How to offer health insurance to your employees: the four real options

The four real options, honestly compared

A traditional small-group plan is the familiar route: one plan (or a small menu) for the whole team, premiums split between employer and employee. A PEO bundles group benefits with payroll and HR under a co-employment arrangement. A stipend is just extra taxable pay earmarked for health costs. And an ICHRA — an Individual Coverage HRA — flips the model: you set a tax-free monthly allowance per employee, and each person buys the individual plan that fits them.

There is no universally right answer. The right pick depends on your budget's need for predictability, how spread out your team is, how fast people come and go, and how much admin you can stomach. The sections below take each option in turn.

Option 1: a traditional small-group plan

You choose a carrier and plan, the carrier quotes a rate based on your group, and everyone gets the same network and coverage. It's well understood, employees recognize it, and premiums are tax-free for both sides.

The pain points are structural: many carriers require a minimum share of your employees to enroll (a problem when people are on a spouse's plan or decline), one plan rarely fits everyone, and the renewal letter each year is a number you don't control. Multi-state teams strain a single group network hard.

Option 2: a PEO

A professional employer organization co-employs your staff, running payroll, HR compliance, and benefits — often with access to large-group plan rates. It's a legitimate route for a company that wants to outsource the whole HR stack, not just health insurance.

You pay for that bundle, you adopt the PEO's plan menu rather than your own, and leaving a PEO later is a project. If benefits are the only thing you need, a PEO is usually more machinery than the problem requires.

Option 3: a taxable stipend

The simplest thing you can do is add money to paychecks and call it a health stipend. Nothing to administer, works anywhere, no carrier involved.

The costs are real, though: the stipend is wages, so both you and the employee pay payroll taxes on it, and the employee pays income tax. There is no guarantee it's spent on insurance, and a stipend does not count as offering coverage for employer-mandate purposes. It's the option of last resort, not a strategy.

Option 4: the HRA route — reimburse employees tax-free (ICHRA and QSEHRA)

An ICHRA lets you set a fixed, tax-free monthly allowance — different amounts for different employee classes if you want — and each employee buys their own individual plan and gets reimbursed. You empower your employees to choose their own health insurance; you control exactly what it costs you.

The money is tax-free in both directions, like a group plan. Unlike a group plan, the cost never spikes at renewal, there are no participation minimums, and it works identically whether your team sits in one office or five states.

A QSEHRA is the small-business sibling: available under 50 employees, with annual contribution caps set by the IRS. An ICHRA has no caps and works at any size. If you're choosing between them, the decision usually comes down to size and how much you want to contribute.

Done right, an ICHRA also satisfies the ACA employer mandate for larger employers — the allowance has to make a silver plan affordable under the IRS math. That affordability calculation is exactly the kind of thing a broker runs for you before you commit.

"Can I just give my employees money for health insurance?"

As raw cash — yes, but it's a taxable stipend, with all the tax leakage described above. And under longstanding rules, directly paying or reimbursing employees' individual premiums outside a proper HRA can trigger serious compliance penalties.

Pre-tax — only through a vehicle built for it. That is precisely what an ICHRA (or QSEHRA) is: the legal wrapper that turns "here's money for the plan you choose" into a tax-free benefit for both sides. If the question in your head is "can I give my employees pre-tax money for health insurance?", the answer is: yes, and the mechanism is called an ICHRA.

How to choose, by situation

Team in multiple states or remote: ICHRA — everyone shops their own local market, no single network has to fit all of them.

High turnover or hourly-heavy workforce: ICHRA — employees own their plans, so nobody churns through your coverage paperwork every exit. We wrote a full guide on this.

Everyone in one place and you want maximum familiarity: get a group quote and an ICHRA quote and compare — the renewal-proof budget often wins even here.

Want to outsource all of HR, not just benefits: that's the PEO conversation.

First time offering benefits: start with the ICHRA math — set a budget you can sustain, and you can raise it later without repricing a group plan.