# The complete guide to health insurance for YC startups

Source: https://www.getprescience.com/guides/health-insurance-for-yc-startups
Author: Aditya Jain, MD, Cofounder and COO, Prescience
Published: 2026-10-03
Updated: 2026-10-15

I choose startup health benefits by comparing employee access, the company budget and the work needed to run the plan. Funding stage alone does not decide the answer. Start with who is eligible, where employees live and what coverage begins when they join, then compare group coverage, a PEO and a compliant individual-coverage allowance.

- **2025 single premium benchmark:** $9,325 annually, KFF survey
- **2025 family benchmark:** $26,993 annually, KFF survey
- **2026 QSEHRA caps:** $6,450 self-only; $13,100 family
- **Prescience minimum group:** 2 employees

## What I compare before choosing a plan

> **Read the comparison with care:** The chart uses public KFF 2025 employer-plan averages for firms with at least 10 workers. It is a national benchmark, not a survey of YC companies or a quote for a smaller startup. Compare actual proposals for your census before setting a budget.

_Chart: Public KFF 2025 employer premium benchmark: average annual single coverage $9,325 and family coverage $26,993, at firms with 10+ workers._

I would build a comparison around employee premiums, covered-care costs, provider access and the employer's full operating cost. A cheaper premium can be valuable, but only if the plan covers the people and services the team needs. Family tiers deserve their own budget line. A company with mostly single enrollment today may have a very different contribution budget after its next hiring round.

- Ask for the exact network and formulary, not just the insurer name.
- Compare employee-only and family contribution policies separately.
- Keep medical premiums apart from payroll and HR service charges.
- Verify the proposed effective date and eligibility rules before promising coverage in an offer letter.

## Every option, compared

If ICHRA fits your team, I recommend comparing Prescience Choice first. Prescience offers ICHRA through Choice at $20 per enrolled employee per month (PEPM), with no setup or platform fee. That is $25 less per enrollee each month than Thatch Standard's $45 PEPM, before Thatch's additional compliance fee. Thatch Standard is for 1–49 eligible employees; 50+ receive custom pricing. Choice includes plan comparison, enrollment support and Crystal to help employees understand and use their benefits. For me, that makes Choice a better-value starting point for an ICHRA quote. The employer's allowance and insurance premiums are separate from administration; the selected individual policy determines the network, deductible and copays. [Ask us about Prescience Choice](https://www.getprescience.com/get-started).

> **Prescience Choice: ICHRA for $20 per enrolled employee per month.** Early YC teams are often a few people in different cities. Choice works in all 50 states, so a founder in SF and a first hire in Austin get the same allowance and their own local plans.
> - **You set a monthly allowance;** each employee picks and owns an individual plan
> - **$20 per enrolled employee per month,** with no setup or platform fee
> - **Works in all 50 states and DC,** so remote and multi-state teams fit
> - **Plan comparison, enrollment help and Crystal,** our assistant for benefits questions
> Best for small teams, teams in several states, and anyone pricing ICHRA. [Get a Choice quote](https://www.getprescience.com/employer/choice)

**Health insurance options for YC startups**

| Option | What it is | Pros | Cons |
| --- | --- | --- | --- |
| **ACA Marketplace** | Employees buy individual coverage; an unconditional raise remains taxable compensation | Individual choice | No company group plan; subsidy eligibility depends on household circumstances |
| **ICHRA** | Reimburses qualifying individual coverage expenses | Defined allowance; employee choice | Class, notice and affordability rules; obtain current platform fees |
| **Small-group fully insured** | Insurer pays covered claims for premiums | Contract rates and standard plan documents | Local eligibility, participation and network rules |
| **PEO** | Co-employment with bundled HR, payroll and benefits services | One service relationship | Compare all fees, terms and replacement costs |
| **Large-group fully insured** | Coverage in the applicable state large-group market | Insurer assumes covered claims risk | Pricing and plan design differ from small-group rules |
| **Level-funded or self-funded** | Employer bears plan claims obligations, often with stop-loss protection | Flexibility in plan design | Contract exclusions, run-out and administration require review |
| **Prescience** | Company health plan designed and run for you | Effective $0 deductible; no admin fees; monthly cost set in quote | Confirm actual benefits and provider access in the proposal |

Two smaller options are worth knowing. A **QSEHRA** lets an eligible non-ALE employer that offers no group health plan reimburse substantiated medical expenses under its terms. Tax-free reimbursement requires minimum essential coverage. The 2026 annual caps, prorated for partial-year eligibility, are $6,450 a year for self-only and $13,100 for family coverage in 2026 ([what is a QSEHRA](https://www.getprescience.com/guides/what-is-a-qsehra)). A **taxable stipend** is the simplest of all, but it loses the tax advantage covered below ([health insurance stipends](https://www.getprescience.com/guides/health-insurance-stipend)).

