The cost of health care is on the rise. PwC’s Health Research Institute, the increase in health care costs is projected to land at 8% in 2025 for the Group market and 7.5% for the Individual market, a near-record trend driven by inflationary pressure, prescription drug spending, and behavioral health utilization.
In order to recruit and retain the best talent, employers seek solutions that help relieve the health care burden employees face while lowering costs for their companies. This often requires offering affordable health insurance alternatives.
Read on for more information about the top medical insurance alternatives for small employers.
Are Employers Required to Offer Health Insurance?
First off, you need to know if your business has a legal obligation to provide health insurance coverage to its employees. While the Affordable Care Act (ACA) requires large employers (50+ employees) to offer health insurance to their staff, small businesses with less than 50 employees aren’t obligated to offer health insurance.
Still, employees want health care benefits. In SHRM’s 2024 Employee Benefits Survey, respondents rated health-related benefits at the top of their list of most important benefit offerings, above retirement savings, leave benefits, and flexible work arrangements. 88% of respondents listed health benefits as very important or extremely important.
Health insurance plans can be costly for small employers, but there are other options.
Alternatives to Health Insurance Plans
If you’re a small employer looking for an alternative for a traditional health insurance plan, consider the following options:
Individual Coverage Health Reimbursement Arrangement (ICHRA)
The Individual Coverage Health Reimbursement Arrangement is a type of HRA plan that allows businesses to offer employees a monthly tax-free allowance to buy individual health coverage or to cover out-of-pocket medical expenses. Employees must be enrolled in and individual health insurance coverage to use the funds.
Employers have the flexibility to decide how much you contribute toward their employees’ ICHRA’s each year, as there are no annual minimum or maximum contribution requirements.
Qualified Small Employer Health Reimbursement Arrangement (QSEHRA)
Another account-based HRA plan, the QSEHRA allows small business owners to put aside a set amount of non-taxed money every month to cover employees’ health care expenses. Employees are responsible for paying their own medical bills or monthly premiums, but the employer reimburses the submitted expenses with pre-tax dollars.
Employees must be enrolled in an individual health insurance plan to use the funds. There is a maximum contribution amount. In 2025, those amounts were $6,350 for a single employee’s coverage ($529.16 per month), and $12,800 for family coverage ($1,066.66 per month).
| Feature | ICHRA | QSEHRA |
| Employer Size Limit | No size limit | Available only to employers with fewer than 50 full-time employees |
| Eligible Expenses | Individual health insurance premiums and medical expenses | Individual health insurance premiums and medical expenses |
| Contribution Limits | No federal limit on contributions | Annual contribution limits set by the IRS ($6,350 for individuals, $12,800 for families in 2025) |
| Usage Restrictions | Can be used alongside a group health plan | Cannot be offered if the employer offers a group health plan |
Health Share Plans
Health share plans are community-based alternatives to traditional health insurance, where members contribute to each other’s medical expenses. To participate, participants pay a monthly share into one large pool. When medical needs arise, the community helps cover the costs. Health share plans often have religious or ethical guidelines, and they do not guarantee coverage for all medical conditions.
Subscription Health Plans
Subscription plans or direct care models work just as you’d expect. For a monthly subscription fee, employees have access to utilize the health care services included in the plan. Instead of requiring employees to subscribe on their own, many employers are offering subscriptions to direct primary care, telemedicine, or mental health platforms.
Health Stipends
Employers can offer a health or wellness stipend, which is essentially extra money on their paychecks for health care expenses. Unlike with an HRA plan, this money will count as taxable income. But some employers and employees like the flexibility and simplified management it offers.
Association Health Plan (AHP)
Association health plans (AHPs) allow small businesses to band together to purchase group health insurance as part of a larger association, like a trade group or industry organization. This collective approach helps businesses take advantage of group purchasing power, potentially lowering premiums and offering better coverage options.
How Paycor Helps
Whether you plan to offer traditional health insurance, a health insurance alternative, or a mix of both, Paycor’s payroll, benefits administration, and compliance tools help benefit leaders implement and manage the health care offerings.
With ACA reporting that reduces complexity and guarantees compliance to streamlined payroll processes with taxes and HRA contributions factored in, Paycor empowers businesses to offer best-in-class benefits while reducing their administration time and costs and minimizing compliance risks.
Learn why more than 30,000 customers nationwide trust Paycor. Take a quick, free online software tour today.
