SMALL EMPLOYER GUIDE  |  EMPLOYEE BENEFITS  |  ACA & HEALTH COVERAGE

ACA Subsidies Are Shrinking. Here’s What Small Employers Can Do Right Now to Help Their People.

Published by Solidarity Health Network  |  May 2026  |  Small Employer Benefits Strategy

For the past few years, enhanced ACA premium tax credits gave millions of workers — especially those employed by small businesses without group health coverage — a lifeline to

affordable individual market insurance. Premiums dropped dramatically. Enrollment surged. For a lot of small employers, it felt like the coverage problem was solved.

It wasn’t solved. It was subsidized. And that subsidy is getting smaller.

The enhanced tax credits introduced during the pandemic are expiring, federal marketplace rules are tightening, and the cost of individual market coverage is rising again. For employees who rely on the ACA exchanges, that means real money coming out of their pockets — often without warning, and often without a backup plan.

If you are a small employer, this is your moment to step up. Not because you’re legally required to. Because it’s the right thing to do, and because the employers who figure this out first will win the loyalty and retention battle that is defining the small business labor market right now.

Here is what is happening, what your options are, and what questions you should be asking your broker.

The Financial Squeeze Your Employees Are Already Feeling

The enhanced premium tax credits that were expanded under the American Rescue Plan Act made ACA marketplace coverage genuinely affordable for a wide range of income levels. Workers who were previously priced out of individual market insurance — particularly those earning between 200% and 400% of the federal poverty level — found themselves with real options.

Those credits are shrinking. And the downstream effects are hitting employees in ways that may not show up immediately in your turnover numbers, but will.

What employees are experiencing	What it looks like in practice
Premium increases on ACA plans	Workers who paid $0–$80/month may now face $200–$400+/month for comparable coverage
Reduced tax credit eligibility	Income thresholds tightening; some workers no longer qualify for the credits they counted on
Plan downgrades to stay affordable	Switching to higher-deductible bronze plans to reduce premiums — meaning more out-of-pocket when they actually use care
Coverage gaps and lapses	Some workers simply dropping coverage rather than absorb the new cost

An employee who is quietly drowning in a $350/month premium they didn’t have last year is an employee who is updating their resume. They may not tell you that’s why. But it is.

What Small Employers Can Actually Do — With or Without a Group Plan

The most common response from small employers when benefits come up is: “We’re too small to offer health insurance.” That may have been true a decade ago. It is not true today. The benefits landscape has evolved significantly, and there are now legitimate, tax-advantaged options that work for businesses of almost any size.

Here are the main pathways worth knowing about:

Option 1: Traditional Small Group Plan

If you have at least two eligible employees, you likely qualify to offer a fully-insured small group plan. Employer contributions are tax-deductible. Employee premiums are paid pre-tax. Coverage is typically richer than ACA individual market plans at the same price point, and the employer’s group purchasing power means better rates than an individual employee could find on their own.

This is the traditional route — and for many small employers, it’s still the right one. The key is getting a proper analysis from a broker who shops the full market, not just one carrier.

Option 2: Self-Funded or Level-Funded Plans

Self-funded and level-funded plan designs have historically been the domain of large employers. That has changed. Small employers with as few as 10 to 25 employees are now viable candidates for level-funded arrangements — a hybrid model where the employer pays a fixed monthly amount that covers expected claims, administrative costs, and stop-loss insurance.

The upside: if your group is healthy and claims come in below projections, you keep the surplus. You also get real claims data — something fully-insured plans don’t give you — which means you can make smarter plan design decisions year over year.

This is a conversation worth having with your broker if you’ve never explored it.

WHAT SHN DOES HERE: Solidarity Health Network specializes in self-funded and level-funded plan administration for small and mid-size employer groups. We handle claims adjudication, eligibility, compliance, and member services — so your employees get the support of a full TPA without the cost structure of a large carrier.

 

Option 3: Individual Coverage HRA (ICHRA)

An ICHRA — Individual Coverage Health Reimbursement Arrangement — is one of the most flexible tools available to small employers today, and it remains underutilized.

Here’s how it works: instead of sponsoring a group plan, the employer sets a monthly dollar amount they will reimburse, tax-free, for individual health insurance premiums and qualified medical expenses. Employees shop for their own ACA marketplace plan and get reimbursed up to the employer’s set amount.

The employer controls the budget. The employee keeps coverage choice. Both sides get a tax advantage. And importantly — for employees who are now facing sharply higher ACA premiums — an ICHRA from their employer can make the difference between keeping their coverage and dropping it.

There is no minimum employer size requirement for an ICHRA. You can offer this with two employees or two hundred.

