When a Business Should Switch From Individual Health Insurance to Group Coverage

July 5, 2026

When many small businesses form, it’s common for business owners to look for how to maximize savings and keep costs low. Health insurance can be a significant business expense, but healthcare coverage is also a vital tool for recruitment and retention. According to a December 2025 study by Indeed, health insurance ranked number one among the most-desired benefits for U.S. job seekers.

When businesses start out, there are lots of ways to offer healthcare coverage to employees. One is to provide a Health Reimbursement Arrangement (HRA), where employees can choose their own healthcare coverage, and employers offer tax-free healthcare reimbursement. Variations of an HRA include an Individual Coverage Health Reimbursement Arrangement (ICHRA) and a Qualified Small Employer Health Reimbursement Arrangement (QSEHRA). There are also Health Savings Accounts (HSA), which both employees and employers can contribute to for future healthcare costs.

As your business grows, it may be time to consider group health insurance options. These include self funded insurance for business, where you control the entire dollar amount for healthcare spending; fully insured healthcare plans, where the employer pays a fixed premium toward health insurance for employees; and level funded health insurance, which combines elements from both fully insured healthcare plans and self funded insurance.

When is the right time to transition from individual health plans to group health insurance coverage?

Arizona employers in Phoenix, Scottsdale, Mesa, Chandler and Tucson often begin comparing group health insurance once they reach approximately 15–25 employees and want to improve recruitment while maintaining predictable healthcare costs.

The best health insurance strategy for a growing business isn't determined by employee count alone—it depends on workforce demographics, budget, recruitment goals and whether individual or group coverage provides the greatest long-term value.

Key Takeaways

As a business grows, especially to around 15 to 25 employees, employers often start evaluating whether traditional group health insurance makes more sense compared to other types of individual employee health insurance plans.
While there’s no perfect employee count to consider when to switch to a group health insurance plan, around 20 employees is often when more group options become available, and risk starts spreading across a larger employee base.
In some cases, rising group premiums may mean it makes more sense for businesses to consider alternatives like HRAs and ICHRAs instead of a group health insurance plan, despite business growth.

The "Rule of 20" in Arizona Group Benefits

While Arizona law technically allows groups as small as 2 employees to write a small-group plan, 20 employees is the operational tipping point. At 20 lives, your claims risk stabilizes enough to make Level-Funded group plans highly competitive against individual health reimbursement strategies. If you are approaching or crossing this threshold, an annual comparison is critical to ensure you aren't leaving tax and recruitment advantages on the table.

Should Your Business Stay With Individual Coverage or Switch to Group Insurance?

If your business...	Consider...
Has fewer than 10 employees	Individual plans via HRA/QSEHRA
Has 10–20 employees	HRA/QSEHRA and group options
Has 20–50 employees	Compare fully insured, level-funded and ICHRA options
Has 50+ employees	Group health insurance is often worth evaluating annually
Has employees in multiple states	Compare an ICHRA, national PPO group plan or another multi-state strategy

Every business is different, which is why comparing multiple strategies—not just employee count—is the best way to determine the right long-term solution.

Why Many Small Businesses Start With Individual Health Insurance

As noted in the 2026 Arizona employer health insurance trends, many local employers are grappling with a massive 29% premium spike—the 12th largest increase in the nation. With so many expenses to consider as a business prepares to open, many business owners initially choose alternative means to fund healthcare coverage for employees to keep overhead low.

With a plan like an ICHRA, employers can set a fixed, tax-free monthly contribution, which helps with budget control, while also providing healthcare coverage to employees. Another benefit is that employees can choose their own healthcare, which gives them more control in provider choice and in getting the exact healthcare they need.

When Businesses Start Considering Group Health Insurance Coverage

When should a business start considering group health insurance coverage? When a business grows to around 15 to 25 employees, that’s often when businesses start seriously evaluating group health insurance plans.

There are many advantages that open up for group plans as a business grows, including:

A larger employee pool spreads risk. With smaller groups, a health insurance carrier is more likely to assign more risk to the group. A larger employee pool can often help stabilize risk and create more competitive pricing opportunities, depending on the group's overall health and claims experience..
More carrier options become available. More employees also mean more options for health insurance coverage. Level funded plans are especially becoming popular as a way for employers to both control costs and offer group health insurance, since employers pay based on their own group’s health. A healthy employee pool means lower costs for employers.
There are better negotiating opportunities. Because employers have more options for group health insurance plans as they grow, they can work with a group health insurance broker who can advocate on their behalf and negotiate for the best rates.
Group health insurance helps stabilize participation and standardizes benefits. With individual healthcare coverage, there could be a big variety of plans and varied participation, as well. By offering standardized group health insurance plans, your business can stabilize expectations for participation, which adds predictability when budgeting.
Group plans may offer cost savings. Especially for younger or healthier employees groups, group health insurance plans may become more competitive price-wise. Certain industries may see better pricing, especially when level funded group options open up.

