Why More Employers Are Moving Away From Traditional Group Health Insurance

For decades, work health insurance followed a simple pattern.

The employer picked one group health plan. The company paid part of the monthly premium. Employees signed up, and the rest came out of their paychecks.

That model still covers most working Americans. But it is getting expensive. In 2026, employers are facing some of the biggest jumps in health-plan costs in about 15 years.

So some business owners are asking a new question: Is one group plan for everyone still the best way to help our people get health coverage?

For many companies, the answer is still yes. For others, especially smaller businesses, the answer is “maybe not.” A growing number are giving employees a set amount of money to buy their own health insurance instead.

This article explains what is happening, why it matters, and what it means if you own a small business, run your own company, work as a 1099 contractor, or are an employee whose benefits might change.

What Is Happening, in Plain English

Health insurance is costing employers more every year. Here are the main pressures business owners tell us about.

Premiums keep climbing

Benefits consulting firm Mercer projects employer health costs will reach about $18,500 per employee in 2026. That is a 6.7% jump over 2025 and the largest increase in roughly 15 years, as reported by Bloomberg in August 2026.

Renewals are hard to predict

A group plan usually renews once a year. The insurer sends a new price, and the owner often has only a few weeks to decide. Prices can rise because of insurer-wide rate hikes, employees aging into higher rate bands, or, for level-funded and self-funded plans, the group’s own claims. That makes budgeting hard.

The employer’s share adds up

Most employers pay a big part of each employee’s premium. When premiums rise 10% or more, the employer’s cost rises too, even if nothing else about the business changed.

Paperwork takes time

Running a group plan means enrollment periods, carrier rules, participation minimums, and questions from employees. A large company has an HR team for this. A 10-person company usually has the owner.

Small businesses compete with big ones

Small employers want to offer good benefits so they can hire and keep good people. But they rarely get the same pricing power as a company with thousands of workers.

What Bloomberg Found About Employer Health Insurance

On August 12, 2026, Bloomberg published a report titled “U.S. Employers Abandon Group Health Insurance as Price Hikes Bite.” Here is a summary of the key points, in our own words.

• Costs are rising fast. Employers are bracing for some of the largest employee health-plan cost increases in about 15 years.
• More employers are using HRAs. Citing new research from the HRA Council, Bloomberg reported that more than 20,000 employers were using Health Reimbursement Arrangements (HRAs) in 2026. That is up 53% from the year before.
• The idea is simple. With an HRA, the employer gives workers a set allowance. Workers use it toward their own individual health insurance, such as a plan from the ACA Marketplace.
• There are trade-offs. Bloomberg noted that individual plans can vary a lot by county. Some areas have many insurers and others have only one. Individual plans may also have higher deductibles or smaller doctor networks than some group plans.

What the HRA Council report adds

The HRA Council released its full report, Growth Trends for ICHRA & QSEHRA, Volume 5, the same day. According to the HRA Council’s August 12, 2026 announcement:

• More than 20,000 U.S. businesses offer an ICHRA or QSEHRA in 2026, reaching at least 500,000 employees.
• More than two-thirds of small businesses offering an ICHRA had not offered any health coverage before.
• About 93% of small businesses newly offering a QSEHRA were also new to offering health benefits.
• Nearly one-third of small employers using an ICHRA switched from a traditional small-group plan.

The report is based on data from 17 member companies, so the true number of HRA users may be different. The Council also shows several growth figures depending on how it counts. The 53% figure is one of those measures.

What this does NOT mean

This news does not mean employer health insurance is disappearing.

Bloomberg noted that roughly 160 million Americans still get health benefits through an employer, according to the Employee Benefit Research Institute. ICHRAs cover an estimated 350,000 to 700,000 workers and their families. That is a small slice of the market.

What the trend does show is this: more businesses are exploring different ways to help employees pay for health insurance. And for many small businesses, an HRA is not replacing a group plan. It is the first health benefit they have ever offered.

What Is an HRA?

HRA stands for Health Reimbursement Arrangement.

Here is the simplest way to think about it:

• With a group plan, the employer buys one health insurance policy for the whole team.
• With an HRA, the employer sets aside a monthly amount of money. Each employee picks their own qualifying health plan. The employer then pays them back, up to that amount.

Think of it like the difference between a company buying lunch for everyone from one restaurant, versus giving each person a lunch allowance to spend where they like.

