How to choose a health insurance plan for your startup?

You just raised, incorporated, set up your initial payroll and now it's time to pick the second largest spend item at your startup - health insurance. Let's see how.

Why do you need to offer health insurance as a company?

Health insurance is tied to your employer in the US and thus, most employees expect to get a health insurance plan along with a monthly salary. For tech startups, health insurance ends up being the second largest cost, roughly being 15% of salary costs. I have seen founders repeatedly pick a plan at random or worst, delegate the decision to their payroll provider salesperson who does not know anything about their team.

This guide breaks down exactly how to structure health insurance as you scale from 1 to 500+ employees, with specific guidance for the NYC and California markets. I’m a licensed health insurance broker in New York and California, and I’ve structured plans for dozens of startups navigating these decisions. What follows is the pattern that actually works at each stage.

At any stage of a startup, your employees will expect benefits and will likely have 100% employer contribution with their previous employer. To be on the safe side, I would suggest reimbursing 100% of your employees health plan costs if you can afford it so you don’t have to worry about losing a great employee because of it. Every employee needs to be offered the same benefits so changing that number down the line is painful. So, if you have raised, pay the full cost of the plan and roll with it. When it comes to reimbursing spouses and families of your employees, there is less of a standard. It’s safest to reimburse 50-100% of spouse/family costs. However, it’s unlikely somebody would reject your offer if you don’t do that. Go with your gut, how generous you want to be with family health benefits.

Which Plan Tier Should You Offer?

The ACA metal tiers: Bronze, Silver, Gold and Platinum represent actuarial value, not quality. Platinum plans cover roughly 90% of costs, Gold covers 80%, Silver 70%, and Bronze 60%. The difference shows up in deductibles and copays, not in which doctors or hospitals are covered.

For NYC and California tech startups, the safest choice is to go with Silver since it’s quite standard. I’ve seen companies try to save money with Bronze plans, and it might get a weird look from some candidates. Your candidates are comparing your offer against companies offering Gold/Platinum PPOs with $1500 deductible. If you’re offering a $6,000 deductible Bronze plan, you’re signaling penny-pinching on employee health, which might not be a problem worth explaining.

The better funded you are, the more it makes sense to move up the Tier ladder. If you just raised 25M, it would be a weird look to offer Bronze or Silver. The moment you compete with Big Tech for talent, health benefits really matter.

Which Carrier Should You Pick?

In New York, you’re primarily choosing between UnitedHealthcare, Aetna, Empire Blue Cross Blue Shield, Oxford (a UHC subsidiary), and Cigna. Empire has the strongest network density in the five boroughs, particularly with major hospital systems like NYU Langone and Mount Sinai. Oxford is solid for Manhattan-centric companies but thinner in the outer boroughs and Westchester. UnitedHealthcare and Aetna have the broadest national networks, which matters if you have remote employees or people who travel frequently. Cigna tends to price aggressively but has a smaller NYC footprint. If you care about a nice UX experience, Oscar Health, is a solid option, but expect a smaller network.

The network question isn’t just about size, it’s about which specific providers your employees care about. It will likely not matter much at earlier stages. If half your team however lives in Brooklyn and uses NYU Langone for everything, losing that network access will cause immediate complaints. Your broker should run a network disruption analysis against your current employee addresses and known provider preferences before you switch carriers. Don’t assume all networks are equivalent.

California is dominated by Kaiser Permanente, and you need to have a position on it. Kaiser is an integrated delivery system, they’re both the insurer and the provider. You see Kaiser doctors at Kaiser facilities, use Kaiser labs, and fill prescriptions at Kaiser pharmacies. This model is genuinely cheaper, often 20-30% below comparable PPO coverage, because Kaiser eliminates the fee-for-service inefficiencies. The quality is generally excellent; their outcomes data is strong.

The problem is some people viscerally hate it. They don’t want a closed system. They have an existing relationship with a non-Kaiser specialist and don’t want to switch. They perceive it as restrictive, even though Kaiser’s network is large. You’ll get pushback. The standard solution is offering both Kaiser HMO and a PPO option from Anthem Blue Cross, UnitedHealthcare, Aetna, or Health Net. Employees who prioritize cost choose Kaiser; employees who prioritize flexibility pay more for the PPO. Expect roughly 60-70% Kaiser take-up if you offer both.