While the costs of a group health insurance plan may seem high when a small business first opens up, as a small business adds employees and grows its workforce, group health insurance may make more sense both for employee satisfaction and business savings.

Real Example: Growing Arizona Business

One Arizona employer we worked with started offering employees individual health insurance reimbursement while the company was small. As the business grew to more than 20 employees, we compared their existing strategy with several group health insurance options. After evaluating employee demographics, healthcare usage and budget goals, the company transitioned to a level-funded group health plan that improved benefits while providing more predictable long-term costs.

By reviewing multiple options instead of automatically moving to a traditional fully insured plan, the employer was able to choose a solution that better matched both employee needs and long-term business goals.

Signs a Business May Be Ready for Group Health Insurance

How does a business know it’s time to explore group health insurance? If your business is experiencing signs like business growth or negative impacts to retention or recruitment because you lack health insurance, you may be ready to start researching group health insurance options for your workforce. Contact a business health insurance broker at AZ Health Insurance Brokers for a free group health insurance consultation.

Your business has grown to 20 or more employees.
You’re having difficulty recruiting or retaining employees, due to a lack of group health insurance offerings.
Employee surveys have revealed a desire for richer benefits, including health insurance coverage.
You want more control over a healthcare plan design for your employees.
Employees have requested one standardized healthcare plan, rather than having to choose their own healthcare coverage.
Business is growing steadily year-over-year, and your budget projections accommodate group health insurance.
You want to gain additional tax advantages by offering group health insurance to your workforce.
Your competitors are offering group health insurance, which could impact your own recruiting and retention efforts.

If you’re experiencing one or more of the above signs, talk with a group health insurance broker to find affordable options for your budget and workforce.

Situations Where Individual Plans or ICHRAs May Make More Sense

Option	Best For	Biggest Benefit	Trade-Off
Individual + HRA	Small employers	Predictable employer contribution	Less standardized benefits
ICHRA	Multi-state workforces	Flexibility	Employees choose plans individually
Fully Insured Group	Stable groups	Predictable premiums	Usually higher monthly cost
Level-Funded	Healthy workforces	Potential long-term savings	Requires claims evaluation

When does offer individual healthcare coverage make more sense compared to group health insurance? Factors like extremely small teams and the type of business you run may mean it’s not quite time to explore group health insurance – yet. Keep the following signs in mind.

Your team is very small. If you have fewer than 10 employees, it may be more expensive to have a group health insurance plan rather than give employees the ability to choose their own healthcare coverage and reimburse part or all of it.
You have high employee turnover. If your business is experiencing instability, in terms of turnover or growth, you may want to wait until things stabilize to commit to a budget line item like group health insurance.
You’re a seasonal business. If your business experiences ebbs and flows due to seasonality, or if you primarily only do business during certain times of the year, paying for an annual group health insurance plan for an entire year might not make sense.
Your employees are spread out across multiple states. Group health insurance plans can vary greatly depending on where employees are located. If you have employees spread out over multiple state lines, offering an HRA may make more sense due to cost variants.
You want predictable contribution amounts. Group health insurance plans may offer cost unpredictability, depending on the type of plan you get (self funded, for example). With something like an HRA, you can set fixed contributions, which allows you to maintain control over your budget.
You have a young workforce that prefers lower-cost plans. Depending on the age and health of your workforce, your employees could save money with a plan like an HRA compared to paying for a standardized group health insurance plan with higher premiums.

It’s helpful to survey your employees regularly to learn about what they’re looking for in terms of healthcare coverage. You may discover, even as your business grows, your employees prefer the freedom of choice with an HRA. A business health insurance expert can help provide guidance on what to ask to gauge employee interest.

Every business is different, but the following guide provides a helpful starting point based on common situations we see with Arizona employers.

Best Health Insurance Strategy by Business Type

Business Situation	Often a Good Starting Point
Startup with fewer than 10 employees	Individual plans or QSEHRA
Growing business (15–25 employees)	Compare ICHRA, level-funded and fully insured plans
Healthy workforce	Compare level-funded group plans
Multi-state workforce	Compare an ICHRA or a national PPO group strategy
Seasonal workforce	Individual coverage or an HRA
Recruiting experienced employees	Group health insurance

This table is intended as a starting point. The right solution depends on your workforce demographics, budget, recruitment goals and long-term business objectives.

How to Decide Which Healthcare Coverage Fits Your Business

How can an employer decide what healthcare coverage to offer employees? Ask questions related to employee numbers, recruitment trends, monthly budgets and other factors. Use this guide.

