6 health insurance alternatives small businesses should know
Thatch offers information on various cost-effective health insurance alternatives for small businesses, including ICHRAs and PEOs, to meet employee needs and manage benefits efficiently.
6 health insurance alternatives small businesses should know
Updated
It won't surprise most people to hear that healthcare isn't one-size-fits-all. According to the Thatch 2025 Health Insurance Industry Trends report, businesses prioritize customizable health plans, and 31% of employees desire more flexibility in their benefits.
This highlights a major issue with traditional group health insurance—it often lacks the flexibility small businesses want, and the cost can prevent owners from meeting their employees' diverse needs.
In fact, Thatch's recent Small Business Challenges survey revealed that small business owners find cost to be the most challenging aspect of offering benefits. The 2025 guide also explored how much employees pay for health insurance, and the numbers may shock you.
Because of this, many business owners seek substitutes for health insurance or alternatives for the self-employed.
Alternatives to traditional health insurance, like Individual Coverage Health Reimbursement Arrangements (ICHRAs), offer flexible, cost-effective solutions that save time on benefits management and provide employees with a more personal, tailored experience—without the high premiums, administrative costs, and limited negotiating power of traditional group health insurance.
TL;DR
- Health insurance alternatives like ICHRAs and health sharing programs can provide cost-effective, flexible options for small businesses looking to offer employee benefits without the high costs of traditional group health insurance
- Small businesses can tailor health benefits to their unique needs by leveraging alternatives like ICHRAs, which offer employees more flexibility in choosing individual plans while businesses control costs
- While supplemental insurance plans enhance coverage for specific needs, they should complement, not replace, comprehensive health insurance
- Exploring alternatives like short-term plans or Professional Employer Organizations (PEOs) can help small businesses compete for top talent by offering attractive benefits at a manageable cost
This article will introduce six different health insurance alternatives that offer businesses more affordable, flexible health benefit options.
Why explore alternative health benefits?
Offering health insurance remains crucial to attracting and retaining top talent. According to the U.S. Chamber of Commerce, 88% of employers rank healthcare as the most desirable benefit for employees.
But, with the rising costs and limitations of traditional group health insurance, many small business owners find themselves searching for flexible, more affordable alternatives.
If you're part of this group, you've probably noticed several drawbacks of traditional health benefits, including:
- High costs and rising premiums: Traditional group health insurance often comes with hefty price tags that increase year after year. Small businesses may struggle to absorb these costs or pass them on to employees without risking talent retention.
- Strict participation requirements: Group health plans typically require a certain percentage of employees to enroll, which can be difficult for small teams. Failing to meet these thresholds can result in higher premiums or even ineligibility for the plan.
Limited flexibility and coverage options: Many small businesses find traditional plans too rigid in terms of coverage options, with employees needing benefits that may not align with the company's current needs or personal preferences.
Despite these challenges, offering health benefits is a must if you want to remain competitive in the job market. Employees prioritize healthcare, and offering alternatives like health stipends or wellness programs can make your business stand out.
Ultimately, when exploring the types of company health benefits to offer employees, you can look to the top health insurance alternatives.
Infographic showing percentage of people who want more options in benefits.
Updated
Some of the top health insurance alternatives for small businesses include Individual Coverage Health Reimbursement Arrangements (ICHRAs), health sharing programs, short-term health insurance plans, direct primary care (DPC), professional employer organizations (PEOs) insurance, and supplemental insurance plans.
Below, we'll go into more detail about each of these personal health insurance options.
1. Individual Coverage Health Reimbursement Arrangements (ICHRAs)
Pro: Affordability
Con: Potential administrative burden
ICHRA—also known as an Individual Coverage Health Reimbursement Arrangement—has become the top alternative to traditional health plans. It considers both employers and employees, which is one of the many reasons this type of health insurance is gaining popularity.
One of the primary benefits that ICHRA provides is its affordability. But it also offers flexibility, accessibility, simplicity, and much more.
The affordability of ICHRAs comes from their defined contributions, individual access, tax advantages, and cost control. The value of this Health Reimbursement Arrangement (HRA) comes from its:
- Flexible reimbursement amounts that allow small businesses to adjust contributions based on their budget
- Flexible benefit offerings that permit small businesses to customize benefits to suit a diverse workforce
- Growth flexibility that enables small businesses to easily scale their benefit offerings as they grow
ICHRAs are accessible due to their coverage options, insurance plan portability, and qualified medical expenses. And finally, ICHRAs have easy enrollment and transparent pricing.