One thing that doesn’t show up in rate sheets but matters enormously: claims processing quality and member services. Some carriers are competent at adjudicating claims correctly the first time, others routinely deny valid claims and force appeals. Some have knowledgeable member services reps who can explain EOBs and help navigate the system; others have offshore call centers reading scripts. Ask your broker which carriers have the fewest escalations and member complaints in their book of business, that might help you make a better decision.

1-10 Employees: Just Use a PEO plan

At this scale, trying to be clever about health insurance is a waste of time. You’re better off joining a PEO like Justworks, Rippling, or Sequoia One and get access to solid benefits through their pooled risk. You’ll pay roughly $800-1,200 per employee per month all-in, which covers payroll, benefits, and workers comp. The entire administrative burden disappears for onboarding, compliance and payroll integration.

The tradeoff is straightforward: you’re locked into whatever carrier relationships your PEO has, and you can’t customize much. But at 5 employees, you don’t need customization. You need to ship product.

There’s an alternative if you have a distributed team or want tighter budget control: ICHRA. Your employees pick their own plans on the individual marketplace, and you reimburse them tax-free. Set your contribution at $750 in California or $1000 in New York per employee and you’re done. Platforms like Thatch make this administratively trivial. The downside is your employees now have to understand deductibles and networks, which many resent.

The value that you get from ACA marketplace plans is really bad since they bundle everyone into the same risk pool and you don’t get the benefits from being a group. However, at this stage, overpaying for bad benefits is not the end of the world. The startup trick here is often to pick the cheapest plan from the marketplace (catastrophic or bronze if you’re over 30) and use the rest of the ICHRA budget for things you actually care about. Just keep in mind that you will need to pay whatever healthcare costs you have out of pocket since the deductibles will be high!

What you absolutely should not do: ask employees to buy their own plans and reimburse them with the company. This way, the money you spend on health insurance is not tax deductible and health insurance will cost you 30-40% more after taxes.

If you are pre-funding and don’t have money for a plan, there is one more clever way how to get employees coverage while spending a lot less. There are innovative solutions that work as healthcare cost crowd funding platforms, the most popular being Crowdhealth. This will be a post-tax expense for you, but you will be able to provide your team a catastrophic coverage for roughly $200 a month per employee that will work just fine at this stage.

10-25 Employees: Decision Point

Somewhere between 10 and 25 employees, you need to decide if you’re staying with your PEO or graduating to broker-sourced coverage. If your growth trajectory is uncertain or you’re comfortable with your current setup, stay put. But if you’re reliably at 15-20+ and want to control your plan design, it’s time to work with a benefits broker.

Note: a benefits broker is not an insurance agent. Different incentive structures, different expertise level. The broker sources fully-funded plans from carriers like Aetna, UnitedHealthcare, Anthem BCBS, or Kaiser if you’re in California. With fully-funded plans, you pay a predictable monthly premium and the carrier assumes all claims risk. You’ll typically see $800-1,200 per employee per month for a gold or platinum tier plan, though NYC and California run 15-25% higher than national averages.

Plan types matter here. PPOs give employees maximum flexibility to see any provider but cost more. HMOs lock them into networks and require PCP referrals but reduce premiums. HDHPs paired with HSAs shift costs to employees through high deductibles while giving them tax-advantaged savings accounts. Most startups default to a PPO if they can afford it, your team members don’t want to deal with referral bureaucracy.

One thing to understand about California and New York: small group pricing is community-rated, meaning everyone pays the same regardless of individual health status. This sucks for younger, healthier, teams, but the trouble of using self-funding might not make sense yet at this team size.

25-500 Employees: Level-Funded is the Play

Once you hit 25 employees, you should start considering level-funded plans. Here’s why the economics change: with fully-funded plans (traditional), you’re paying the insurance carrier to assume risk you probably don’t have. If your population is young and healthy (which most tech startups are), you’re mostly subsidizing other healthcare claims through pooled pricing.

