AZ Health Insurance Agents Banner Logo
(602) 806-7918

Alternatives to Group Health Insurance for Arizona Small Businesses

Home » Group Health Insurance » Alternatives

Not every small business can afford or qualify for traditional group health insurance in Arizona. Whether you’re just starting out, have a small or remote team, or were declined due to underwriting—there are still affordable, ACA-compliant ways to offer health benefits.

At AZ Health Insurance Agents, we help employers understand and implement flexible health coverage alternatives that meet regulatory requirements and support employee retention—without the overhead of traditional group plans.

This guide will walk you through the top alternatives available in Arizona, including QSEHRAs, ICHRAs, and stipends, and help you determine which one makes the most sense for your business.

When Group Health Insurance Isn’t the Right Fit

Group health insurance works well for many businesses—but not all. If you’ve run into any of the following issues, you’re not alone:

  • Your team is too small to meet carrier participation requirements
  • Premiums are too expensive for your current budget
  • You were declined after underwriting (often happens with level-funded plans)
  • You have a remote or geographically dispersed workforce
  • Your team prefers the flexibility of choosing their own insurance

The good news? You still have compliant, tax-efficient options that allow you to support your employees’ healthcare needs—without offering a traditional group plan.

In the next few sections, we’ll walk through the top alternatives available to Arizona employers, starting with one of the simplest and most popular: QSEHRA.

Option 1 – QSEHRA (Qualified Small Employer HRA)

A QSEHRA (Qualified Small Employer Health Reimbursement Arrangement) is a tax-advantaged way for small businesses to help employees pay for health insurance—without offering a traditional group plan.

Instead of buying insurance for your team, you reimburse them for part (or all) of their own individual insurance premiums and qualified medical expenses.

How It Works

  • You choose how much to reimburse—up to annual IRS limits
  • Employees purchase their own health insurance (on or off the marketplace)
  • You reimburse eligible expenses tax-free
  • Employees aren’t taxed on the reimbursements

Who Qualifies for a QSEHRA?

  • You must have fewer than 50 full-time equivalent employees (FTEs)
  • You cannot offer a group health insurance plan at the same time
  • Reimbursements must be offered to all eligible employees on the same terms

2025 IRS Contribution Limits

  • $6,150 per year for individual coverage (approx. $512/month)
  • $12,450 per year for family coverage (approx. $1,037/month)

Why Arizona Businesses Use QSEHRA

  • No insurance purchasing required
  • Keeps costs predictable
  • Works well for teams of 2–10 people
  • Supports remote and part-time employees
  • Easy to administer with the right tools

QSEHRAs allow you to offer real health benefits—without the overhead, complexity, or commitment of a full group plan.

Contact Us Today

Contact Us today to speak with one of our knowledgeable health insurance agents. Let us guide you toward a healthier, more secure future.

(602) 806-7918

Option 2 – ICHRA (Individual Coverage HRA)

An ICHRA (Individual Coverage Health Reimbursement Arrangement) is a newer, more flexible alternative to group insurance that allows employers to reimburse employees for their own individual health insurance plans—just like a QSEHRA, but with fewer limitations and more design control.

ICHRA is ideal for growing businesses, companies with remote workers, or teams with varying healthcare needs.

How It Works

  • You choose how much to reimburse and define employee classes (e.g., full-time vs. part-time, location-based, salaried vs. hourly)
  • Employees use those funds to buy their own ACA-compliant plan
  • Reimbursements are tax-free for the employee and tax-deductible for the business
  • You can offer different amounts to different groups—as long as it’s consistent within a class

ICHRA vs. QSEHRA

Feature

QSEHRA

ICHRA

Max employer size

< 50 employees

Unlimited

Group plan restriction

Cannot offer group plan

Can offer to separate classes

Contribution limits

IRS-defined caps

No official cap

Employee classes

One set of benefits only

Multiple class options

Why Employers in Arizona Choose ICHRA

  • Scales with growth
  • Ideal for remote teams or multi-location businesses
  • Allows more control over budget and employee segmentation
  • Works well for 1099 contractors (with certain structuring)

ICHRA lets you offer personalized coverage without having to choose one plan for everyone—and without taking on the burden of full group coverage.

Option 3 – Stipends or Direct Pay (Not Tax-Advantaged)

Some businesses choose to offer a health insurance stipend—a flat dollar amount added to employee pay to help them afford coverage. While this is the simplest option, it lacks the tax benefits and legal protections of QSEHRA or ICHRA.