But when it comes to small business owners, the pros heavily outweigh the cons. HRAs, like Qualified Small Employer Health Reimbursement Arrangements (QSEHRAs), are excellent health insurance alternatives for small business owners.
While both allow employers to reimburse employees for individual health insurance premiums, the key difference is that ICHRAs offer more flexibility. This allows businesses to provide different reimbursement amounts based on factors like employee class, whereas QSEHRAs have fixed contribution limits and are more uniform in structure.
Though ICHRAs may have some administrative complexity regarding setup and compliance, the customizable allowances they provide for employee healthcare needs far outweigh these challenges.
2. Health sharing programs
Pro: Lower monthly costs
Con: No guarantee of coverage for all medical expenses
A health sharing program—also known as a healthcare sharing ministry—is a health insurance alternative where members share medical costs by pooling their money to help cover each other's medical expenses. Typically, members will make monthly contributions instead of paying traditional insurance premiums.
These programs allow individuals to opt out of certain services and save on premiums because they're only buying a basic list of services with this program. Unlike traditional health insurance, a health sharing program can help members avoid high monthly costs—making this type of health insurance alternative an appealing choice for small business owners wanting to reduce their healthcare expenses.
Overall, health sharing programs can provide an affordable alternative to traditional insurance, but the trade-offs include limited coverage, lack of consumer protections, and uncertainty around which medical expenses will be reimbursed.
While they may work well for some people, they are not suitable for everyone, especially those who need comprehensive coverage or have ongoing medical needs.
It's important to note that these programs do not operate as insurance companies and are not subject to the same regulations or requirements as traditional health insurance.
3. Short-term health insurance plans
Pro: Lower premiums
Con: Limited coverage
Short-term health insurance provides temporary coverage for unexpected medical costs. This health insurance alternative is a great option for anyone transitioning jobs or waiting for other health insurance to start. It can also benefit healthy individuals who don't qualify for Affordable Care Act (ACA) subsidies and don't need group health insurance's full range of benefits.
However, because these plans are not subject to ACA regulations, they do not cover essential health benefits like mental health services, maternity care, or pre-existing conditions.
Designed for those between major medical plans, short-term health insurance offers an affordable solution when you need to bridge the gap while figuring out how to afford long-term coverage.
Overall, these plans are an option for those seeking affordable, temporary coverage, but they have some noteworthy limitations. We suggest weighing the reduced benefits against the lower premiums and ensuring you understand the renewal process, as short-term plans do not offer continuous coverage without requalification.
If you have many employees with extensive healthcare needs, this type of health insurance alternative may not be for you.
4. Direct primary care (DPC)
Pro: Personalized care
Con: Potential for high up-front costs
Direct Primary Care (DPC) is an affordable health insurance alternative that provides unlimited access to primary care services for a fixed and affordable monthly fee. They aim to ensure patients can directly pay for the services they need.
DPC practices limit the number of patients they see, which allows doctors to provide more personalized and comprehensive care to their patients. Patients of this health benefit type also have greater access to their physician—through multiple communication channels, such as phone, email, or even video calls, without additional costs or long wait times.
However, DPC plans do not cover hospital visits, surgeries, or specialist care. Additionally, since the model is not accepted by all employers or insurers, it may require a separate health insurance plan to cover non-primary care needs.
Ultimately, DPC works well for individuals who are looking for affordable, hands-on primary care. It's a great option for people who value having more time and direct communication with their primary care doctor, but it's not a comprehensive solution for all healthcare needs.
5. Professional employer organizations (PEOs)
Pro: Improved employee services
Con: Cost of services
Professional Employer Organizations (PEOs) are third-party companies that help small- and medium-sized businesses group together to access the benefits of larger organizations, such as better insurance rates.
Partnering with a PEO allows small- and medium-sized businesses to enter a co-employment arrangement in which the PEO manages HR functions like payroll, benefits administration, and labor laws compliance. This arrangement gives businesses the advantage of large-group insurance rates that may not otherwise be affordable.
Access to large-group insurance rates can help small- and medium-sized businesses provide competitive benefits packages without incurring the same high costs typically associated with traditional small-group plans.
Additionally, a PEO can handle administrative tasks for an additional service fee. These costs may include administrative fees, which could add up for small businesses, potentially outweighing the savings from improved insurance rates.