An HRA is not insurance by itself. It is a way for the employer to help pay for insurance. Employees still need to enroll in a qualifying health plan.

There are several kinds of HRAs. Two matter most for this topic.

ICHRA (Individual Coverage HRA)

• Employers of any size can offer one, from a small shop to a very large company.
• The employer chooses how much to give. There is no federal dollar cap.
• The employer can set different amounts for different groups, such as full-time and part-time workers, or workers in different states.
• Employees must have individual health insurance (or Medicare) to use it.
• An employer generally cannot offer the same group of workers both a group plan and an ICHRA.

QSEHRA (Qualified Small Employer HRA)

• Only for small employers with fewer than 50 full-time-equivalent employees.
• The company cannot offer a group health plan to anyone.
• There is a yearly limit. For 2026, the IRS caps QSEHRA reimbursements at $6,450 for self-only coverage and $13,100 for family coverage (IRS Rev. Proc. 2025-32, released October 2025).
• Employees must have qualifying health coverage to get reimbursed.

How they compare to traditional group insurance

	Traditional group plan	ICHRA	QSEHRA
Who can offer it	Employers of any size (small-group rules apply under 50)	Employers of any size	Employers under 50 full-time-equivalent employees
Who picks the plan	Employer picks one or a few plans	Each employee	Each employee
Employer cost	Set by the insurer at each renewal	Set by the employer	Set by the employer, up to IRS limits
2026 dollar limit	None	None	$6,450 single / $13,100 family
Can mix with a group plan	Yes	Not for the same class of workers	No
Employees in many states	Can be hard to cover well	Each employee buys locally	Each employee buys locally

One more important point: an HRA offer can change whether an employee qualifies for a premium tax credit on the Marketplace. The rules are different for ICHRA and QSEHRA, according to CMS guidance. This is one reason to get advice before you set one up. Healthcare.gov also has plain-language pages for employees on ICHRA and QSEHRA.

Why Small Businesses Are Looking at Alternatives

The headlines focus on big numbers. But the real decisions happen in small offices, shops, and job sites. Here are common situations where owners start asking about other options.

A 5–20 person business gets a big renewal increase

A small team has little bargaining power. Carrier rate increases, a few employees having birthdays that move them into higher age bands, or a costly claims year on a level-funded plan can all push the renewal up. An owner who budgeted for a 5% increase may be looking at 15% or more, with a few weeks to decide.

Employees are very different ages

Health insurance usually costs more as people get older. In a small group, a mix of 24-year-olds and 60-year-olds can make it hard to pick one plan that feels fair and affordable for everyone. With an ICHRA, the employer can vary the allowance by age within federal limits.

Employees live in different states

Remote work means a 12-person company might have people in Arizona, Texas, and Florida. A group plan built around one state’s network may not work well for people far away. With an HRA, each person can shop for a plan where they live. (See the states we serve.)

The owner wants a predictable budget

With a group plan, the insurer sets next year’s price. With an ICHRA or QSEHRA, the employer sets the allowance. That makes it easier to plan. Keep in mind that employees still feel premium increases if their own plan costs more than the allowance.

The owner wants to help, without running a group plan

Some owners want to contribute toward health insurance but do not want to manage a group plan. They want to avoid participation rules, one-size-fits-all plan choices, and yearly carrier negotiations. An HRA can be a middle path between offering nothing and offering a full group plan.

Traditional Group Insurance vs. ICHRA: A Simple Example

Let’s look at a made-up business called Desert Ridge Landscaping. It has 10 employees. The numbers below are round, simplified, and for illustration only. Real prices depend on location, ages, carriers, and plan design.

Option 1: The traditional group plan

Desert Ridge buys one group plan for the whole team.

• The average employee-only premium is about $650 per month.
• The company pays 60%, or about $390 per employee per month.
• If all 10 employees enroll, the company pays about $3,900 per month ($46,800 per year).
• Employees pay the other $260 per month through payroll, plus more to add family members.

Then renewal arrives with a 12% increase. The average premium becomes about $728. At the same 60% share, the company now pays about $4,368 per month, or roughly $52,400 per year. That is about $5,600 more, and the owner had little control over it.

Option 2: An ICHRA

Instead, Desert Ridge sets up an ICHRA.

