Health Coverage for Tennessee Small Employers: The Three Models

If you run a small business in Tennessee and you're evaluating health coverage for your team, there are three main models. This page explains them at a high level — the concepts, the tradeoffs, and the market context — so you can have an informed conversation with a licensed broker or tax advisor. We don't publish contribution formulas or setup specifics here; those depend on your business and need professional advice.

Model A: SHOP — the small-business marketplace

SHOP (Small Business Health Options Program) is the small-business side of HealthCare.gov. You shop for group plans, choose how much of the premium to cover, and your employees enroll. It's the most traditional of the three: one group plan (or a limited choice of them), employer-selected, with the administrative simplicity of buying through the federal marketplace.

Model B: ICHRA — reimburse employees for their own plans

With an Individual Coverage Health Reimbursement Arrangement, the employer reimburses employees tax-free for individual-market premiums they buy themselves — typically on HealthCare.gov. Instead of picking one group plan for everyone, you set a reimbursement budget and each employee shops for the plan that fits them. The tradeoff: more employee choice, but you're asking employees to navigate the individual market, and the tax and compliance details matter.

Model C: QSEHRA — the simpler option for very small employers

The Qualified Small Employer Health Reimbursement Arrangement is a simpler reimbursement model designed for very small employers. Like an ICHRA, it reimburses employees for individual coverage rather than buying a group plan — with tighter limits and simpler administration. Which reimbursement model fits depends on your headcount and how much complexity you can absorb.

The 2027 market context

For context on costs: small-group rates in Tennessee rose about 14.7% on average for 2027 — part of a broader year of steep increases (individual-market approved increases averaged roughly 15.6–15.9%, and one major carrier, Cigna, is exiting the individual market entirely at the end of 2026). Whatever model you choose, budget for a market where premiums are moving up significantly.

How to compare

When weighing the three models, compare on total cost and on people, not just the premium line:

• Total employer cost — premiums or reimbursements, plus administration, plus your time.
• Employee needs — a young single workforce and a workforce of parents near 65 want very different things; reimbursement models let each person choose.
• Predictability — a defined reimbursement budget is easier to forecast than renewing group premiums in a 14%+ increase year.
• Compliance burden — reimbursement arrangements have tax and notice rules. This is exactly what a broker or tax advisor earns their fee on.

FAQ

What's the real difference between an ICHRA and a QSEHRA? Both reimburse employees tax-free for individual coverage instead of buying a group plan. The QSEHRA is the simpler, more limited version aimed at very small employers; the ICHRA is more flexible but carries more setup and compliance work. A tax advisor can tell you which fits your headcount.

Can my employees get marketplace subsidies if I offer an ICHRA? The interaction between employer reimbursement offers and premium tax credit eligibility has specific rules — this is a question for your broker or tax advisor, not a web page.

Is SHOP the same as buying on HealthCare.gov myself? No. SHOP is the small-business marketplace for employer group coverage; the individual marketplace is for people buying their own plans. They're separate doors on the same federal platform.

With rates up ~14.7%, should I just drop coverage? That's a business decision with tax, recruitment, and retention consequences. Before dropping anything, price the reimbursement models — a defined ICHRA or QSEHRA budget may cost less than renewing a group plan while still giving employees real help.

Sources

• SHOP marketplace for small businesses — HealthCare.gov
• ICHRA and QSEHRA reimbursement arrangement frameworks — HealthCare.gov, CMS
• 2027 Tennessee small-group average rate increase (~14.7%) — TN Dept. of Commerce & Insurance rate filings
• 2027 individual-market context (avg ~15.6–15.9% increases; Cigna exit 12/31/2026) — TN Dept. of Commerce & Insurance

Related

• The marketplace explained
• Employer coverage (planned)
• How costs work
• When you can enroll
• How we verify our information

Your next step

1. Write down your constraints. Headcount, budget, and what your employees actually need — this determines which of the three models is even viable.
2. Price all three models. Get SHOP group quotes and sketch reimbursement budgets for ICHRA/QSEHRA against the ~14.7% small-group increase backdrop.
3. Talk to a licensed broker or tax advisor. Setup specifics, contribution design, and tax treatment need professional advice tailored to your business.
4. Revisit annually. In a market moving this fast, the right model this year may not be the right model next year.