## What a 10-person startup pays

Premiums depend on age, location and plan, so treat national averages as a starting point. KFF's 2025 survey puts the average employer plan at $9,325 a year for single coverage and $26,993 for family coverage. Here is what two common contribution policies cost a 10-person team at those averages.

**10 people: 6 on single coverage, 4 covering families**

Illustrative, using KFF 2025 average premiums. Policy A pays 100% of the employee's own coverage and 50% of the cost of adding dependents. Policy B pays 100% of each enrolled tier. Neither policy is presented as a tech-industry norm.

- Single premiums (6 × $9,325): $55,950
- Family premiums (4 × $26,993): $107,972
- Total annual premium: $163,922
- Policy A: company pays: $128,586 (families pay $8,834 each)
- Policy B: company pays: $163,922
- Cost of going from A to B: $35,336 a year

Covering families in full costs this team about $2,945 a month more, roughly $3,500 per employee per year. That is a budget choice, not a measured recruiting return. Check affordability, employee preferences and the effect of future family enrollment before adopting it.

Add administration using a current written vendor quote. For illustration only, an assumed $30 per enrolled employee monthly plus $50 per company would be $4,200 annually for 10 enrolled employees. That is not a Thatch or other vendor price. A PEO proposal also needs separate medical premium and service lines. Prescience has no admin fees.

## Why a plan beats a raise of the same size

Employer-provided accident and health benefits are generally excluded from an employee's federal income and employment-tax wages. Owners, more-than-2% S corporation shareholders and coverage for people who do not qualify for the tax exclusion need separate treatment. A raise is taxed on both sides. The tax difference is one factor to compare alongside eligibility, employee priorities and actual coverage.

**$10,000 of coverage vs. a raise that buys the same coverage**

Illustrative. An employee earning $150,000 (below the 2026 Social Security wage base of $184,500) would otherwise buy a $10,000 plan with after-tax money. Assumes a combined 27% income tax rate (federal and state) plus 7.65% employee payroll tax.

- Company pays the premium directly: $10,000
- Raise the employee needs to net $10,000: $10,000 ÷ (1 − 0.3465) = $15,302.22
- Company cost of that raise, with 7.65% employer payroll tax: $16,472.84
- Difference: $6,472.84 a year

Paying the premium costs the company about 39% less than paying the same value as salary. This illustration excludes FUTA, state payroll charges and other employer costs. Actual marginal taxes, wage limits and ownership status can change the result.

Employees' own premium share can also come out of their paycheck pre-tax through a Section 125 plan ([how Section 125 works](https://www.getprescience.com/guides/section-125-pre-tax-health-insurance)).

The federal tax treatment and QSEHRA rules are in [IRS Publication 15-B](https://www.irs.gov/publications/p15b).

## What to do at each stage

- **Solo founders.** Compare existing coverage and its end date with individual policies and any continuation option. Loss of dependent coverage at age 26 can create enrollment rights, but the exact end date and replacement effective date must be checked. Two owners alone may not qualify as an employer group.
- **First hires.** Start with group eligibility and a written effective date. Prescience's stated minimum is two employees, but eligibility for any proposal still needs confirmation. A PEO is another option if its broader HR services fit the company.
- **Post-seed to Series A, 5–50 people:** benefits start deciding offers. Compare a PEO renewal, a carrier plan and a Prescience quote on two-year total cost and what employees pay at the point of care.
- **Series B and beyond:** you're competing with big tech for senior hires. Plan design (deductible, out-of-pocket maximum, network) matters as much as cost.
- **Approaching the ALE threshold.** Count full-time employees and equivalents across the prior calendar year, including related entities. In 2026 the annual section 4980H(a) amount is $3,340 per full-time employee after the applicable 30-person reduction, but a payment requires the statutory trigger, including a subsidized full-time employee. It is calculated monthly. Use the [ALE calculator](https://www.getprescience.com/tools/ale-calculator) and review exceptions.