IMPORTANT NOTE ON ICHRA AND ACA SUBSIDIES: An employee who is offered an ICHRA that is considered “affordable” under IRS rules cannot also claim ACA premium tax credits. This is a critical planning point — get it wrong and you’ve inadvertently made your employees worse off. Work with a broker or TPA who understands the interaction between ICHRA design and marketplace subsidy eligibility.

Option 4: Tax-Free Health Stipends (with Caveats)

Some employers simply add a health stipend to employee compensation to help offset rising insurance costs. This is the most flexible option — and the most commonly misunderstood.

A general cash stipend paid through payroll is taxable income to the employee. It also does not satisfy ACA employer mandate requirements if you are a large employer. Done correctly through a formal HRA structure, the benefit is tax-free. Done informally as a payroll bump, it is not.

The difference matters. A $200/month health stipend is worth $200 to the employee if structured correctly. It may be worth $140 to $160 after taxes if it isn’t. This is a detail your broker or benefits administrator should be managing for you.

The Business Case Is Not Complicated

Employers sometimes frame health benefits as a cost question. It is also a retention question, a recruiting question, and a culture question — and on those dimensions, the math looks different.

The Society for Human Resource Management consistently finds that health benefits rank among the top factors employees weigh when evaluating a job offer or deciding whether to stay. For small employers competing against larger companies that offer full benefit suites, a meaningful health benefit — even one that doesn’t look like a traditional group plan — is a differentiator.

Consider what employee turnover actually costs: recruiting fees or time, onboarding, training ramp-up, productivity loss during transitions. Estimates vary, but replacing an employee commonly runs 50% to 200% of annual salary depending on the role. A $200/month ICHRA contribution costs $2,400 per year. The math is not hard.

THE LOYALTY DIVIDEND: Employees who feel their employer is invested in their health and financial wellbeing don’t just stay longer — they perform differently. The connection between benefits generosity and employee engagement is well-documented. In a tight labor market, small employers who step up on health coverage earn a level of loyalty that compensation alone rarely buys.

Questions to Ask Your Broker Right Now

If you have a broker, they should already be bringing these conversations to you. If they aren’t, the following questions will tell you a lot about whether you have the right one.

1. What is happening to my employees’ ACA premiums this year, and what do you expect for next year?

A good broker knows the answer before you ask. If this is news to them, that’s information.

2. Have you modeled an ICHRA for my workforce? What would a meaningful employer contribution actually cost?

Many brokers are not ICHRA specialists. If yours hasn’t brought this up and you have employees on the individual market, ask directly.

3. Am I eligible for a level-funded or self-funded plan design? What would the analysis look like?

Even if you’ve been told before that you’re “too small,” ask again. The minimum viable group size has dropped significantly in recent years.

4. If I offer an ICHRA, how does that interact with my employees’ ACA subsidy eligibility?

This is a technical question with real consequences for your employees. The answer should be specific and confident, not vague.

5. Are there any group purchasing options, association plans, or network arrangements I haven’t explored?

Small employers often have access to association health plans, chamber of commerce group programs, or industry-specific purchasing pools that can dramatically improve their buying power.

6. What does my current benefits package communicate to a job candidate versus what my competitors offer?

This is a recruiting question disguised as a benefits question. The answer should make you either proud or uncomfortable — either way, it’s useful.

The Bottom Line

The window when ACA subsidies quietly solved the coverage problem for small employer workforces is closing. Employees who have been managing on individual market plans are about to feel that closing window in their household budgets.

Small employers who recognize this moment — and respond with even a modest, well-structured benefit — will stand out. Those who don’t will lose good people to employers who did.

The options are real, the costs are manageable, and the upside in loyalty and retention is significant. You do not need to be a large employer to take care of your people. You just need a broker or benefits administrator who knows how.

SHN Works With Small Employers to Build the Right Coverage Solution Solidarity Health Network is a full-service licensed TPA and brokerage. We help small employers evaluate self-funded and level-funded plan options, design and administer ICHRAs, and navigate the ACA marketplace on behalf of their employees — with U.S.-based licensed call center support and SOC 2 Type II certified administration. If your employees are feeling the squeeze of rising ACA premiums and you’re not sure what you can do, let’s have that conversation. www.shninc.org  |  info@shninc.org

This post is provided for informational purposes only and does not constitute legal, tax, or compliance advice. Employers should consult with qualified legal and benefits professionals regarding their specific circumstances. Solidarity Health Network, Inc. is a licensed third-party administrator and SOC 2 Type II certified organization headquartered in Cleveland, Ohio. www.shninc.org