health insurance broker page lists the questions to ask one.
This guide is general information, not insurance, tax or legal advice. If you want a licensed broker to look at your team, the form below is the quickest way to get a name.