How you get health insurance as a business owner depends almost entirely on your headcount. If you work alone, you buy on the individual marketplace like anyone else. If you employ between 1 and 50 people, you have four real options: the Small Business Health Options Program (SHOP), an Individual Coverage Health Reimbursement Arrangement (ICHRA), a Qualified Small Employer Health Reimbursement Arrangement (QSEHRA), or a Professional Employer Organization (PEO). If you average 50 or more full-time equivalent employees, federal law requires you to offer coverage. Each path has its own enrollment rules and its own tax breaks, and picking the right one is mostly a matter of matching your situation to the eligibility box.
If You Work Alone
A sole proprietor with no common-law employees is not a “group” in insurance terms. You enroll through your state’s health insurance marketplace at HealthCare.gov (or your state’s own exchange) during open enrollment, which typically runs from November 1 through January 15.
Premium tax credits are tied to your household income relative to the federal poverty level. Under the standard Affordable Care Act rules, subsidies are available to households with income between 100% and 400% of FPL for 2026.1HealthCare.gov. Federal Poverty Level (FPL) – Glossary Enhanced credits that removed the 400% cap applied through 2025 under the Inflation Reduction Act; whether they continue depends on legislation that was still pending in early 2026, so check the HealthCare.gov subsidy calculator for the current numbers.
Your application asks for projected annual income rather than an employee census. Self-employment income swings around, and underestimating means repaying excess subsidies at tax time. Overestimating costs you nothing except a larger refund when you file.
If You Have 1 to 50 Employees
Small employers have four paths worth comparing. Which one fits depends on how much control you want over the plan, whether you’d rather hand employees a budget and let them shop, and whether you want someone else running the back office.
SHOP Marketplace
The Small Business Health Options Program is the federally facilitated marketplace for employers with 1 to 50 full-time equivalent employees, though some states extend eligibility up to 100.2Centers for Medicare & Medicaid Services. Small Business Health Options Program (SHOP) Enrollment runs year-round rather than being tied to an open enrollment window.
You generally need to meet a minimum participation rate: in most states, at least 70% of eligible employees must either accept the SHOP coverage or show they’re enrolled in other qualified coverage.3CMS: Agent and Brokers FAQ. What is the Minimum Participation Rate (MPR) Requirement? That requirement is waived each year from November 15 through December 15, which is often the only window a thin participation business can get in.
If employees work in more than one state, you enroll through SHOP in the state where your primary business is located. You can pick a single plan with a national provider network or offer separate SHOP plans in each state, as long as you meet each state’s eligibility rules on its own.4HealthCare.gov. SHOP Coverage for Multiple Locations and Businesses
SHOP has one unique advantage: it is the only way to claim the Small Business Health Care Tax Credit, covered further below.
ICHRA
An Individual Coverage Health Reimbursement Arrangement lets you give employees a set monthly allowance to buy their own health insurance on the individual market. There is no cap on employer size and no limit on how much you can contribute.5Federal Register. Health Reimbursement Arrangements and Other Account-Based Group Health Plans You decide the amount, employees buy qualifying coverage, and your reimbursements are excluded from their taxable income.
The appeal is predictability. You set a budget and you’re not exposed to annual premium swings. Employees get to pick a plan around their own doctors and family situation. The tradeoff is that they take on the shopping and renewal work, which not every workforce wants.
You can offer different ICHRA amounts to different classes of employees (full-time versus part-time, salaried versus hourly, employees in different states), but everyone within the same class gets the same offer. You can’t offer both a traditional group plan and an ICHRA to the same class.
QSEHRA
If you have fewer than 50 employees and don’t offer a group health plan, a Qualified Small Employer Health Reimbursement Arrangement works like an ICHRA but with contribution caps. For 2026, the maximum annual reimbursement is $6,450 for self-only coverage ($537.50 per month) and $13,100 for family coverage ($1,091.67 per month).
The QSEHRA has a strict notice rule. You must provide each eligible employee a written notice at least 90 days before the start of the plan year, and for new hires who become eligible mid-year, the notice is due on the date they first qualify. The notice must state the reimbursement amount, remind employees to report it to the marketplace if they apply for premium tax credits, and warn that reimbursements may be taxable if the employee lacks minimum essential coverage.6Internal Revenue Service. Affordable Care Act Tax Provisions for Employers Missing the deadline triggers per-employee penalties that add up quickly.
PEO
A Professional Employer Organization uses a co-employment model to pool workers from many small companies, which lets it negotiate group rates a five-person business could never get alone. The PEO handles payroll taxes, benefits administration, and workers’ compensation while you keep day-to-day control over how the work gets done. The PEO is the administrative employer of record for payroll filings and plan sponsorship, and both of you share legal responsibilities, so both parties can be named in employment disputes.
PEOs typically charge a per-employee monthly fee or a percentage of payroll. Whether the premium savings cover that cost depends on your industry, workforce, and location. This model fits businesses that want full benefits without building an internal HR function.
If You Have 50 or More Employees
Once your business averages 50 or more full-time equivalent employees during the prior calendar year, you are an Applicable Large Employer (ALE) and the ACA’s employer mandate applies. You must offer affordable coverage that meets minimum value standards to at least 95% of your full-time employees or face penalties.7Internal Revenue Service. Employer Shared Responsibility Provisions
“Minimum value” means the plan covers at least 60% of the total allowed cost of benefits and includes substantial coverage of inpatient hospital and physician services.8DOL.gov. Health Insurance Marketplace Coverage Options and Your Health Coverage “Affordable” means the employee’s share of the premium for self-only coverage doesn’t exceed a percentage of household income that the IRS adjusts annually.