How It Works

  • You add a fixed amount to your employees’ paycheck (e.g., $300/month)
  • Employees can use the money however they want—including on health insurance
  • It’s treated as taxable income for the employee and subject to payroll taxes for the employer
  • It is not considered a formal health benefit, so there’s no ACA compliance requirement

Pros

  • Easy to set up—no administration or compliance
  • Employees aren’t restricted to ACA plans
  • No minimum employee requirements

Cons

  • Fully taxable for both employer and employee
  • No guarantee employees use the funds for insurance
  • Not recognized as an official benefit under ACA guidelines

Stipends can be useful as a short-term or fallback solution, but for most Arizona businesses, an HRA model like QSEHRA or ICHRA provides more value and protection.

Pros and Cons of Each Alternative

When group health insurance isn’t feasible, it’s important to weigh your alternatives based on what matters
most—cost, compliance, tax advantages, and ease of setup. Here’s how the top three options compare:

Feature

QSEHRA

ICHRA

Stipend

Employer Size Limit

< 50 FTE

No size limit

No limit

Tax-Free for Employees

✅ Yes

✅ Yes

❌ No (taxable income)

Tax-Deductible for Employer

✅ Yes

✅ Yes

❌ No (standard payroll expense)

ACA Compliant

✅ Yes

✅ Yes

❌ No

Contribution Flexibility

Fixed limits (IRS cap)

Fully customizable

Fully customizable

Employee Class Segmentation

❌ No

✅ Yes

✅ Yes (informal)

Administrative Setup

Simple

Moderate

Very simple

Ideal For

Very small teams, low cost

Remote teams, growing companies

Temporary fallback

 

 

For most Arizona employers, QSEHRA is ideal for micro teams, while ICHRA is better suited for businesses that are growing or need more flexibility across roles and locations.

Which Option Is Right for Your Business?

Each of these alternatives offers a path to provide meaningful health benefits—without the high cost or complexity of traditional group insurance.
The best fit depends on your goals, your team, and how much flexibility you need.

Choose QSEHRA If:

  • You have fewer than 50 full-time equivalent employees
  • You want a simple, compliant way to support employees with health costs
  • You’re not offering a group plan and want predictable reimbursement limits

Choose ICHRA If:

  • You need a scalable option for a remote or multi-location team
  • You want to offer different reimbursement amounts to different types of employees
  • You want the flexibility of ACA compliance without choosing a group plan

Use Stipends If:

  • You need a short-term solution while evaluating other options
  • Your business isn’t ready for a formalized benefit program
  • You're looking for an informal, easy-to-implement perk (with full tax awareness)

Still not sure? You can also compare these options to traditional group plans or level-funded insurance to see what gives your business the best long-term value.

FAQs About Health Insurance Alternatives

Yes—but timing matters. You must cancel your group plan before the start of a QSEHRA or ICHRA. You can’t offer both at the same time. Be sure to communicate with employees about the change and allow time for them to enroll in individual coverage.

No, not if you use a QSEHRA or ICHRA. Reimbursements under these arrangements are tax-free to employees as long as they have qualifying health coverage. However, stipends are treated as taxable income.

  • With ICHRA, yes—you can vary reimbursements based on employee classes (e.g., full-time vs. part-time).

  • With QSEHRA, no—you must offer the same benefit to all eligible employees, though you can vary amounts by family status (individual vs. family).

With stipends, technically yes—but it must comply with wage and labor laws.

Yes. QSEHRA and ICHRA are federally approved benefit structures under IRS and Department of Labor regulations. They’re legal and available for businesses throughout Arizona and the U.S.

Still have questions about HRAs, stipends, or group alternatives? Our team can help you sort out the details.

Individual and Family Dental Insurance Available

Get Help Choosing the Right Health Benefit Strategy

Whether you’re navigating high group plan premiums or just starting out with a small team, you don’t have to figure it out alone.

At AZ Health Insurance Agents, we help Arizona businesses:

  • Compare QSEHRA, ICHRA, and traditional group plans
  • Understand IRS compliance and ACA regulations
  • Set up and administer HRAs with the right software tools
  • Tailor a benefit strategy that matches your growth goals and budget

We work with business owners across Phoenix, Scottsdale, Gilbert, and throughout Arizona—helping them offer meaningful coverage without unnecessary complexity.

Ready to explore your options? Request a quote or speak with a licensed Arizona broker today.

(602) 806-7918

© AZ Health Insurance Agents 2024. All Rights Reserved. | Terms and Conditions | Privacy Policy