Small Business Health Insurance in Michigan: Your Options and What Employers Typically Pay

If you run a small business in Michigan, you aren't required to offer health insurance. But if you want to, you have more options than most owners realize. A traditional group plan is only one of them. You can also use a level-funded plan, or give employees a set amount of tax-free money to buy their own coverage through an HRA. How much you contribute is largely up to you, within a few carrier rules.

Here's how each option works, what other employers typically pay, and what you're actually required to do.

Do small businesses have to offer health insurance?

No. The federal employer mandate only applies to businesses with 50 or more full-time and full-time-equivalent employees. If you have fewer than 50, there's no federal penalty for not offering coverage, and Michigan doesn't add a mandate of its own.

A few rules still apply. If you do offer a group plan, you have to offer it to all eligible employees, and the waiting period for new hires can't be longer than 90 days. Every employer covered by the Fair Labor Standards Act, whether or not you offer coverage, also has to give employees a written notice about the Health Insurance Marketplace.

The main types of plans for small employers

Fully insured small group plan. This is the traditional option. You pick a plan (or a few) from a carrier like Blue Cross Blue Shield of Michigan, Priority Health or HAP, and the carrier takes on the claims risk. Plans are guaranteed issue, so no one can be turned down for health reasons, and rates in Michigan are based on things like age and location, not your group's medical history.

Pros: predictable monthly premiums, no health questions, and the easiest plan for employees to understand. Cons: it's usually the most expensive option, and you'll need to meet the carrier's contribution and participation minimums.

Level-funded plan. A level-funded plan works like a hybrid. You pay a fixed monthly amount that covers expected claims, administration and stop-loss insurance that protects you from large claims. If your group's claims come in lower than expected, you may get part of that money back at the end of the year.

Most carriers require at least five enrolled employees for a level-funded plan. Depending on the carrier and the size of your group, every employee may also need to fill out a health questionnaire before the carrier will quote it.

Pros: often lower premiums than a fully insured plan for a younger, healthier group, and the potential for a refund. Cons: pricing is based on your group's health, so one employee with a serious condition can make it more expensive or not available at all, and renewals can swing more from year to year.

CHOICE Arrangement (formerly ICHRA). In September 2026, the federal government began calling the individual coverage HRA a "CHOICE Arrangement." The rules didn't change, only the name. Instead of buying a group plan, you set a monthly allowance, and employees use it to buy their own individual health plan, on or off the Marketplace. You reimburse them tax-free for premiums and, if you choose, other medical costs.

Pros: there are no minimum or maximum contribution limits, you control the budget exactly, and you can set different amounts for different classes of employees, like full-time and part-time. Cons: every employee has to buy their own individual coverage, individual plan networks can be narrower than group plans, and depending on the allowance, some employees may lose Marketplace subsidies they'd otherwise qualify for.

QSEHRA. A qualified small employer HRA is built for businesses with fewer than 50 employees that don't offer any group health plan. Like a CHOICE Arrangement, you give employees a tax-free allowance for individual coverage and medical expenses. For 2026, the IRS caps it at $6,450 a year for self-only employees and $13,100 for employees with family coverage.

Pros: simple to set up, no minimum contribution, and a good fit for a tight budget. Cons: the annual caps are relatively low, you generally have to offer the same allowance to all eligible employees (with limited variation for family size), and an employee's Marketplace subsidy is reduced by the amount of the QSEHRA.

Taxable stipend. Some owners simply add a set amount to each paycheck and call it a health stipend. It's the easiest to administer, but it's taxed as regular wages for you and the employee. It also can't be set up as a reimbursement for individual health insurance premiums, since the IRS treats that as a noncompliant arrangement that comes with penalties. If you want the money to go toward health coverage tax-free, a QSEHRA or CHOICE Arrangement is the right tool.

What is the average contribution employers make toward health plans?

According to KFF's 2025 Employer Health Benefits Survey, employers nationally pay about 84% of the premium for single coverage and about 74% for family coverage. Workers contribute an average of 16% for single coverage, or about $1,440 a year, and 26% for family coverage, or about $6,850 a year. The average total premium was $9,325 for single coverage and $26,993 for family coverage.

Smaller employers tend to be more generous with employee-only coverage and less generous with family coverage. At firms with 10 to 199 workers, 29% of covered employees are in a plan where the employer pays the entire single premium, compared with just 7% at larger firms. But family coverage costs employees more at small firms: an average of 36% of the premium, versus 23% at larger firms. KFF's survey doesn't include businesses with fewer than 10 employees, but in our experience, very small groups follow a similar pattern.

A common starting point for small businesses is to pay 50% to 100% of the employee's own premium and a smaller share, or none, of the cost for spouses and children. The right number depends on your budget, how competitive you need to be to hire, and your carrier's minimums.

Carrier contribution and participation rules

Michigan doesn't require employers to contribute a set amount toward premiums, but carriers set their own rules for small group plans. Most require the employer to pay a minimum share of the employee-only premium and require a minimum percentage of eligible employees to enroll. Employees who waive coverage because they're covered elsewhere, like through a spouse, usually don't count against you.

If you can't meet those minimums, you still have an option. Under federal rules, carriers must accept small groups that don't meet their contribution or participation requirements if the group applies between November 15 and December 15, for coverage starting January 1. For a small business that's close but not quite there, that window matters.

Other ways to help employees with health costs

You don't have to choose just one approach. Two other options can stretch your budget:

• A Section 125 premium-only plan lets employees pay their share of group premiums with pre-tax dollars, which lowers taxes for both of you.

• Offering voluntary dental and vision plans gives employees more benefits at little or no cost to you.

Which option is right for your business?

There isn't one best answer. It depends on how many employees you have, their ages and health, your budget, and whether you want the simplicity of one group plan or the flexibility of a set allowance. We run side-by-side comparisons for small businesses all the time, and there's no cost for us to review your options.

If you're a small business owner in the Muskegon area thinking about offering health benefits, or you want to see if there's a better way to structure what you have now, call Anthony at (231) 246-7093 or email anthony@lebmi.com.