Two penalty tracks exist. If you fail to offer coverage to at least 95% of full-time employees and even one employee receives a premium tax credit on the marketplace, you owe a per-employee penalty (based on an original $2,000 amount, indexed for inflation) applied to your entire full-time workforce minus the first 30 employees. If you do offer coverage but it’s unaffordable or doesn’t meet minimum value, the penalty is higher per employee (based on an original $3,000 amount, indexed) but applies only to the employees who actually receive marketplace subsidies. For 2024 those adjusted amounts were $2,970 and $4,460 per employee; 2026 figures are higher.7Internal Revenue Service. Employer Shared Responsibility Provisions
How to Count Full-Time Equivalents
Every threshold on this page runs on the FTE count: ALE status, SHOP eligibility, QSEHRA eligibility, and the Small Business Health Care Tax Credit. Full-time means an average of at least 30 hours per week or 130 hours per month.9Internal Revenue Service. Identifying Full-Time Employees
To calculate FTEs from part-time staff, add up the total monthly hours for all non-full-time employees (capping each individual at 120 hours), then divide by 120. Add that number to your actual full-time headcount. If the combined average across all 12 months of the prior year is under 50, you are not an ALE and the employer mandate doesn’t apply.10Internal Revenue Service. Determining if an Employer is an Applicable Large Employer
Tax Breaks That Lower Your Cost
Self-Employed Health Insurance Deduction
If you’re self-employed, a partner in a partnership, or an S corporation shareholder who receives wages from the company, you can deduct 100% of your health insurance premiums for yourself, your spouse, your dependents, and your children under age 27.11Office of the Law Revision Counsel. 26 USC 162 – Trade or Business Expenses
Two limits apply. The deduction can’t exceed your net self-employment income from the business under which the plan is established, so if your business earns $30,000 and your premiums are $35,000, you can only deduct $30,000. You also can’t claim the deduction for any month you were eligible to participate in a subsidized health plan through any employer, including a spouse’s employer. “Eligible” means you could have enrolled, whether you did or not.12Internal Revenue Service. Instructions for Form 7206
You take the deduction on Schedule 1 of Form 1040 (not Schedule C), using Form 7206 to calculate the amount.13Internal Revenue Service. About Form 7206, Self-Employed Health Insurance Deduction It reduces your adjusted gross income but does not reduce your self-employment tax.
Small Business Health Care Tax Credit
This credit can cover up to 50% of the premiums you pay for employees (35% for tax-exempt organizations), but only if you buy through SHOP.14Internal Revenue Service. Small Business Health Care Tax Credit and the SHOP Marketplace You have to meet all four requirements:
- Fewer than 25 full-time equivalent employees. The full credit goes to employers with 10 or fewer FTEs and phases out as you approach 25.
- Average annual wages below an inflation-adjusted cap. For 2026 the threshold is approximately $68,200, and employers paying average wages of $34,100 or less qualify for the full credit.
- Coverage purchased through SHOP.
- Employer contribution of at least 50% of the employee-only premium for each enrolled worker.
The credit is available for only two consecutive tax years, so claiming it in your highest-premium years gets you the most value.
HSA-Compatible High-Deductible Plan
Pairing a high-deductible health plan with a Health Savings Account is one of the most tax-efficient structures available, whether you’re covering just yourself or your whole staff. HSA contributions are deductible, the money grows tax-free, and qualified medical withdrawals aren’t taxed either.
For 2026, you can contribute up to $4,400 for self-only coverage or $8,750 for family coverage. The plan must have an annual deductible of at least $1,700 (self-only) or $3,400 (family), with out-of-pocket costs no higher than $8,500 or $17,000.15Internal Revenue Service. IRS Notice – HSA Inflation Adjusted Amounts for 2026 Unused HSA funds roll over indefinitely. If you offer an HDHP through a group plan or SHOP, you can also make employer contributions to employees’ HSAs, excluded from their taxable income and not subject to payroll taxes.
What You Need Before You Apply
For any group plan, start with an Employer Identification Number. The IRS issues the nine-digit number free in minutes online.16Internal Revenue Service. Get an Employer Identification Number You’ll need it for the application and for tax reporting on health coverage.
SHOP and private carrier applications also need an employee census: each eligible employee’s name, date of birth, and residential zip code, matched to your payroll records. Insurers use this to generate premium quotes, so get it right. Carriers and SHOP both provide digital templates.
Sole proprietors applying on the individual marketplace need a projected annual income figure and Social Security numbers for everyone who’ll be covered.
After You Enroll
Group coverage activates when the carrier receives a first-month premium (sometimes called a binder payment). No claims process and no ID cards go out before that payment clears. For individual marketplace plans, enrolling by the 15th of a month generally triggers a first-of-next-month start date.17HealthCare.gov. When Can You Get Health Insurance? Once a group plan is active, you must give every participant a Summary of Benefits and Coverage, the standardized document explaining what the plan covers and the out-of-pocket costs.18eCFR. 45 CFR 147.200
If you qualify as an ALE, you have annual IRS reporting obligations. You file Form 1094-C as a transmittal along with a Form 1095-C for each employee who was full-time during any month of the year, documenting the coverage offered, the employee’s share of the lowest-cost premium, and whether they enrolled.19Internal Revenue Service. 2025 Instructions for Forms 1094-C and 1095-C The deadline is February 28 on paper or March 31 electronically, with electronic filing mandatory if you file 10 or more information returns. Form 8809 gets you an automatic 30-day extension. Employees must receive their 1095-C copies by early March.
Smaller employers who aren’t ALEs still need records supporting FTE calculations, SHOP enrollment, and any tax credits claimed. If you offer a QSEHRA, keep copies of the written notices and proof of the dates you furnished them.