How many employees do we have? As you grow toward 20 or more employees, it’s time to consider adding group health insurance or comparing it to current offerings.
Are employees spread out across multiple states? If most of your employees reside in the same state, group health insurance costs become more stable. With employees spread out across states, a plan like an HRA may make more sense.
What is the average employee age? Generally, the younger and healthier a workforce is, the more money you can save on group health insurance plans.
Do employees qualify for subsidies? If your employees qualify for subsidies, it may make more financial sense for them and your business to let them retain their own coverage through a federal plan that provides cost savings.
What monthly budget can the business comfortably allocate toward healthcare? This will show you all the plans you’re eligible for, so you can compare.
Is recruiting becoming difficult? If the answer is yes, it’s time to examine healthcare coverage offerings, which are the most sought-after benefit for job seekers.
Does the business want predictable costs or richer benefits? Whatever your preference, there are healthcare plans for employees that can work for your business.
Do your employees want the same doctors and hospitals? If provider access is a priority, compare how group plans and individual plans differ in network availability before making a decision.

Quick Tip: Compare Total Cost—Not Just Monthly Premium

When evaluating health insurance options, look beyond the monthly premium. Compare employer contributions, employee out-of-pocket costs, provider networks and long-term renewal expectations to determine which strategy provides the greatest overall value.

We recommend revisiting questions like these at least annually, as employee demographics and desires can change over time. It’s free to consult with the group health insurance brokers at AZ Health Insurance Brokers. We’ll help you learn all your options for employee health coverage, so you can make the decision that makes sense for your business.

Need Help Comparing Individual, ICHRA and Group Health Insurance?

Whether you’re starting a new business, or you’re growing your business, AZ Health Insurance Brokers is here to help you navigate employee benefits. We can help you learn about cost-effective healthcare options, ranging from health reimbursement arrangements, to traditional group health insurance.

Group Health Insurance FAQs

When should a growing business compare group health insurance options?
While every business is different, here's a general guideline we use when helping Arizona employers evaluate their options:

2–10 employees: Individual health insurance with an HRA or QSEHRA is often the most cost-effective starting point.
15–25 employees: This is an ideal time to compare all available strategies, including HRAs, ICHRAs, fully insured and level-funded group health plans.
20–50 employees: Many employers begin finding better long-term value by comparing level-funded, fully insured and ICHRA options based on employee demographics and healthcare needs.
50 or more employees: Conduct an annual benefits strategy review to ensure your health plan remains competitive, cost-effective and aligned with your workforce.

Rather than relying on employee count alone, we recommend reviewing your health insurance strategy every year as your business grows. Factors like employee demographics, recruitment goals, healthcare utilization and budget all play an important role in determining the right solution.
When should a business get a group health insurance plan?
When your business reaches 15-25 employees or more, you should at least compare group health insurance plans to what you’re currently offering employees.
What are the benefits of a group health insurance plan compared to individual coverage?
Group health insurance plans can improve recruitment and retention, provide employees with better and less expensive healthcare coverage, and potentially save a business money compared to other types of employee healthcare coverage.
How can group health insurance help with recruitment?
Health insurance coverage is the top benefit job seekers want in a job in 2026. Offering group health insurance can help your business recruit top talent and stand out among competitors.
When does group health insurance not make sense for a business?
If your business is very small, if your business is seasonal and/or if your business has employees spread out over multiple states, it may make more sense to offer a health reimbursement arrangement or other healthcare coverage plan rather than group health insurance.
What are the benefits of working with a group health insurance broker?
A group health insurance broker partners with your company to offer the best work health insurance options for your budget and your workforce. You’ll get personalized advice tailored for your business, so you can save money and offer a valuable benefit to employees.

Written by: Nicki Escudero

Nicki is a specialized healthcare content creator focused on navigating the evolving Arizona insurance landscape. She works closely with licensed brokers to translate complex 2026 small business trends—such as the massive 29% premium spike and the transition from individual health reimbursements to structured group plans—into actionable insights for local business owners. Her work ensures growing employers understand the precise tipping points where scaling benefits helps maximize both employee recruitment and tax advantages.

Reviewed by: Ethan J. Pickner, Licensed Arizona Health Insurance Broker

Ethan is the founder of AZ Health Insurance Brokers and has been a licensed health insurance expert for nearly 12 years. He specializes in helping Arizona startups and scaling enterprises navigate the complex transition from individual health insurance and HRAs over to competitive group coverage . Since 2014, Ethan has engineered cost-effective benefits strategies for thousands of clients across Maricopa County, helping business owners evaluate alternative funding vehicles like Level-Funded plans and ICHRAs to preserve capital while gaining institutional-grade hiring power.

Reviewed by: Ryan Calloway, Group Benefits Specialist

Ryan is a Group Benefits Specialist at AZ Health Insurance Brokers, specializing in designing scalable health plan structures for expanding workforces. He is an expert in the "Rule of 20" milestone, guiding Arizona companies through the strategic progression from loose individual reimbursements to fully optimized level-funded or fully insured small group PPOs as their headcount scales . Ryan leverages deep local market insights to help Phoenix, Scottsdale, and Tucson employers implement demographic-matched health strategies that solve talent retention challenges without exposing growing budgets to unnecessary risk .