Level-funded plans unbundle this. You pay a fixed monthly amount that covers three things: a claims fund, stop-loss insurance, and administrative fees. If your actual claims come in below projections, you get the surplus back at year-end. If claims spike catastrophically, stop-loss coverage kicks in, typically at $30-50K per member. The result is you keep the insurance company’s margin, which usually translates to 20-30% savings if you have a healthy workforce.

The catch is complexity. You now have fiduciary responsibility under ERISA, you need to fund the claims account monthly, and you have to manage stop-loss certificates and claims reporting. This absolutely requires an experienced broker, don’t try to DIY this. Your level-funded plan admin will take care of ACA reporting, HIPAA compliance, and COBRA administration. The administrative burden is real, but at this scale you should have ops infrastructure anyway.

The upside is meaningful plan design flexibility. You can optimize deductibles, copays, and network configurations in ways that aren’t possible with off-the-shelf fully-funded plans. You can even offer benefits that are not normally covered by health insurance like wearables and gym subscriptions. This is what makes level-funded plans powerful, along with their lower cost of insurance.

500+ Employees: Go Fully Self-Funded

At 500+ employees, you’re leaving money on the table with traditional insurance. The carrier’s margin, typically 15-20% of premium, is pure waste. Cut them out entirely.

With fully self-funded plans, you pay all claims directly. There’s no insurance carrier; instead you hire a third-party administrator (TPA) to handle claims adjudication, network access, and member services. Advanced TPAs like Rightway, Collective Health, or Bind offer reference-based pricing models. You can also use carrier-based TPAs like Aetna ASO or UnitedHealthcare if you want their networks.

The economics are compelling: you typically save 30-50% compared to fully-insured plans because you’ve eliminated the carrier margin and can optimize plan design aggressively. But you’re taking on real risk. Monthly claims are volatile, and while stop-loss insurance can protect you from catastrophic scenarios (you can get specific stop-loss at $1M per member etc), you should have cash reserves set aside to weather this.

The real advantage isn’t just cost. It’s control. You can now do things like contract directly with primary care providers, establish centers of excellence for surgery and oncology, implement reference-based pricing where you pay Medicare rates plus a markup instead of billed charges, carve out pharmacy benefits with transparent PBMs, and integrate virtual-first solutions like Maven, Spring Health, or Teladoc.

This requires real infrastructure: a full-time benefits manager or fractional benefits consultant, data analytics capability for claims trend analysis, and board-level approval for the risk tolerance. You won’t see savings for 12-18 months. But once it’s running, the cost advantages and customization options are substantial. Every large American company is using a self-funded health insurance plan. It’s here to stay.

What about HSAs?

HDHPs with HSAs deserve mention because they’re financially clever but culturally difficult. The tax advantages are real: employees contribute pre-tax dollars, investment growth is tax-free, and withdrawals for medical expenses are tax-free. For high earners who can max out contributions ($4,300 individual, $8,550 family in 2025), it’s basically a secondary 401(k). But employees hate high deductibles - $3,000-5,000 before insurance pays anything - and many won’t have the cash flow to fund the HSA properly. Unless your entire workforce is financially sophisticated and highly compensated, expect pushback. The typical compromise is offering an HDHP alongside a Gold PPO and letting employees choose.

Regional Specifics You Can’t Ignore

New York has the strictest community rating in the country. Demographics barely move the needle on small group pricing. Also, when using ICHRA, all of your employees are forced into the same risk pool with everyone between 30-60 years old, which means you will be paying a lot for mediocre benefits. You also have to deal with NY’s mini-COBRA continuation coverage rules, which are more generous than federal COBRA. And Paid Family Leave integration with disability carriers is mandatory, so make sure your broker understands the interplay. New York has also banned stop loss insurance for groups less than 100 so you’re better off being part of PEOs for longer if you want the best benefits.

California is dominated by Kaiser Permanente’s integrated delivery model. It’s cheaper than PPO equivalents but locks employees into Kaiser’s network, which some people love and others hate. California does allow stop loss for small groups, but you can only get specific stop loss insurance starting from 40k onwards, meaning you still need to take some risk as an employers when moving over to level-funding.

If you still have question about health insurance, feel free to reach out!