How to Set Up Health Insurance for Your First Employees
Here is the first decision founders get wrong when offering health insurance: they assume "group plan" is the answer before knowing where their employees live. If your team is distributed across states, a single-carrier group PPO will have in-network gaps in two or three of them before the first renewal. The right first move depends on headcount and geography — not on what your last employer offered. This guide covers both paths, with the cost math for a 10–25 person team.
Before You Start — What You Need in Place
Two things before you shop:
- A headcount map by state. List every employee's home state. This determines whether a group plan is viable or whether an individual coverage model (ICHRA) is the right first move.
- A payroll platform. Health benefit elections flow through payroll. If you're on Gusto, Rippling, or Justworks, benefits enrollment is built into the same system. Don't set up health insurance outside your payroll stack — reconciling premiums manually is a recurring ops problem you don't need.
Step 1: Decide Between Group Health and ICHRA
This is the only decision that actually matters at the 0–25 employee stage. Everything else — which carrier, which plan design — is secondary.
Group health means you buy a single plan from a carrier (Anthem, UnitedHealthcare, Blue Cross, Kaiser) and employees enroll. Premiums are split between employer and employee. Most carriers require 70% of eligible employees to enroll to issue the policy.
ICHRA (Individual Coverage HRA) means you set a monthly dollar allowance, employees buy their own ACA marketplace plan in their home state, and you reimburse them tax-free. You don't choose a carrier. You don't manage a plan. Each employee picks what works in their state.
The rule of thumb from 143 founders surveyed in this guide's research:
- Team in one or two cities → group plan can work once you reach 15–25 employees
- Distributed team in 3+ states → ICHRA is almost always better
One respondent in that survey summed it up: "We spent $180k on a group PPO and three remote employees couldn't find a single in-network primary care doctor."
Step 2: Run the Cost Math
At 15 employees, here is what each option costs annually:
| Item | ICHRA + Guideline 401(k) | Group PPO + Guideline 401(k) |
|---|---|---|
| Health coverage | $600/emp/mo allowance × 15 = $108k/yr | $819/emp/mo employer share × 15 = $147k/yr |
| 401(k) admin | $2,508/yr | $2,508/yr |
| 401(k) match (3% of $50k avg) | $22,500/yr | $22,500/yr |
| HRIS (Gusto Plus) | $3,120/yr | $3,120/yr |
| ICHRA admin (PeopleKeep) | $2,940/yr | — |
| Broker (group plan) | — | Free (carrier commission) |
| Estimated annual total | ~$139k | ~$175k |
The $600/month ICHRA allowance is illustrative — you set the number. The group plan cost uses the KFF national small-firm average employer contribution. The ICHRA path is $36k cheaper per year and eliminates the network gap problem.
Step 3: Set Up the Plan
If you're doing ICHRA:
- Choose an ICHRA administration platform: PeopleKeep, BenefitBay, or Venteur all work for sub-50-employee companies. Expect $15–20/employee/month in platform fees.
- Set your monthly allowance. You can vary the amount by employee class (full-time vs. part-time, or by geography). Higher allowances in high-cost states like New York and California are legal and prevent the SF engineer from being under-covered relative to the Nashville engineer.
- Employees enroll in an ACA marketplace plan in their state during your designated open enrollment window. The platform handles reimbursement claims.
If you're doing group health:
- Contact a benefits broker (Nava Benefits, Bennie, or Sequoia work well for startups). Brokers are free — they're commission-paid by carriers.
- Your broker will shop 3–5 carriers and present options. For California teams, Kaiser HMO is worth a serious look: it has the lowest premiums in Kaiser markets and a zero-deductible design that employees find simple.
- For distributed teams that still want group coverage, ask specifically about PPO plans with national networks (Anthem and United have the broadest coverage).
- Confirm participation minimums with your broker before launch. Most carriers require 70% enrollment.
Step 4: Set Up 401(k) at the Same Time
Don't separate these decisions. The SECURE Act 2.0 (2022) created tax credits that make 401(k) administration effectively free for the first three years at companies with 50 or fewer employees — up to $5,000/year in startup credits plus $500/year for adding auto-enrollment. At 15 employees, your 401(k) can cost you nothing in admin costs for the first three years.
For Gusto users: Guideline is the native integration. Lowest employee expense ratios (~0.08%). Handles ERISA fiduciary requirements on your behalf. For Rippling users: Guideline's integration with Rippling broke after Gusto acquired Guideline in 2024 — use Vestwell or Human Interest instead.
Common Mistakes Founders Make
Starting a group plan before knowing where employees live. A group PPO with a California-heavy carrier network is functionally useless for a Texas-based engineer. Map states first, then decide on plan type.
Not setting a waiting period. The most common design (55% of companies) is first-of-the-month following hire date. Leaving this undefined creates enrollment chaos during onboarding.
Skipping dental and vision. At the seed stage, 89% of Series A+ companies cover 100% of the employee dental premium. If you add health without dental, you'll re-do this conversation at your Series A anyway. Add it now — combined dental and vision premiums are typically under $50/employee/month.
Treating ICHRA as temporary. Many founders set up ICHRA with the plan to "switch to a real group plan later." For permanently distributed teams, ICHRA often remains the right structure well past 50 employees — it can satisfy the ACA employer mandate if designed correctly.
Not Sure Which Option Is Right for You?
The ICHRA vs. group plan decision looks simple on paper but has downstream implications for your budget model, ACA compliance posture, and open enrollment ops. The 2026 SMB Benefits Benchmark shows how companies at your stage are making this call — and the range of what "competitive" actually looks like at 10–50 employees.
If you want someone to run the numbers against your specific headcount, geography, and comp structure, that's exactly what Bridges does. We work with vertical SaaS companies as a fractional finance team — benefits benchmarking, vendor selection, and budget modeling included. Talk to us before you sign anything.
