How startups can offer health coverage

According to the Commerce Institute¹, more than 5.1 million businesses launched in the United States in 2025. While launching a startup is exciting, building a successful company requires more than a great idea. Attracting and retaining talented employees is one of the biggest challenges for growing businesses, especially when competing with larger employers. Offering quality health benefits can help level the playing field.

In this article, we'll explain the health benefit options available to startups and compare traditional group health insurance with flexible alternatives like health reimbursement arrangements (HRAs).

In this blog post, you'll learn:

• What your employer-sponsored health insurance options are for startups.
• How stand-alone HRAs can help startups provide flexible health benefits without a traditional group health insurance plan.
• Why working with an HRA administrator can simplify benefits administration.

Why should startups offer health coverage?

As more startups compete for talent, many are offering employee healthcare benefits for the first time. According to Remodel Health's 2026 National ICHRA Report, the company's new-to-benefits segment for small employers using PeopleKeep grew 71% in the first quarter of 2026 compared to the first quarter of 2025. This growth reflects a broader trend of startups recognizing that offering health benefits is becoming essential for attracting and retaining employees.

Additionally, PeopleKeep’s Employee Benefits Survey found that 81% of employees say that an employer's benefits package is an important factor in whether they accept a job. Access to affordable healthcare is also a top priority for job seekers. Our findings show that 92% of employees value health insurance benefits.

Startup employees are investing in your company's future, and they expect benefits that support their health and well-being along the way. When startups offer this popular employee benefit, it shows theirdedication and appreciation for their growing team.

Having medical insurance gives employees peace of mind. When they don't have to worry about costly medical treatments or services, they can focus on doing their best at work. Plus, investing in your employees' health can lead to fewer unexpected absences from work.

How to offer employer-sponsored health insurance

Offering health benefits may seem overwhelming, especially if you're launching a new business with limited time and resources. But with the right approach, you can find a health benefit that fits your budget and meets your employees' needs.

Follow these five steps to choose and implement the right health insurance solution for your startup.

1. Determine your budget and your employees' needs

Before comparing health insurance options, establish a realistic budget for your employee benefits. Knowing how much your startup can contribute each month will help you narrow your choices and select a health benefit that's both sustainable for your business and valuable to your employees.

Next, consider what your workforce needs from a health benefit. Factors to evaluate include:

• The size of your workforce
• Employee demographics, such as age and family status
• Whether your employees work remotely, in multiple states, or in one location
• Any unique healthcare needs or preferences

If possible, ask your employees what they're looking for in a health benefit through a survey or informal conversations. Their feedback can help you choose a solution that offers the right balance of affordability, flexibility, and coverage.

2. Research employer-sponsored health insurance options for startups

There are several ways startups can offer health benefits. The best option depends on your budget, company size, administrative capacity, and employees' healthcare needs. Understanding the differences between each approach can help you choose the right benefit for your growing business.

Traditional group health insurance

A traditional group health insurance plan is a familiar option that allows your business to purchase one policy for eligible employees. There are two categories of group plans: fully insured and self-funded. Depending on the health insurance carrier or administrator, you may choose between plan types such as health maintenance organizations (HMOs), preferred provider organizations (PPOs), or high deductible health plans (HDHPs).

Some small businesses may also qualify for the Small Business Health Care Tax Credit when offering coverage through the Small Business Health Options Program (SHOP) Marketplace.

Eligibility depends on factors such as:

• Business size
• Average employee wages
• The cost of coverage

While group plans are a common choice, rising premiums can make them challenging for some startups to maintain. They also offer less flexibility, as employees typically choose from the same set of plan options that the employer has selected.

Health reimbursement arrangements (HRAs)

If you're looking for a more flexible and budget-friendly alternative, consider an HRA. An HRA allows you to provide tax-free contributions for employees' qualified medical expenses, including individual health insurance premiums.

Unlike a health savings account (HSA), an HRA has no employee contributions. It's an employer-funded health benefit.

Some other examples of HRA-eligible expenses include:

• Monthly premiums for vision insurance
• Monthly premiums for dental insurance
• Doctor visits
• Prescription drugs
• Over-the-counter medication
• Preventive care services
• Mental health services

Unlike traditional group health insurance, HRAs give employees the freedom to choose the qualifying individual plan that best fits their healthcare needs and budget while allowing you to set a predictable monthly contribution amount.

When selecting an individual health insurance plan, employees can compare options based on factors like premiums, provider networks, coverage levels, and metal tiers.

