5 Step Guide on How to Set Up Health Benefits for Your Startups

Why Should Startups Offer Health Insurance and Is It a Legal Requirement?

Health insurance or a health benefits package can feel like a heavy lift when you’re running lean, but it’s an important signal to your team that you’re serious about building something sustainable. Startups often underestimate how much benefits influence hiring, culture, and long-term stability.

In this guide we’ll break down both the business case and the compliance requirements using the U.S. at a case study. It’s an interesting one to look at because the legal landscape in the U.S. means there are situations where offering coverage is not just optional but legally required.

Keeps Talent Around Longer

Health benefits consistently show up as the single most valued perk in employee surveys, coming in at 88% and surpassing even flexible hours and vacation time. For a startup, that matters. You might be able to match a Fortune 500 salary but you can offer a benefits package that tells your team: “We’re got your back.”

Employer sponsored health insurance is one of many benefits that speak directly to your team’s needs. It can be the glue that holds everyone together through the unpredictable ups and downs that characterize early growth in any company. It comes down to the simple fact that people are more likely to stay when they know you’re invested in their well-being, not just their outputs.

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Boosts Performance Sustainably

The rate at which technology has advanced in the last few years has driven efficiency rates through the roof, but it’s also created a hustle-culture that people are struggling to keep up with. Twenty eight percent of desk workers report experiencing burnout in their current jobs and more than half say they experience regular stress which can risk burnout if left unchecked.

By giving your team the opportunity to see a doctor or therapist without worrying about the bill, they’re more likely to get care early instead of pushing through pain or stress. That means fewer sick days, lower burnout, and sharper focus. Ultimately, this helps shape a healthier team that can build, ship, and iterate faster – and in startup life, speed is everything.

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Levels The Playing Field

Larger companies can dangle high salaries and comprehensive packages, but startups can’t usually win that arms race. What you can do is offer a thoughtful, flexible benefits program that shows you understand your team’s needs.

For example, a small tech startup might offer a voluntary benefits fund where employees choose between various health-related options such as therapy sessions, gym memberships, or specialist visits. Something like this creates a more personal and adaptable solution than what many corporate group plans offer.

Smart For Taxes

There’s also a practical side. Employer contributions to health coverage are usually tax-deductible, meaning you can trim your company’s taxable income. For employees, the value of coverage is often tax-free, which means they keep more money in their pockets. For startups running on thin margins, those savings can create just enough breathing room to invest back into growth without compromising on care.

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What U.S. Law Says:

Affordable Care Act (ACA) Requirements

Once your company grows to 50 or more full-time equivalent employees, the ACA requires you to offer health coverage that meets affordability and minimum essential standards. Failing to do so can result in penalties that add up quickly. Even before hitting that threshold, laying the groundwork for a solid health benefits program early makes scaling smoother.

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State-Level Mandates

Certain states have added their own requirements beyond federal law. Ignoring them can expose your startup to unexpected compliance costs.

• In California, for instance, employers must offer mental health coverage on par with medical benefits.
• Massachusetts has long required employers above a certain size to contribute to employee coverage.
• New Jersey imposes penalties on individuals, and indirectly on employers, when health insurance isn’t provided.

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Remote Teams

If you’re building a distributed team, your compliance picture gets more complex. A developer in Texas, a marketer in New York, and a designer in California may all be subject to different coverage standards according to state laws and regulations.

You’ll have to either choose plans with national reach or create flexible stipends that can adapt to each employee’s location.

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Building an international team? Check out 13 best EORs that can help.

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Comparing the Common Types of Healthcare Plans for Startups

If you’ve decided to go the path well-trodden and invest in conventional healthcare benefits for your startup, there are a couple of options that you can choose from. You’ll want to consider three key categories when you’re weighing up your options:

• Flexibility
• Cost control
• Scalability

Each plan type comes with trade-offs: some give you predictability, others give your employees more freedom, and a few shift more risk back onto your company. The key is matching the plan to your stage of growth, your budget, and the needs of your team.

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Here’s a side-by-side look at the main health insurance options available:

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How To Choose The Right Health Insurance For Your Startup

The plan you pick tells your employees how much you value their well-being, and it signals to candidates whether your company can compete with larger employers. The challenge is that founders often feel stuck between two extremes: overspending on a gold-plated plan they can’t sustain, or offering bare-bones coverage that leaves employees frustrated.

