It’s not your imagination—health insurance premiums are rising.
The Kaiser Family Foundation found that over the past year, employer health insurance prices increased by an average of 5% for individuals and 6% for family coverage. That puts the average annual premium for employer-sponsored health insurance at $9,325 for individuals and $26,993 for families in 2025. And costs aren't slowing down—Mercer's National Survey of Employer-Sponsored Health Plans projects health benefit costs will rise another 6.7% in 2026, pushing the average total cost above $18,500 per employee, the steepest increase in 15 years.
The headline? Small business health insurance isn’t always easy to afford.
The thing is, offering health insurance can be more cost-effective than it appears. Health benefits can help you significantly reduce employee turnover—and up your odds that employees will stay. In fact, over half of employees reported that satisfaction with their health plan is a key reason why they decided to stick with their current company.
So how do you lower your health insurance rates, while still keeping your team happy with their benefits package?
Here are five strategies to help you reduce health care costs as an employer, without sacrificing the benefits that are so crucial to you and your team.
Strategy #1: Shop around for the best health insurance plans
If you want to reduce health care premiums, you can start by comparing plan prices. Rates for small businesses vary by carrier and change annually at review. Just keep in mind that plans with lower premiums may have higher out-of-pocket costs or fewer benefits.
Before you switch health insurance plans, make an apples-to-apples comparison to your existing plan. But don't just compare premiums; look at deductibles, copays, and coinsurance too, since a lower premium can mean higher cost-sharing in one of those categories.
Here’s how to compare:
Use an online comparison tool (e.g. a site like eHealth) to compare your plan’s summary of benefits with plans online.
Ask a licensed health insurance broker to do it for you by finding the plan that best fits your needs and budget.
Unless you’re confident that you understand the ins-and-outs of health plans, you’ll likely want to consult a health insurance broker before you buy. You don’t want to choose a plan that may cost slightly less, but offers significantly worse coverage.
As you shop, take a look at any additional benefits that come with coverage. Some health plans offer premium discounts to beneficiaries who participate in their wellness programs. These programs help employees and their families tackle common health problems and lead healthier lifestyles.
Some popular wellness programs can help people with:
Weight loss
Smoking cessation
Diabetes management
Stress management
Disease management programs
By choosing a plan from a health insurance carrier that offers wellness programs, you’ll lower your premiums while encouraging your employees to stay healthy.
Strategy #2: Offer a high deductible health plan
Offering a high deductible health insurance plan (HDHP) is one of the easiest ways to reduce your health care premiums. However, it’s not for all employees.
These plans require employees to pay a higher deductible (the amount paid out of pocket before the insurance kicks in), in exchange for lower monthly premiums. In 2026, an HDHP must have a deductible of at least $1,700 for an individual and $3,400 for a family.
Importantly, most HDHPs still cover preventive care—like annual checkups, immunizations, telehealth appointments, and routine screenings—at no cost before the deductible is met, so employees don't have to pay out of pocket for basic preventive services. Beyond that, though, HDHPs typically don't use copays like traditional plans do—employees pay the full cost of care until they hit the deductible, then a coinsurance percentage kicks in.
With an HDHP, you’ll pay lower monthly premiums, as will your employees. That being said, some employees are unhappy with these plans due to the high out-of-pocket costs. The out-of-pocket maximum for an HDHP in 2026 is $8,500 for one person and $17,000 for a family, which is quite a lot. As a result, you should consult with a licensed benefits advisor to help you determine if this is the right strategy for your employees.
If possible, offer an HDHP plan in addition to plans with lower deductibles to give your team multiple options.
Strategy #3: Combine a high deductible health plan with a savings option
By combining a HDHP with a savings account, you’ll help employees cover their out-of-pocket expenses and enjoy the tax deductions that come with it.
The two most popular savings options are:
Both types of accounts offer tax benefits to both employers and employees — HSA contributions are tax-deductible, and both HSA and HRA funds can be used tax-free for qualified expenses.
HSAs
You can pair an HDHP with an HSA to help your team cover deductibles and other health care costs.
With an HSA, employees can set aside pre-tax dollars (up to $4,400 for individuals and $8,750 for families per year starting in 2026) to pay for health expenses. Any unused savings remains in the employee's HSA account, which is owned by and continues with the employee even after they leave their employer. This can be a relief for employees that are unsure if they'll be able to spend the full amount.
To be eligible to contribute to an HSA, an employee must:
Be covered under a high-deductible health plan.
Not be enrolled in Medicare or a health care flexible savings account (FSA). Dental, vision, accident, and disability insurance don’t affect eligibility, and neither do limited use flexible savings accounts. (Learn more in our FSA section below.)
Not be claimed as a dependent on someone else’s taxes.
If you offer an HDHP with an HSA option, be sure your employees know they can use their savings to pay for qualified out-of-pocket costs.
HRAs
An HRA is an employer-funded health benefit that reimburses employees for out-of-pocket medical costs and health insurance premiums.
HRAs give employees a monthly allowance of tax-free money. They can use this to pay for any health care services they need, and get reimbursed up to the designated amount.
There are many types of HRAs, but let’s focus on the following four:
Group coverage HRAs, which you can pair with a group health insurance plan.
Individual Coverage HRAs (ICHRAs), which let employers of any size reimburse employees tax-free for individual-market health insurance premiums and other qualifying medical expenses, instead of offering a traditional group plan. Unlike QSEHRAs, there's no employee cap or "you can't offer a group plan" restriction, making ICHRAs a flexible option for businesses of any size that want to move away from traditional group coverage.