Two of the most popular stand-alone HRAs for startups are:

• The individual coverage HRA (ICHRA): An ICHRA works for employers of any size, making it an excellent option for growing startups. It has no annual contribution limits, giving you complete control over your health benefit budget. With an ICHRA, you can customize eligibility and contribution amounts using 11 employee classes, such as full-time, part-time, or salaried employees. Within each class, you can further vary contributions by age and family size. Employees must enroll in qualifying individual health insurance coverage to participate.
• The qualified small employer HRA (QSEHRA): A QSEHRA is only for small businesses with fewer than 50 full-time equivalent employees (FTEs). While the IRS sets annual contribution limits, a QSEHRA still offers small companies a flexible and affordable way to provide health benefits. Employees must have minimum essential coverage (MEC) to participate in the QSEHRA. This coverage can include a spouse's or parent's group health benefit.

Employees who enroll in an HSA-qualified high deductible health plan (HDHP) may also be able to contribute to a health savings account (HSA) to save for eligible healthcare expenses.

Taxable health stipends

Another option is a health stipend. With a stipend, you provide employees with taxable funds they can use toward health insurance premiums or other healthcare expenses.

While stipends are simple to offer, they don't provide the tax advantages of an HRA and don't satisfy the Affordable Care Act's employer mandate. For startups with 50 or more full-time equivalent employees, an ICHRA or traditional group health plan is generally a better long-term solution.

3. Understand the legal requirements

Your compliance responsibilities will depend on factors such as your company size, the type of health benefit you choose, and any state-specific regulations that apply to your employees.

For example, applicable large employers (ALEs) with 50 or more FTEs must comply with the Affordable Care Act's (ACA) employer mandate by offering affordable health coverage that meets MEC and minimum value requirements or face potential penalties.

If you're considering an HRA, you'll also need to comply with federal requirements governing employer contributions, employee eligibility, and plan documentation.

Navigating these requirements can feel overwhelming, especially for growing startups. Working with a trusted benefits advisor or HRA administrator can help you stay compliant while choosing a health benefit that fits your business goals.

4. Communicate with your employees

Once you've selected a health benefit, communicate it clearly to your employees. Even the best benefit won't provide value if employees don't understand how it works or how to use it.

Be sure to explain:

• What the benefit covers
• How employees enroll or access the benefit
• Any costs employees are responsible for
• Key deadlines or required documentation
• Where employees can go with questions

Clear communication helps employees make informed decisions about their healthcare and increases the likelihood that they'll take advantage of the benefit you offer. It also demonstrates your commitment to supporting their health and well-being.

5. Regularly review and update your health benefit

As your startup grows, your employees' needs and your business goals may change. Regularly reviewing your health benefit helps ensure it continues to provide value for both your team and your company.

Consider evaluating your benefit each year by looking at factors such as:

• Employee feedback and satisfaction
• Changes to your workforce size or demographics
• Your company's benefits budget
• New health plan options or benefit solutions
• Changes to healthcare regulations

Staying proactive allows you to make adjustments as your company evolves. Whether you're expanding your team, entering new markets, or looking for ways to better control healthcare costs, the right health benefit should grow alongside your business.

Offer startup employee health benefits with PeopleKeep by Remodel Health

Choosing the right health benefit is only the first step. Managing the day-to-day administration of a health benefit can be time-consuming, especially for startup founders and HR teams already balancing hiring, operations, and company growth.

PeopleKeep by Remodel Health's HRA administration platform simplifies the process by handling the complex details behind your benefit. From creating compliant plan documents and verifying eligible expenses to providing employee support, PeopleKeep helps reduce the administrative burden so you can focus on growing your business.

With PeopleKeep, you can:

• Offer a flexible health benefit through an HRA without managing a traditional group health plan
• Provide employees with employer contributions toward qualified medical expenses and individual health insurance premiums
• Create a predictable benefits budget that works for your startup
• Access tools and support that help you stay compliant with IRS, HIPAA, and ERISA requirements

PeopleKeep also makes it easier for employees to find individual health coverage that fits their needs. Instead of navigating the Health Insurance Marketplace or contacting insurance companies on their own, employees can shop for eligible individual health insurance plans through an integrated experience.

By partnering with an HRA administrator, startups can offer a competitive employee benefit while reducing the time and complexity typically associated with health benefit administration.

Conclusion

Offering health benefits can help startups attract talent, support employee well-being, and build a strong foundation for growth. While traditional group health insurance may work for some businesses, health reimbursement arrangements (HRAs) provide a flexible alternative that allows small businesses to offer valuable coverage while maintaining control over their benefits budget.

Schedule a call with an HRA specialist today to learn how PeopleKeep by Remodel Health can help your startup offer a personalized health benefit to your employees.

This blog article was originally published on October 3, 2014. It was last updated on August 14, 2026.

References

1. Commerce Institute