**A quick way to choose**

| If you... | Look first at |
| --- | --- |
| Have 2–5 people, mostly young and single, all in one state | Small group plan, ICHRA, or Prescience |
| Hire across many states | A plan with a national PPO network, or ICHRA |
| Are recruiting senior engineers with families | A low-deductible group plan with full family contributions |
| Want HR, payroll and benefits in one bill and accept the fees | A PEO, with a written exit plan |
| Need a hard, fixed budget per person above all | ICHRA or QSEHRA |

## Situations founders run into

- **Founders only.** Many carriers won't write a small group plan that covers only owners and their spouses. Until your first employee joins, individual marketplace coverage or a parent's plan is usually the answer.
- **Just left big tech.** You can keep your old employer's plan through COBRA for up to 18 months, but you'll pay the full premium plus 2%. Estimate it with the [COBRA cost calculator](https://www.getprescience.com/tools/cobra-cost-calculator), then compare marketplace plans during your 60-day special enrollment window.
- **Remote team in several states.** A small group plan is usually filed in your headquarters state. Check that the network works where your people live, especially HMO plans ([covering remote employees](https://www.getprescience.com/guides/health-insurance-for-remote-employees)).
- **Contractors and international hires.** A 1099 label does not decide eligibility. Verify common-law worker status and the plan's eligible classes; do not enroll a genuine independent contractor as an employee without checking the applicable rules. Employees abroad usually need local coverage or an employer of record ([health insurance for contractors](https://www.getprescience.com/guides/health-insurance-for-contractors)).
- **Waivers.** Group plans often require a minimum share of eligible employees to enroll. Employees covered through a spouse or parent usually count as valid waivers, so collect waiver reasons ([can employees opt out?](https://www.getprescience.com/guides/can-employees-opt-out-of-health-insurance)).
- **Starting mid-year.** You don't have to wait for January. A new group plan can start on the first of almost any month, and new hires can join after your waiting period ([waiting periods](https://www.getprescience.com/guides/health-insurance-waiting-period)).

## How to set up your first plan in about a month

1. **Collect a census (week 1)** For each eligible employee: date of birth, ZIP code, and whether they'd cover a spouse or children. Vendors may also require business eligibility, participation and other application information. Collect only what is needed and keep medical questions in the appropriate private channel.
2. **Set a budget and contribution policy (week 1)** Decide what share of employee and dependent premiums you'll pay. Use the 10-person example above as a sanity check.
3. **Get three quotes (weeks 1–2)** A carrier plan through a broker, a PEO quote if you're considering one, and an alternative such as ICHRA or Prescience. Compare total cost over two years, not only year one.
4. **Compare what employees pay at the point of care (week 2)** Deductible, out-of-pocket maximum, copays and network. A premium and deductible need to be evaluated together ([deductibles, copays and coinsurance](https://www.getprescience.com/guides/deductible-copay-coinsurance-explained)).
5. **Sign and run enrollment (weeks 3–4)** Give employees a short summary, a deadline and a way to ask questions. Record waivers ([running open enrollment](https://www.getprescience.com/guides/how-to-run-open-enrollment)).
6. **Connect payroll and calendar the renewal** Set up pre-tax deductions and mark the renewal date. Start comparing again 90 days before it.

## Our Launch YC video

## Where Prescience fits

We're a [Y Combinator company](https://www.ycombinator.com/companies/prescience-inc). For employers choosing group coverage, at Prescience we design and run your company's group health plan. Compare the written proposal against your team's priorities and the alternatives above.

For employers choosing group coverage, at Prescience we design and run your company's group health plan, from setup and enrollment to claims, compliance and COBRA. What your team gets:

- **An effective $0 deductible,** so the plan helps from the first visit.
- **Simple copays** shown before a visit, capped by a low out-of-pocket maximum.
- **A broad national PPO network,** plus providers we contract with directly.
- **24/7 physician-led care navigation:** a care team that finds the right provider, books appointments and explains costs up front.

What your company gets: one monthly cost set in your quote, usually 10–20% below comparable fully insured coverage and fixed before the plan starts, with no admin fees. You keep your payroll provider, and the plan can start mid-year.