One-person stand-alone HRAs, which provides tax-free health care reimbursements for one employee. This may be a good option if you only have one employee. If your business is structured as a corporation and you’re the only employee, you may be eligible to enroll in a stand-alone HRA. If you’re a sole proprietor, the IRS doesn’t see you as a W-2 employee, so you won’t qualify.
Retiree HRAs, which help employees pay for medical expenses during retirement.
Qualified Small Employer HRAs (QSEHRAs), which you can only offer if you don’t provide group health insurance and you are not subject to the employer mandate (meaning that you have less than 50 full-time equivalent employees).
Your employees can participate in an HSA and HRA at the same time, but keep in mind that the IRS has strict guidelines for doing so. An employee can only contribute to both types of savings accounts if the HRA is one of the following:
Limited purpose HRA
Post-deductible HRA
Suspended HRA
Retirement HRA
Strategy #4: Offer an FSA
An FSA lets employees set aside pretax dollars from each paycheck to pay for eligible out-of-pocket expenses. FSAs are similar to HSAs, but there are a few key differences to consider.
The three types of FSAs you can offer include:
Health care FSA: Employees can use this FSA account to pay for medical, dental, vision, hearing, and prescription drug benefits for themselves, their spouses, and their dependents.
Dependent Care FSA: This account can be used to pay for eligible child and adult care expenses, such as day care, preschool, and summer day camp.
Limited Purpose FSA: Your team can use this type of FSA to cover eligible dental and vision expenses. Other eligible expenses may include prescriptions and some over-the-counter items. Employees can enroll in a limited purpose FSA even if they have an HSA.
You can offer more than one type of FSA, and employees can enroll in more than one type of account. For example, a parent can enroll in a health care FSA and a dependent care FSA.
In 2026, employees can contribute up to $3,400 per year to their health care FSA accounts. Employers aren't required to contribute to their team's accounts, but they can match up to the individual contribution limit for a total savings of $6,800 per year. (Contribution limits differ for dependent and limited purpose FSAs.)
$3,400 (employee FSA contribution) + $3,400 (employer FSA contribution) = $6,800 (maximum FSA contribution)
With a health care FSA, you’ll avoid paying a 7.65% payroll tax (Medicare and Social Security) on the amount employees contribute.
Strategy #5: Consider offering a QSEHRA instead of group health insurance
If you don’t have the budget to offer group health insurance, a QSEHRA may be a solid option.
QSEHRA is an Affordable Care Act-approved program that allows employers to help employees cover the costs of individual Marketplace coverage. Employers that want to save on costs and avoid managing a small group health plan may also decide to set up a QSEHRA.
To qualify, you must:
Have fewer than 50 full-time equivalent employees
Not offer small group health insurance
Require employees to buy individual health insurance in order to participate
In 2026, employers can reimburse employees for up to $6,450 per year for employee-only coverage, and up to $13,100 for family coverage. Employee reimbursements are tax-free, and employers' contributions aren't subject to payroll taxes and are tax deductible.
Keep in mind, your employees have likely never heard of QSHERAs. If you decide to offer this type of arrangement, it’s important for you to explain how it works and how they can use it to save on health care costs. This guide to QSEHRAs will give you a good place to start.
No matter your budget, it’s important to communicate with your employees about the health benefits you offer. For example, if you offer a high deductible plan with an HSA, explain how contributing to an HSA will save them money. Or if you have a QSEHRA, make sure they know exactly how to get reimbursed and for how much.
Rising health care costs doesn’t mean you have to stop offering health insurance. By picking the plans that work for your business—and ensuring your employees understand those benefits—they’ll get more from their coverage and will be more likely to stick around.
FAQs
What's the cheapest way for a small business to offer health insurance?
There's no single cheapest option—it depends on your budget and goals. If you can't afford group health insurance at all, a QSEHRA lets you reimburse employees tax-free for individual Marketplace coverage instead. If you want to offer a group plan but keep premiums down, pairing a high deductible health plan (HDHP) with an HSA or HRA is typically the lowest-premium route while still giving employees a way to cover out-of-pocket costs.
What is a QSEHRA and how does it save money on health insurance?
A QSEHRA (Qualified Small Employer HRA) is an Affordable Care Act-approved arrangement that lets employers with fewer than 50 full-time equivalent employees reimburse workers tax-free for individual health insurance premiums and medical expenses, instead of managing a group plan. In 2026, employers can reimburse up to $6,450 per year for employee-only coverage or $13,100 for family coverage, and those contributions aren't subject to payroll taxes.
What's the difference between an HSA and an FSA?
Both let employees set aside pre-tax dollars for health expenses, but an HSA is only available to people enrolled in a high deductible health plan, is owned by the employee, and rolls over year to year even after they leave the company. An FSA doesn't require an HDHP, but the funds are typically "use it or lose it" within the plan year and the account doesn't follow the employee if they leave.
How much can an HSA or FSA save on health insurance costs in 2026?
Employees can contribute up to $4,400 (individual) or $8,750 (family) to an HSA in 2026, all pre-tax. For a health care FSA, employees can contribute up to $3,400 per year, and employers can match up to that same limit for a combined $6,800—plus employers avoid the 7.65% payroll tax on the amount employees contribute.
Is a high deductible health plan (HDHP) a good idea for a small business?
An HDHP can meaningfully lower monthly premiums for both the employer and employees, but it comes with higher out-of-pocket costs—up to $8,500 for an individual or $17,000 for a family in 2026. It works best when paired with an HSA or HRA so employees have a tax-advantaged way to cover those costs, and it's worth offering alongside a lower-deductible plan so employees have options.
