Small Business Health Insurance in Texas: Rules and Costs

Medically reviewed by Jawad Arshad, MD, FACEP. Last reviewed: October 1, 2026.

Small business health insurance in Texas is a group plan an employer offers to its employees, and Texas law treats a company with 2 to 50 employees as a small employer. Insurers are asking for higher prices for 2027, so owners should get quotes before renewal. This guide covers the Texas rules, the cost data, and one way to lower what the plan costs your payroll.

Key facts

• Texas defines a small employer as one that averaged at least 2 but not more than 50 employees in the prior calendar year (Texas Insurance Code, Section 1501.002).
• Texas had 3.5 million small businesses employing 5.1 million people, 44.4% of the state's employees (SBA Office of Advocacy, 2025 Texas profile).
• Texas small group insurers filed 2027 rate requests averaging +16.9%, and 3 of the 8 filing carriers appear to be leaving (ACASignups.net, August 2026 filing data).
• Average annual premiums in 2025 were $9,325 for single coverage and $26,993 for family coverage, and workers paid $1,440 and $6,850 of those (KFF Employer Health Benefits Survey, 2025).
• Texas state continuation lets a former employee keep group coverage for 9 months if the group is not covered by federal COBRA (Texas Department of Insurance).
• Texas has not expanded Medicaid, and an estimated 605,000 Texans are in the coverage gap (healthinsurance.org, 2026).

What is small business health insurance in Texas?

Small business health insurance in Texas is group medical coverage that an employer sponsors for its employees. The employer picks the plan, pays part of the premium, and the employees pay the rest. A Section 125 plan can lower the payroll tax on the employee share.

Texas sets the size of a small employer in the Texas Insurance Code. A small employer averaged at least 2 but not more than 50 employees on business days during the preceding calendar year (Texas Insurance Code, Section 1501.002). Texas also requires a small group insurer to issue coverage to any group of two or more employees, even a group of two married owners (healthinsurance.org, 2026). A solo owner with no employees buys individual coverage instead, and our Texas health insurance guide covers that market.

Texas small employers have three main routes. A fully insured group plan is the most common. A level-funded plan can cost less for a healthy group, and our level-funded health plan guide explains it. An individual coverage HRA lets employees shop for their own plan, covered in our ICHRA guide. Summit Health Benefits also publishes a Texas small business health benefits page and a national small business health insurance overview.

Do Texas small businesses have to offer health insurance?

No. A Texas small business does not have to offer health insurance unless it reaches the federal threshold for an applicable large employer, which is 50 or more full-time equivalent employees (IRS, Employer Shared Responsibility Provisions).

An employer at that size must offer coverage to at least 95% of full-time employees and their children, or face a penalty (IRS, Employer Shared Responsibility Provisions). Below 50, the choice is yours. Of the 435,158 Texas employer firms with 1 to 19 employees and the 58,660 with 20 to 499, many offer coverage to compete for workers (SBA Office of Advocacy, 2025). KFF found that 59% of smaller firms offered benefits in 2025, versus 97% of firms with 200 or more workers (KFF, 2025).

How much does small business health insurance cost in Texas?

Small business health insurance in Texas costs about what it costs employers nationally, and 2027 filings point higher. KFF reports averages by plan type but not by state, so the national numbers below are the best sourced benchmark.

Table: 2025 average group premiums and the 2027 Texas rate outlook

Source: KFF Employer Health Benefits Survey (2025) and ACASignups.net (August 2026). Monthly figures are the annual averages divided by 12. The employer share is the annual premium minus the worker share.

The average single deductible for workers with a general deductible was $1,886 in 2025 (KFF, 2025). For 2027, Texas small group insurers filed rate requests averaging +16.9%, compared with +14.1% in the Texas individual market (ACASignups.net, based on the federal rate review database, August 2026). Filings can change during state review, so treat the number as a signal to get quotes early, not a final price. The same filings show 8 carriers filing for small group coverage and 5 remaining for 2027.

Here is what the averages mean for payroll. A Texas employer with 10 employees on single coverage at the KFF averages pays $93,250 a year in total premium, of which the employer pays $78,850 and the workers pay $14,400 (KFF, 2025, calculated). If a 2027 renewal lands at the +16.9% average, total premium rises by about $15,759 a year, to about $109,009. This is an illustration built from national averages, not a quote.