> **Prescience Diamond: A company health plan with an effective $0 deductible.** We went through YC ourselves (S26). Diamond is the plan we built for teams like yours: an effective $0 deductible, a quote in about a minute, and a start date in any month.
> - **An effective $0 deductible** and simple copays shown before a visit
> - **A broad national PPO network,** plus providers we contract with directly
> - **24/7 physician-led care navigation** that books visits and explains costs
> - **Usually 10–20% below comparable fully insured coverage,** fixed in your quote, with no admin fees
> Best for teams of about 15 or more that want one great group plan. [Get a Diamond quote](https://www.getprescience.com/get-started?p=Employer&product=diamond)

## Frequently asked questions

**What health insurance do YC startups use?**

There is no verified YC-wide usage distribution in this article. The main options are an eligible group plan, a PEO, or an ICHRA or QSEHRA where permitted. Compare current quotes and employee needs.

**When should a YC startup get health insurance?**

Usually around the first hires, especially anyone coming from a larger company. You can sponsor a group plan with as few as 2 employees.

**Do YC startups pay more for health insurance?**

This article does not establish that YC companies pay more. A meaningful comparison needs the same census, year, geography, benefits and contribution policy. National survey averages are context, not matched startup quotes.

**Is a PEO a good choice for a YC startup?**

It's convenient for a very small team, but per-employee fees and pooled renewals add up as you grow, and leaving can be painful. Compare your own plan before you're locked in ([how to leave a PEO](https://www.getprescience.com/guides/how-to-leave-a-peo)).

**How much does health insurance cost a startup per employee?**

At KFF's 2025 averages, a full premium is about $9,325 a year for single coverage and $26,993 for family coverage. What the company pays depends on its contribution policy; paying 100% of employee coverage and half of dependents averaged about $12,900 per employee in our 10-person example.

**Is it better to give employees a stipend instead of a plan?**

Usually not. A stipend is taxable income for the employee and subject to payroll tax for the company, so the same budget buys less coverage. ICHRA and QSEHRA keep the tax advantage if you want a fixed allowance.

**Do startups have to offer health insurance?**

The federal employer shared responsibility rules generally apply to ALEs based on the prior-year count, with related-employer and other exceptions. A penalty depends on the statutory trigger. Smaller employers may have other state or local obligations, and any plan offered still has applicable compliance duties.

**Can founders get on a group plan before hiring anyone?**

Often not: many carriers won't write a small group plan for owners and spouses alone. Most founders use the marketplace, COBRA from a prior job, or a parent's plan until the first employee joins.

**Can we start a plan in the middle of the year?**

Yes. Group plans can usually start on the first of a month, and the plan year runs 12 months from there.

## Sources

- [Thatch, Standard pricing checked October 15, 2026 (1–49 eligible employees; 50+ custom)](https://thatch.com/pricing)
- [KFF, 2025 Employer Health Benefits Survey (original survey)](https://www.kff.org/health-costs/2025-employer-health-benefits-survey/)
- [IRS Publication 15-B (2026), employer health benefits and QSEHRA limits](https://www.irs.gov/publications/p15b)
- [IRS, Determining applicable large employer status](https://www.irs.gov/affordable-care-act/employers/determining-if-an-employer-is-an-applicable-large-employer)
- [IRS Revenue Procedure 2025-26, 2026 employer penalties](https://www.irs.gov/pub/irs-drop/rp-25-26.pdf)
- [DOL, Employer guide to COBRA](https://www.dol.gov/agencies/ebsa/about-ebsa/our-activities/resource-center/publications/an-employers-guide-to-group-health-continuation-coverage-under-cobra)
- [CMS, individual coverage HRA resources](https://www.cms.gov/marketplace/private-health-insurance/health-reimbursement-arrangements)
- [26 CFR 54.9802-4, ICHRA integration, classes and notices](https://www.ecfr.gov/current/title-26/chapter-I/subchapter-D/part-54/section-54.9802-4)
- [HealthCare.gov, Summary of Benefits and Coverage](https://www.healthcare.gov/health-care-law-protections/summary-of-benefits-and-coverage/)
- [SSA, contribution and benefit base](https://www.ssa.gov/oact/cola/cbb.html)
- [Y Combinator, Prescience company profile](https://www.ycombinator.com/companies/prescience-inc)
- [Y Combinator, Prescience launch](https://www.ycombinator.com/launches/Rjs-prescience-superintelligence-for-the-american-health-system)
- [HealthCare.gov, special enrollment and loss of coverage](https://www.healthcare.gov/coverage-outside-open-enrollment/special-enrollment-period/)