Health Insurance for a Small Business With One Employee: A 2026 Guide

Health insurance for small business with one employee

Starting a business can be quite challenging and rewarding at the same time, whether you have one employee or many. One of the most significant decisions you'll make for your business is offering health insurance. While many small business owners may feel that health insurance is costly and only for larger firms, it can be a meaningful benefit for businesses of any size.

Are you legally required to offer it?

Under federal law, the ACA's employer mandate only applies once a business reaches 50 or more full-time-equivalent employees. Below that threshold, offering health insurance is entirely optional. This holds true at the state level in nearly every state as well — most states impose no requirement on a business with a single employee to provide coverage.

Hawaii is the clear exception worth knowing about: under its Prepaid Health Care Act, most employers with even a single qualifying employee are required to provide coverage. A small number of other states set a low employee-count threshold for related requirements (Massachusetts, for example, applies its own coverage rule starting at 11 employees). If you operate in Hawaii specifically, confirming your exact obligation with a local broker is worth doing before assuming the general federal rule applies to you.

For most small business owners elsewhere, though, offering health insurance to your one employee is a choice, not a legal requirement — which means the real question becomes whether it's the right move for your specific business, not whether you're obligated to make it.

How to get health insurance as a small business

Small businesses with one employee can apply for group health insurance policies. These policies provide coverage to the business owner and the employee, and premiums are often shared between both parties. You can work with a broker who understands the health insurance landscape and can guide you through the process of selecting the right plan. In some states, you may be able to purchase group policies through the state's health insurance exchange.

Benefits of offering health insurance

Offering health insurance provides numerous benefits that you and your employee can enjoy. First, it provides coverage for unexpected health expenses that could easily strain your business's finances. Health insurance also provides a safety net for your employee's family, helping ensure they receive proper medical care when they need it. Health insurance can also increase employee satisfaction, reducing turnover, and ultimately increasing productivity and profitability.

Factors to consider when selecting a plan

When selecting a health insurance plan, it's essential to ensure you select a plan that meets your business's needs and budget. Some key factors to consider include the cost of premiums, deductibles, copayments, and out-of-pocket limits. It's also important to look at the details of the coverage to ensure it covers the medical services that you and your employee need, such as doctor visits, prescriptions, and emergency care.

Tax benefits

Small businesses with one employee can also enjoy meaningful tax benefits when offering health insurance. Premiums paid on group policies are often tax-deductible, reducing the overall tax liability for the business owner. Additionally, companies that offer health insurance may be eligible for the Small Business Health Care Tax Credit, covered in more detail later in this guide.

Group health insurance vs. individual health insurance

One of the basic needs of every individual is medical care, and given the rising cost of healthcare, seeking medical attention can strain finances without coverage in place. There are basically two types of health insurance for a one-employee business to consider: group health insurance and individual health insurance.

Group health insurance

Group health insurance is designed to provide coverage to a group of individuals who are usually members of the same organization or business. This type of insurance is often purchased by employers, who may require employees to contribute to the cost. In most cases, group coverage provided by an employer also covers employees' dependents.

One of the major advantages of group health insurance is that it's often cheaper per person than individual health insurance, since the risk is spread across the entire group. Group insurance also typically includes a broader range of coverage with fewer restrictions on pre-existing conditions. However, group plans may limit your choice of healthcare providers to those within the insurer's network, and leaving the job generally means losing that group coverage.

Individual health insurance

Individual health insurance is coverage purchased directly from an insurer, rather than through an employer. This option is best for those who are self-employed, or whose employer doesn't offer group coverage. Individual plans give you more flexibility in choice of care providers, and the coverage stays with you even if you leave a job. You can also customize the policy to suit your specific needs.

However, individual health insurance usually costs more than group coverage, since the risk isn't spread across a large group, and the cost of healthcare treatments can be comparatively higher.

Which one should you choose?

In choosing between group and individual health insurance, consider your needs, budget, and employment situation. If you're setting up coverage as an employer with one employee, group coverage is often the more cost-effective path, since your contribution as the employer helps offset the per-person cost. If you're self-employed with no other employees, individual coverage, or a structured ICHRA arrangement reimbursing individual premiums, may be the better fit.

Best health insurance companies for small businesses

For small businesses, providing health insurance is crucial for attracting and retaining employees, but finding the right provider can feel daunting with so many options available. A few of the most prominent national carriers worth comparing for small-business plans:

Selecting the right health insurance provider for your small business is essential to give your employee the coverage they need to stay healthy and access necessary medical care. There's no one-size-fits-all solution, so it's worth getting quotes across several carriers and considering your employee's specific needs and feedback before deciding.

Calculate the cost of providing health insurance to your employee

If you're considering providing health insurance, you're likely wondering how much it will actually cost. The cost can vary depending on a number of factors, including the size of your business, the type of plan you choose, and the age and health status of your employee.

Understand the different types of plans

There are several types of health insurance plans you can choose to offer, including HMOs, PPOs, and high-deductible health plans (HDHPs). Each has different premium costs, out-of-pocket costs, and coverage levels. HMOs are typically the least expensive option, while PPOs offer more flexibility but come with higher costs. HDHPs can be a good option for younger and healthier employees, offering lower premiums but higher out-of-pocket costs.