• The company gives each employee a $400 monthly allowance. (It could also set different amounts by age, family size, or job class, within federal rules.)
• Each employee shops for an individual plan in their own area. Many will compare individual health insurance quotes with an agent.
• The company reimburses premiums up to $400 per month.
• The most the company can spend is $4,000 per month ($48,000 per year), and the owner decides whether to raise it next year.

Here is how that might look for two employees:

Employee	Plan they choose	Monthly premium	ICHRA pays	Employee pays
Maria, 27, single	Silver plan	$380	$380	$0
Dave, 58, single	Gold plan	$920	$400	$520

Maria comes out ahead. Dave may pay more than he did under the group plan, unless the company offers older workers a larger allowance.

This gap is real. Bloomberg, citing HRA Council data, reported that the typical ICHRA employee in 2026 received about $459 per month but paid about $567 for their monthly premium.

So which one is better?

It depends. ICHRA is not always cheaper, and it is not always better. The right answer depends on:

• Your employees’ ages, family sizes, and home ZIP codes
• Which individual-market plans are available in those areas, and at what price
• Whether key doctors, hospitals, and prescriptions are in those networks
• Your budget and how much predictability you need
• Tax rules, affordability rules, and whether you are an applicable large employer
• How employees feel about choosing their own plan

For some teams, a group plan remains the best value. For others, an HRA gives more control. The only way to know is to run real numbers for your real employees.

What About Very Small Businesses and Owner-Only Companies?

Most headlines are about companies with employees. But millions of people run businesses by themselves or with a partner or two. Their options look different.

Here are a few things that often surprise owners:

• HRAs are built for employees. In general, sole proprietors, partners, and owners who hold more than 2% of an S corporation are not treated as employees for HRA purposes. So an owner-only business usually cannot use an ICHRA or QSEHRA to cover the owner.
• Group plans usually need a real employee. Most insurers require at least one eligible employee who is not the owner or the owner’s spouse. Rules vary by state and carrier.
• 1099 contractors are not employees. A company’s group plan and HRA are generally for W-2 employees. Independent contractors typically need their own coverage.
• Self-employed people may get a tax break. Many self-employed people can deduct health insurance premiums for themselves and their families using IRS Form 7206, within IRS limits. Ask your tax professional how it applies to you.

Options owner-operated businesses may consider

Depending on your situation, these may be worth comparing:

1. Individual health insurance. ACA Marketplace or off-exchange plans. Plans must cover pre-existing conditions. Some people qualify for premium tax credits based on income.
2. Employer group health insurance. An option once you have eligible W-2 employees. It may make sense if your team values one shared plan and network.
3. ICHRA or QSEHRA. An option once you have eligible employees and want a set budget instead of a group plan.
4. Private health insurance, where available. Some states offer plans outside the ACA market. These often use health questions to set eligibility and price. They may cost less for some healthy people but can exclude pre-existing conditions or limit benefits. Read the details closely.
5. Supplemental coverage. Add-ons like dental, accident, or critical illness plans can fill gaps. They do not replace major medical insurance.

Not every option fits every person. A 32-year-old freelancer, a married couple running a trucking business, and a travel nurse with a family will each have different best choices. That is where a side-by-side comparison helps.

Before Dropping a Group Health Plan, Ask These Questions

Changing how you offer health benefits affects real people and their families. Before you make a move, work through these questions.

1. What will our group-plan renewal cost next year? Get the actual renewal, not a guess. It also helps to get a group health quote from other carriers to compare.
2. How much is the employer currently contributing? Know your total yearly spend, not just the per-person amount.
3. How many employees actually participate? If many workers already decline the group plan, that tells you something.
4. Where do employees live? One ZIP code or five states can change the answer.
5. What individual plans are available in those areas? Some counties have many insurers. Others have only one. Prices and networks vary a lot.
6. Does the company qualify to set up an ICHRA or QSEHRA? Company size, employee classes, and whether you still offer a group plan all matter.
7. How could changing coverage affect employees and their families? Think about older workers, people with ongoing care, and employees with spouses and kids on the plan. Timing matters too, since people leaving a plan may face choices like COBRA. Our guide to COBRA alternatives explains more.
8. Are important doctors, hospitals, and prescriptions covered under the alternatives? Check networks and drug lists before, not after, the switch.

Also ask your tax advisor how any change affects payroll, taxes, and employees’ eligibility for premium tax credits.

Health Insurance Options for Small Businesses Without Traditional Group Coverage

If you are searching for small business health insurance alternatives, you are not alone. Rising employer health insurance costs have more owners asking what else is out there.