Ideally when you want to aim to strike a balance between the two to create a plan that fits your budget, supports your team’s real needs, and can scale with your company.

When weighing your options, think about these factors:

• Budget Reality Check: How much can you commit without choking growth? If benefits consume too much of cashflow, you’ll feel the squeeze when headcount rises.
• Team Makeup: A younger workforce may prioritize wellness perks like mental health or fitness allowances, while employees with families are looking for robust medical coverage and predictable costs.
• Stage of Growth: At the seed stage, a QSEHRA (Qualified Small Employer HRA) can keep costs predictable. By Series B, a Preferred Provider Organisation (PPO) or a Professional Employer Organisation (PEO) might make more sense to support a growing workforce and more complex benefits needs.

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How to Set Up Health Insurance for Your Startup in 5 Easy Steps

Okay so you’ve decided to go ahead with a healthcare plan – now what? How do you go about implementing it? Here’s how to set up your first plan without burning cash or getting buried in paperwork.

1. Assess Employee and Company Needs

Before you start calling brokers and comparing plans, talk to your people. Ask them what they care about most: low premiums? Mental health? Family coverage?

How to do it:

• Run Quick Surveys to Understand Priorities: Find out what your team values, for example lower premiums, mental health, family coverage, or fitness perks.
• Consider Demographics: A young engineer may want gym access or telehealth, while parents may prioritize pediatric and family care.
• Map Geography: A single-state team is easier to insure; distributed teams need a provider with nationwide coverage.
• Set Your Budget Early: Review your financial model and decide how much payroll (typically 10–15%) you can commit to funding benefits.

2. Research Healthcare Providers

Not all providers are built for startups. Some cater to enterprise clients with rigid plans, while others are built to support smaller, fast-growing teams. Choosing the right one early prevents costly migrations later.

How to do it:

• Compare Provider Types: You need to choose between traditional carriers (e.g., Cigna, Anthem, UnitedHealthcare) which have a large network and brand recognition, and startup-focused providers (e.g., Sana, Thatch, Level). The latter likely offers flexible, digital-first, easier onboarding.
• Understand Plan Structures: You can choose between a Preferred Provider Organization (PPO) and a Health Maintenance Organization (HMO). A PPO is more flexible but comes with a higher price tag, and HMOs are less flexible, but more affordable.
• Ask Practical Questions: Can the plan cover employees in multiple states? Are telemedicine and mental health included? What happens when you hire across state lines?
• Get Multiple Quotes: Compare quotes from different brokers based on premiums, deductibles, and out-of-pocket costs.

3. Ensure Your Insurance Coverage Plan is Compliant

Compliance is where a lot of businesses, especially those operating across multiple regions, and penalties can be costly. Even if you’re a small team now, you need to understand the thresholds that trigger federal or state obligations so that you can avoid making unnecessary mistakes.

How to do it:

• Know the ACA Thresholds: Once you reach 50+ full-time equivalents, you must offer “affordable” coverage (employee premiums ≤9.12% of household income).
• Check State-Specific Rules: Typically you’ll want to triple check California, Massachusetts, Florida and Texas for unique requirements. California, for example, requires mental health parity.
• Look into Tax Credits: Startups with less than 25 employees and average wages under ~$63,000 may qualify for federal tax credits via the SHOP Marketplace.
• Keep Proper Documentation: Distribute a Summary Plan Description (SPD), file required notices (ERISA, COBRA, HIPAA), and keep compliance files ready in case of audits.

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4. Rollout and Communicate to Employees

Even the best healthcare plan will fall flat if employees don’t understand it. Confusion creates frustration, and frustrated employees won’t see the plan as a true benefit. Clear rollout builds trust and signals that you value their well-being.

How to do it:

• Host a Live Q&A or All-Hands Session: Explaining your plan in plain language to your team is really important. Record it for future hires.
• Provide a Simple Cheat Sheet With Real-World Examples: Make it easy for employees to practically use your plan, for example: “If you go to the ER, here’s what you’ll pay.”
• Offer One-On-One Broker Call: Giving your employees the opportunity to get answers about dependents or personal situations will help your employees feel empowered, and consequently make the transition period a lot simpler.
• Make Deadlines Crystal Clear: Use HR software to send reminders, track enrollments, and collect waivers.
• Follow Up After Launch:  Check if employees are using telehealth, mental health services, or other benefits as intended. If there’s low adoption or confusion, follow up with clear communications, FAQs, or a quick training session to explain how to access and use the benefits.