Determine your employer contribution

As an employer, you'll typically be responsible for a portion of the cost of your employee's health insurance premiums. The amount you contribute will depend on your budget and the level of coverage you want to provide. Many employers contribute a percentage of the premium cost, such as 50% or 75%.

Factor in employee contributions

In addition to employer contributions, your employee will also be responsible for a portion of their health insurance premium. The amount depends on the plan you choose and the level of coverage selected. Offering a couple of plan options with varying premium costs can help your employee choose a plan that fits their own budget.

Consider additional costs

Beyond premiums, factor in additional costs like deductibles, copayments, and coinsurance. These vary depending on the type of plan and the level of coverage. You may also need to budget for administrative costs like enrollment fees and paperwork processing.

Get quotes from multiple providers

To get an accurate picture of the cost, it's important to get quotes from multiple providers. This gives you a sense of the range of costs for different plan options and coverage levels, and lets you weigh factors like network size, provider coverage, and customer service before choosing.

How to cover pre-existing conditions

Small businesses across the United States employ tens of millions of people, and it's important for these employers to provide health insurance that genuinely protects their employees' well-being, including when a pre-existing condition is involved. A pre-existing condition is any medical condition that existed before an individual purchased insurance — common examples include asthma, diabetes, and heart disease.

Under the Affordable Care Act, insurers can no longer deny coverage or charge more based on a pre-existing condition for ACA-compliant plans, which meaningfully changed this picture for small businesses compared to pre-ACA rules. Still, it's worth taking a few deliberate steps to make sure your specific plan handles this well:

Explore healthcare options

The first step is exploring the full range of healthcare options available to you. The Affordable Care Act and its state marketplaces can help your business access a broad range of options and improve your employee's health benefits.

Choose an inclusive health insurance plan

Choosing an ACA-compliant plan matters here, since these plans are specifically required to cover pre-existing conditions like diabetes, cancer, and asthma, and must provide access to essential preventive services such as vaccinations, health screenings, and counseling services.

Work with a professional insurance broker

Navigating these options can be complicated and time-consuming. A professional insurance broker can recommend the most suitable plans that provide coverage for pre-existing conditions while helping you manage premium costs.

Consider self-funded health insurance

Self-funded health insurance gives employers freedom and flexibility to customize their health insurance policy. With self-funding, the business pays claims for medical care directly instead of paying a premium to an insurance company. Though it carries more risk, self-insurance can provide comprehensive coverage of pre-existing conditions and is often more cost-effective than traditional insurance for the right business.

Avoid excluding pre-existing conditions

Excluding pre-existing conditions from your plan generally pushes your employee toward higher out-of-pocket costs or care paid for entirely out of pocket, which can strain their finances and, indirectly, your business's productivity if it goes unaddressed.

Understand benefits and tax credits for providing health insurance

When it comes to attracting and retaining talent, providing health insurance can be a genuine game-changer. Offering it isn't just beneficial for your employee's health and well-being — it can also yield significant tax credits for your business.

Attract and retain top talent

Providing health insurance can give you a real competitive advantage in the job market. Employees are increasingly selective about the benefits they receive from employers, and with healthcare costs on the rise, offering coverage can meaningfully improve job satisfaction and help attract new talent.

Save on healthcare costs

Offering health insurance can help your business save on overall healthcare costs. When your employee has coverage, they're more likely to schedule preventive checkups, receive timely medical care, and have less chance of developing costly, advanced medical conditions.

Eligibility for the Small Business Health Care Tax Credit

The Affordable Care Act provides a real tax credit for small businesses that offer health insurance. For 2026, to qualify for the Small Business Health Care Tax Credit, you generally need to:

• Have fewer than 25 full-time-equivalent employees.
• Pay average annual wages below $68,200 for 2026 (this threshold is indexed for inflation each year).
• Pay at least 50% of your employee's health insurance premium.
• Purchase coverage through the SHOP Marketplace, in most cases.

The maximum 50% credit is reserved for the smallest employers: those with 10 or fewer full-time-equivalent employees and average annual wages at or below $34,100 for 2026. Above those thresholds, the credit phases out on a sliding scale as employee count and average wages rise, up to the 25-FTE and $68,200 cutoffs. For a business with exactly one employee, this credit can be a meaningful offset if your specific plan and wage level qualify — worth running the numbers with a broker or tax professional rather than assuming you don't qualify.

Improved employee health

Providing health insurance can also improve your employee's overall health and well-being. When people have access to healthcare, they're more likely to take preventive measures and seek medical care when they actually need it.

Increased productivity

Healthy employees are happier, more satisfied, and more productive. The CDC estimates that health-related absenteeism costs U.S. employers roughly $225.8 billion annually, or about $1,685 per employee. Offering health insurance and promoting healthy habits can help combat this real cost and increase productivity in the workplace.

Common questions about small business health insurance with one employee

Have a question that isn't answered below? Our full health insurance FAQ page covers more, and our blog has deeper guides on small business coverage topics.