How does a Section 125 plan lower a Texas employer's health plan cost?

A Section 125 cafeteria plan lets employees pay their share of premiums with pay that has not been taxed yet. That lowers the wages the employer pays payroll tax on.

The employer FICA rate is 7.65% (IRS Publication 15, 2026). Every dollar of employee premium moved to pre-tax saves the employer 7.65 cents. Take the 10-employee example above. Each worker pays $1,440 a year toward single coverage. Moving that pre-tax saves the employer 7.65% of $1,440, which is $110.16 per employee a year, or $1,101.60 for the team. The worker saves too. At the same $1,440, an employee in the 12% federal bracket saves about $172.80 in income tax plus $110.16 in FICA, about $283 a year (IRS Publication 15, 2026; IRS Revenue Procedure 2025-32, 2026 brackets).

Premium contributions alone produce a modest number, because workers pay a small share of single coverage. Summit Health Benefits runs a Section 125 plan with a $35 per enrolled employee per month administration fee that is paid out of the FICA savings the plan creates. Summit's plan design produces employer FICA recapture of about $91 to $136 per enrolled employee per month, so the employer nets about $56 to $101 per enrolled employee per month (Summit Health Benefits, 2026). Your own number depends on which benefits run through the plan, so run the Section 125 savings calculator with your headcount and premiums.

What are the small group health plan options for Texas employers?

Texas small employers can buy a fully insured group plan, a level-funded plan, or fund an individual coverage HRA. Each fits a different size, budget and risk tolerance.

A Section 125 plan sits on top of the first three. It does not replace the plan, it changes how employees pay their share. Our best small business health insurance guide lists carriers, and our group health insurance quotes checklist covers what a broker needs from you.

What happens when a Texas employee leaves a small group plan?

A Texas employee who leaves a small employer may keep the group coverage for 9 months under Texas state continuation, if the group is not covered by federal COBRA. Federal COBRA applies to employers with 20 or more employees.

The Texas Department of Insurance says state continuation is available to people who are not eligible for COBRA and who had the coverage for the 3 months before the job ended. The employee pays the full premium, and state continuation does not apply to self-funded plans, because the state does not regulate them (Texas Department of Insurance). Texas employers under 20 employees should put these rules in their termination checklist. Our Texas COBRA alternatives guide covers what a departing worker can do next, and our COBRA guide explains the federal rules for larger groups.

Is there a tax credit for small business health insurance in Texas?

Yes. The federal small business health care tax credit can cover up to 50% of premiums for qualifying employers, and it is not limited to Texas. It applies to employers with fewer than 25 full-time equivalent employees whose average wages are below the IRS limit, generally through a SHOP Marketplace plan, and it runs for 2 consecutive tax years (IRS, Instructions for Form 8941).

Ask a broker whether SHOP coverage is available for your group before you count on the credit. Our small business health care tax credit guide has the worked math and the current wage limit.

How do I get small business health insurance quotes in Texas?

You get quotes by giving a broker or carrier your employee census, your ZIP codes, and your current plan. Ask for at least three quotes and compare the deductible and out-of-pocket maximum, not only the premium.

Copy and send this request, and fill in the brackets:

Subject: Small group health insurance quote request, [Company Name], Texas

>

Hello, I run a business in [City], Texas with [number] employees. I would like quotes for a [January 1 / other] effective date. Please quote a fully insured plan and, if available, a level-funded plan. Attached is my census with each employee's age and ZIP code. I plan to contribute [percent] of the employee-only premium. Please include the deductible, out-of-pocket maximum, network and 2027 renewal outlook for each option. Thank you.

Frequently Asked Questions

Sources: Texas Insurance Code, Section 1501.002, Definitions (Texas Legislature, via FindLaw); SBA Office of Advocacy, Texas 2025 Small Business Profile (June 2025); KFF, 2025 Employer Health Benefits Survey (2025); ACASignups.net, Texas 2027 rate changes, from the federal rate review database (August 2026); Texas Department of Insurance, Health care coverage guide, state continuation section; healthinsurance.org, Texas health insurance overview (2026); IRS, Employer Shared Responsibility Provisions; IRS Publication 15, Employer's Tax Guide (2026); IRS Revenue Procedure 2025-32 (2026 inflation adjustments); IRS, Instructions for Form 8941; Summit Health Benefits, Section 125 program terms (2026).