Ultimately, PEOs can provide a streamlined way to access comprehensive employee benefits, but the decision should be weighed carefully, considering both the potential savings on insurance and the costs of outsourcing administrative services.
6. Supplemental insurance plans
Pro: Lower premiums
Con: Out-of-pocket costs
Supplemental insurance plans—such as dental, vision, and accident coverage—are designed to enhance your existing health plan by covering specific health needs that may not be included in traditional insurance.
- Dental Insurance
- Covers: Routine care (cleanings, fillings), complex procedures (root canals)
- Benefits: Helps manage dental costs and ensures preventive care
- Limitations: Only covers dental needs, doesn't address broader healthcare needs
- Vision Insurance
- Covers: Eye exams, glasses, and sometimes LASIK surgery
- Benefits: Reduces the cost of eye care and corrective treatments
- Limitations: Limited to vision-related care, doesn't cover other healthcare needs
- Accident Insurance
- Covers: Injuries (hospital stays, treatments, rehabilitation)
- Benefits: Provides financial support for unexpected accidents
- Limitations: Covers only accident-related injuries, doesn't cover general health needs
In summary, supplemental insurance plans like dental, vision, and accident coverage can be a great way to fill in the gaps of your primary health insurance, providing more tailored protection.
However, they should be viewed as complements to, rather than replacements for, comprehensive health insurance. They work best for individuals or families looking to cover additional services or potential out-of-pocket expenses, but they are not designed to provide full healthcare coverage.
How to choose the right option for your business
Updated
According to the Employee Benefit Research Institute (EBRI), 31% of employees want increased flexibility and more options in their benefits plans. This growing demand for flexibility highlights the importance of offering customizable solutions like ICHRAs, which allow businesses to meet employees' diverse needs while controlling costs.
To further illustrate what employees are prioritizing, the chart above highlights the top benefits and features they're looking for from employers.
Some tips to get started:
- Assess your business needs: Consider key factors like company size, employee demographics, and your budget to find the best fit.
- Explore health insurance alternatives for small businesses: These options offer flexibility without the high costs of traditional group health insurance. Perfect for businesses with limited resources.
- Consider employee demographics:
- Lower-needs workforce: Opt for low-cost, high-deductible plans to suit employees with fewer medical needs.
- Higher-needs workforce: Consider more comprehensive plans to cover a wider range of medical needs.
- Determine budget considerations: Determine what your business can reasonably allocate each month to employee health benefits. This will help you choose a sustainable health insurance alternative.
- Understand employee preferences: Employees value flexibility and scalability in their benefits plans—consider this when selecting the right option.
Health insurance alternatives FAQ
If you're exploring options beyond traditional health insurance, these frequently asked questions can help clarify your choices.
Why do some small businesses not offer health insurance?
Some small businesses do not offer health insurance due to the financial challenges. Oftentimes, small business owners simply cannot afford health insurance because of the high-cost premiums in group health insurance and their limited financial resources.
However, with health insurance alternatives for small businesses, these entrepreneurs can offer their employees the health insurance options they want.
Can small businesses offer multiple insurance alternatives to different employees?
Yes, small businesses can offer multiple insurance alternatives to different employees. With ICHRAs, businesses can give employees a fixed reimbursement amount to choose their own individual health insurance plans, allowing for flexibility in coverage. Additionally, supplemental plans—like dental or vision insurance—can be offered alongside other options, giving employees options tailored to their unique needs.
How do health insurance alternatives comply with the ACA?
Health insurance alternatives like ICHRAs and health sharing programs can comply with the ACA in different ways. ICHRAs meet ACA requirements by allowing employees to purchase individual plans that comply with ACA coverage standards while businesses reimburse them for premiums.
However, health sharing programs are not technically insurance and are not bound by ACA mandates, so they don't have to meet the same coverage or consumer protection requirements.
What are the tax implications for offering these alternatives?
The tax implications of offering health insurance alternatives depend on the specific program. For ICHRAs, employer contributions are tax-deductible as a business expense, and employees' reimbursements for premiums are generally tax-free.
However, health sharing programs are not considered insurance, so they don't offer the same tax advantages, and payments made by the employer may not be tax-deductible in the same way.
This story was produced by Thatch and reviewed and distributed by Stacker.
Originally published on thatch.ai, part of the BLOX Digital Content Exchange.
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