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5. Scale for Growing in International Markets

If you’re hiring beyond U.S. borders, your domestic health plan won’t apply. International employees will have different expectations when it comes to their benefits. Failing to tailor your benefits to your team and the countries they’re located in will put you at risk of being seen as uncompetitive in these markets.

How to do it:

• Use an EOR: Partnering with a company like Playroll can help you tailor your benefits package to local expectations without having to set up your own entity.
• Explore Global Plans: International insurers (e.g., Allianz, Cigna Global) offer coverage that “travels” with employees. These are great for nomadic or distributed teams.
• Consider Flexible Stipends: Provide a monthly allowance that your team can use for local coverage or wellness expenses.
• Review Annually: What works for 10 people in one country won’t work for 50 spread across three. Make reviewing benefits part of your annual planning cycle.

• Flexibility: Remote and global teams need plans that travel with them. Choosing the wrong plan can leave parts of your team uncovered or frustrated.

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Key Considerations and Challenges of Offering Health Insurance as a Startup

Premiums rise every year, compliance rules are tricky, and what works for a small team of startup employees can fall apart in a moment when you start scaling. If you and your team anticipate and plan for these hurdles early, you’ll save yourselves both financial strain and team frustration.

Let’s take a look at what hurdles will likely be:

1. The Cost Problem

Health insurance for small businesses and startups is expensive, plain and simple. In 2025, the average premium is $8,435 for individuals and nearly $24,000 for families. For most startups, this equates to 10–15% of payroll going directly to benefits.

• A 10-person team can quickly rack up $90,000 annually in premiums. Add 20 more hires, and you’re staring at $300,000+ a year.
• Costs don’t just scale with headcount, they rise with annual premium hikes too.

Startups that underestimate this growth risk burning the runway faster than expected. But there are ways to make this benefit cost effective. Some early-stage companies, for example, turn to third-party providers to keep costs down but also predictable. Scaling teams often benefit from group plans, EORs, or pooled purchasing to negotiate better rates.

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2. The Administrative Burden

Managing health benefits isn’t “set it and forget it.” Someone has to handle enrollments, payroll deductions, eligibility, renewals, and employee questions, all on top of state-specific rules.

You might expect to spend an hour a month on benefits, but end up devoting five hours a week. That’s valuable time pulled away from fundraising, hiring, or building your product. Thankfully, good HRIS software can automate much of this, and a strong broker or an EOR like Playroll can help lighten the load.

3. Navigating Compliance

The U.S. has strict rules around legally required health coverage. Under the ACA, once you hit 50 full-time equivalent employees, you must offer an “affordable”  insurance plan or face IRS penalties. Many startups cross that threshold faster than they realize, especially when part-time or seasonal staff are counted.

Failing to comply can mean shaken employee trust and hefty IRS fines starting at $295 at state level and going all the way up to $4,460 per employee. Compliance may not be glamorous, but neglecting it is costly.

4. Scaling for Remote and International Teams

Startup health insurance gets even trickier once you go global. A U.S. plan won’t cover employees in Germany, Brazil, or Singapore. Benefits expectations vary by country, and setting up local entities can be both costly and time-consuming.

The key is planning for global flexibility early rather than bolting it on as an afterthought.

5. The Competitive Angle

Many founders learn too late that skipping health insurance might save money in the short term, but it’s a retention killer.  You risk losing your best people to larger companies or newer rivals that offer better healthcare benefits for startups.

Replacing top performers is expensive: turnover can cost 1.5–2x a startup employee’s salary, draining resources you could have invested in growth.

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Start Offering Tailored Global Health Benefits with Playroll

Health benefits shouldn’t break your budget or your stride. With Playroll, startups can roll out everything from simple health stipends and reimbursements to fully compliant global insurance packages that grow with your team.

No endless paperwork, no compliance debacles provide modern benefits that show your people you’re there to support them during every stage of your growth, wherever they are in the world. When your team feels supported, they’re free to focus on helping you build your business. Book a demo now to get started.