Group Health Insurance FAQ for Arizona Small Business Owners

Yes—but only under certain conditions.

Most insurance carriers require that a small business have at least two full-time W-2 employees, one of whom cannot be the business owner or spouse, to qualify for a group health plan.

For example, a husband-and-wife business without any other employees may not meet the participation threshold, even if both are W-2 employees.

Alternatives for Very Small Teams

If you don’t meet the participation requirements, you still have options:

• QSEHRA: Allows you to reimburse employees tax-free for individual health insurance premiums
• ICHRA: Offers greater flexibility and scalability for mixed teams
  
• Private marketplace plans: Work for sole proprietors or owner-only businesses

Learn more on our subsidies and reimbursement options page.

No. 1099 independent contractors cannot be included in a group health insurance plan intended for employees.

Why Not?

Group health insurance is governed by IRS and Department of Labor rules that limit eligibility to:

• Full-time W-2 employees
  
• Spouses and dependents (if your plan allows it)

Including 1099 contractors could:

• Invalidate your group plan
  
• Create compliance violations
  
• Trigger IRS penalties

What Are the Alternatives?

If you want to support contractors:

• Offer access to voluntary benefits (they pay, you facilitate)
  
• Consider providing a taxable stipend
  
• Refer them to a licensed broker for individual or marketplace coverage

Not without meeting strict rules. While you can offer different benefits to defined employee classes, you cannot selectively exclude individuals without a valid, non-discriminatory reason
.

What You Can Do:

• Offer benefits only to full-time W-2 employees
  
• Structure different benefit levels based on job class, location, or hours worked
  
• Use ICHRA to create different reimbursement levels across employee classes

What You Cannot Do:

• Offer benefits to some employees but not others in the same role/class
  
• Choose who gets coverage based on age, health status, or perceived value to the business

Violating nondiscrimination rules can result in plan disqualification or tax penalties.

Most Arizona small businesses pay between $400 and $900 per employee per month for group health insurance.

What Affects Pricing?

• Age of employees
  
• Number of participants
  
• Plan type (HMO, PPO, level-funded, etc.)
  
• Employer contribution
  
• Location

Offering dependent coverage increases the cost significantly—family plans often exceed $1,500/month.

Learn more in our group health insurance cost guide

If a traditional group plan feels out of reach, there are still affordable, tax-advantaged options:

1. QSEHRA

• Reimburse employees tax-free for individual premiums
  
• Available for businesses with under 50 employees

2. ICHRA

• Scales with business size
  
• No contribution limits
  
• Allows employee class segmentation

3. Voluntary Benefits

• Offer dental, vision, or supplemental coverage
  
• Optionally contribute or let employees self-fund

Compare options on our subsidies and alternatives page

Yes. Small businesses can offer standalone dental or vision plans without a major medical plan.

These are typically:

• Voluntary benefits (employee-paid or employer-assisted)
  
• Lower in cost
  
• Offered through traditional carriers or specialty providers

These plans do not satisfy ACA employer mandate requirements.

Explore group plan options that include or exclude dental and vision.

Employees can legally decline group health insurance for several reasons:

• Covered through a spouse, Medicaid, VA, or Medicare
  
• Choose to buy an individual plan

Employer Responsibilities

• Collect a signed waiver from the employee
  
• Maintain documentation in case of audits

Declinations due to valid outside coverage usually don’t count against your plan’s participation minimum.

Learn more at our requirements page

These are typically:

• Voluntary benefits (employee-paid or employer-assisted)
  
• Lower in cost
  
• Offered through traditional carriers or specialty providers

These plans do not satisfy ACA employer mandate requirements.

Explore group plan options that include or exclude dental and vision.

Yes—but conditions apply.

Switching is allowed:

• During your annual renewal window
  
• Mid-year for level-funded plans
  
• With carrier approval or certain qualifying events

Risks of Mid-Year Changes:

• Disruption of deductibles or networks
  
• Confusion for employees

We help you plan transitions that avoid coverage gaps. See our level-funded plans page

PEO (Professional Employer Organization):

• Co-employs your staff
  
• Offers access to larger risk pools
  
• Handles HR, payroll, and benefits

Direct Offering:

• You retain full control
  
• Greater flexibility in plan selection
  
• No co-employment risk

Some small businesses start with a PEO, then switch to a direct model as they grow.

Under the ACA, all small group plans must:

• Cover pre-existing conditions
  
• Accept all eligible employees
  
• Set premiums based on age, not health status

Exception: Level-Funded Plans

These may require health questionnaires and can deny or rate groups accordingly.

No—but you probably should.

Brokers help you:

• Compare multiple carriers and plans
  
• Navigate setup and compliance
  
• Support employees with enrollments and questions

Their services are usually paid by the carrier, not the employer.

Talk to our licensed team about your options.

Providing health coverage:

• Improves hiring competitiveness
  
• Increases employee loyalty and morale
  
• Reduces turnover costs

Even basic coverage signals that you value your team. Learn more on our group benefits overview