Before anyone is on payroll

A company made up only of its founders usually cannot start a group health plan yet. Under the federal ERISA regulation, a person who wholly owns a business, alone or together with a spouse, is not treated as that business’s employee, and the same goes for partners and their spouses in a partnership. A plan with no common-law employees in it is not an employee benefit plan for ERISA purposes, which is why most small-group plans wait for the first non-owner hire.

California’s small-business exchange follows a similar line. An owner-only company is not eligible for Covered California for Small Business, and the employer needs a W-2 worker who is not married to the owner. Until then, founders generally look at individual coverage or continuation from a previous job, which our guide to founder health coverage before the first hire walks through.

The first hires: no mandate, but timing still matters

No federal rule makes a startup with a handful of people offer health coverage. The employer mandate reaches only applicable large employers, the ones that averaged 50 or more full-time employees and equivalents across the prior year. For an early team, offering a plan is a hiring decision rather than a legal one, and it often comes up first when a senior candidate is weighing an offer against a job with good coverage.

Once a plan exists, one federal limit applies right away. A group health plan cannot make an eligible employee wait more than 90 days for coverage to begin, and every calendar day counts toward that, weekends and holidays included. A genuine orientation period of up to one month can come before the 90 days start. The rule caps the wait; it does not force you to cover any particular group of workers, part-timers included.

Four routes a small team can take

Early-stage companies usually choose among these:

A small-group plan bought from an insurer or through a state small-business exchange, with one plan or a few tiers for everyone.
An individual coverage HRA, which CMS now calls a CHOICE Arrangement: the company sets a tax-free allowance and each employee buys an individual policy.
A QSEHRA, an employer-funded reimbursement open only to employers under the 50 line that run no group health plan at all.
A professional employer organization, which co-employs your US staff; PEO providers describe enrolling client employees in the PEO’s own master benefit plans.

Each route trades control for simplicity differently. The reimbursement routes suit a team that is small or already scattered, while a group plan gives everyone the same network and benefit design. Our guide to ICHRA and QSEHRA for startups compares the two reimbursement options side by side.

Headcount lines a growing startup crosses

Startups grow in jumps, and several benefit rules switch on at set sizes. Put these on the hiring plan before you reach them:

The first non-owner employee: group coverage becomes possible.
20 employees: federal COBRA generally applies to group plans of employers with 20 or more employees in the prior calendar year. Below that, California’s Cal-COBRA covers continuation for smaller employers’ group plans.
25 full-time equivalents: the Small Business Health Care Tax Credit is limited to employers below this size whose average wages sit under an inflation-adjusted threshold, so a well-paid technical team can fall outside it even while small.
50 full-time employees and equivalents: the ACA employer mandate and its reporting begin, and a QSEHRA is no longer available. Growing past 50 midway through a year does not change a company’s status right away; it becomes an applicable large employer on January 1 of the following year only if its average for the year it grew reached 50.

Related companies under common ownership are generally counted together for the large-employer test. A startup that runs a parent company plus a separate operating or overseas subsidiary should count the whole group, not one entity. The paperwork that comes with a plan is covered in small employer benefits rules.

Founders, owners and pre-tax premiums

Ownership structure changes how founders themselves fit into a benefits plan. For cafeteria plan purposes, sole proprietors, partners and shareholders holding more than 2% of an S corporation are not treated as employees, so they cannot pay their own premiums pre-tax through a premium-only plan, even though the company can still sponsor one for its staff.

A founder in one of those groups can look instead at the self-employed health insurance deduction, an adjustment to income rather than an itemized deduction. It is open to a self-employed person with a net profit, a partner with net self-employment earnings, or a more-than-2% S corporation shareholder who received wages from the company. How these rules apply turns on your entity and your return, so check with a tax professional before the plan year begins.

When the team crosses state lines or borders

A startup that hires remotely from day one meets the location questions early. Insured group plans are written under one state’s rules, so a company with people in four states usually needs either a plan with a national network or a reimbursement arrangement that pays toward the individual policy each person picks. Benefits for fully remote startups covers that setup.

The first person in another country brings a separate set of choices about who employs them and which national scheme they join. Those are set out in hiring your first employee abroad, with country pages linked from our overview of international health insurance for remote employees.

Benefits sit beside the commercial policies

The hire that raises the health question also brings workers’ compensation, which California requires from the first employee, part-time staff included. Hiring itself can produce employment claims, so review employment practices liability before the role is posted. Those lines, plus the D&O and technology E&O that tend to follow a funding round or an enterprise contract, are mapped stage by stage on our insurance for startups page. We request those quotes, and each insurer decides the terms after reviewing the company.

Getting an introduction for your team

When the team is ready for health cover, use the quote form on this page. List the states or countries your people work from, the headcount in each and whether spouses and children should be included, and we will introduce you to a benefits partner that handles remote-team and international health coverage. From there, the partner and the insurer work out who is eligible, which plans fit and what they cost. The employee benefits hub gathers the rest of this section.

A few useful answers

Common questions

Can a founder-only startup set up a group health plan?

Usually not yet. Under the federal ERISA rule, owners and their spouses are not counted as employees of a business they wholly own, so a group plan generally waits for the first non-owner hire. After that, the insurer decides group eligibility.

Does a startup with ten employees have to offer health insurance?

Not under federal law. The ACA employer mandate applies to applicable large employers, which averaged at least 50 full-time employees and equivalents in the prior year. A smaller startup can still choose to offer coverage.

How long can a startup make new hires wait for health coverage?

No more than 90 calendar days once they are otherwise eligible, with weekends and holidays counted. A bona fide orientation period of up to one month can come first.

Do a parent company and its subsidiary count separately toward the 50-employee line?

Generally not. Companies under common ownership under Internal Revenue Code section 414 are usually counted together for the large-employer test.

Can Mithril1 help arrange health benefits for our startup?

We can introduce you to a benefits partner that handles health coverage for remote and international teams, and the partner and the insurer decide eligibility, plans and pricing. For the startup’s commercial lines, such as workers’ compensation, EPLI, cyber and D&O, we request quotes and each insurer decides the terms after reviewing the company.

Health Benefits for Startups