Here is a quick map of the most common alternatives to group health insurance:

• ICHRA for small businesses. Set a monthly allowance. Employees buy individual plans. You control the budget, and there is no federal cap on the amount.
• QSEHRA. Similar idea, built for employers with fewer than 50 full-time-equivalent employees, with yearly IRS limits.
• Paying employees more instead. Some owners simply raise wages. This is simple but not tax-free, and it is not a formal health benefit.
• A smaller or different group plan. Sometimes the answer is a different carrier, network, or plan design, not leaving group coverage.

If you are the owner, health insurance for small business owners depends on how your business is set up. Sole proprietors, partners, and S corporation owners often buy their own individual coverage, even if they offer an HRA to employees.

And for freelancers and independent contractors, health insurance for 1099 workers usually means individual coverage, private plans where available, and supplemental add-ons. Health insurance for self-employed business owners follows similar paths, with the added benefit of the self-employed health insurance deduction for many people.

One more thing to know: the 2026 plan year was a tough one for the individual market. Enhanced premium tax credits expired at the end of 2025, according to the HRA Council’s August 2026 report announcement. That means individual plan prices are an important part of any HRA decision.

1099 Health Insurance works with self-employed people and small businesses across 32 states to compare these options side by side.

Frequently Asked Questions

Can a small business give employees money to buy health insurance?

Yes. A small business can use an ICHRA or a QSEHRA to reimburse employees tax-free for qualifying individual health insurance. Simply adding cash to paychecks also works, but that money is taxable and is not a formal health benefit.

What is an ICHRA?

An ICHRA (Individual Coverage Health Reimbursement Arrangement) lets an employer of any size give employees a set monthly allowance. Employees use it toward their own individual health insurance, and the employer reimburses them tax-free up to that amount.

Is ICHRA cheaper than group health insurance?

Not always. ICHRA gives employers a fixed, predictable budget, but total costs depend on employee ages, locations, local individual-plan prices, and how much the employer chooses to contribute. Some employees may pay more than they did on a group plan.

Can a company stop offering group health insurance?

Yes, many employers can, but rules differ by size. Employers with 50 or more full-time-equivalent employees may face ACA penalties if they do not offer affordable coverage, which an ICHRA can satisfy. Give employees plenty of notice and check state rules.

Can 1099 contractors participate in an employer group health plan?

Generally, no. Group health plans and HRAs are designed for W-2 employees. Independent contractors usually buy their own individual coverage, and many can deduct premiums as self-employed.

What health insurance options does a small business owner have?

A small business owner may consider individual health insurance, a group plan (once there are eligible employees), an ICHRA or QSEHRA for employees, private plans where available, and supplemental coverage. The best fit depends on the business structure and the people covered.

Can employees choose their own health insurance with an ICHRA?

Yes. With an ICHRA, each employee picks their own individual health plan, including the insurer, network, and coverage level available in their area. The employer’s allowance helps pay for it.

Is an HRA the same as health insurance?

No. An HRA is an employer-funded arrangement that reimburses health costs. It is not a health insurance policy. With an ICHRA or QSEHRA, employees must still enroll in qualifying health coverage.

What This Means for Your Business

The Bloomberg report is a signal, not a stampede. Group health insurance is still the main way Americans get coverage at work. But more employers now have real choices, and it is worth knowing what they are before your next renewal lands.

Not sure whether a traditional group plan, an HRA, or another health insurance strategy makes the most sense for your business?

1099 Health Insurance helps self-employed individuals, independent contractors and small-business owners compare coverage options based on their situation.

Schedule a consultation to review your options before making a change.

This article is for general education and is not tax or legal advice. Talk with a tax professional about how any benefit change affects your business.

Sources

• Bloomberg, “U.S. Employers Abandon Group Health Insurance as Price Hikes Bite”, August 12, 2026
• HRA Council, “Strong ICHRA Growth Among Large Employers Strengthens ACA Marketplace and Risk Pool”, August 12, 2026
• HRA Council, Growth Trends for ICHRA & QSEHRA, Volume 5 (report hub), 2026
• IRS Revenue Procedure 2025-32, 2026 QSEHRA limits, as summarized by NFP, October 2025
• IRS, About Form 7206, Self-Employed Health Insurance Deduction
• CMS, Health Reimbursement Arrangements Overview
• HealthCare.gov, ICHRA and QSEHRA consumer pages