The rapidly increasing cost of health insurance is “crippling” small businesses across the United States, according to a new report from the National Federation of Independent Business (NFIB).
Participation in the small group market, where most small businesses purchase health coverage, is in a “death spiral,” the report states. The number of participants in the market has dropped significantly, with a decrease of 7.4% from 2022 to 2023.
“The market ended the year in 2023 with 8.5 million participants, compared to nearly 15 million in 2014,” the report says. “In addition, issuer participation has declined from an average of 13 in 2015 to only five in 2020 and continues to fall.”
Premiums Skyrocket for Small Employers
According to the report, the cost of individual health insurance plans has surged by 120% for firms with fewer than 50 employees, while average family premiums have risen by 129% over the last two decades.
Ninety-eight percent of small businesses report concerns about their ability to afford health insurance in the next five years due to increasing premiums and fewer coverage options. Many small businesses are now exploring insurance quotes online to compare costs and find more affordable coverage options.
Despite these challenges, small businesses continue to recognize the importance of offering health benefits.
“Sixty-three percent of all employers believe that providing health insurance to recruit and retain employees is very important,” the report says. “However, almost all (94%) of small employers find it challenging, to some degree, to manage the cost of providing employer-sponsored health insurance.”
For small firms earning less than $600,000 in annual revenue, the median health insurance payroll burden is nearly 12%, compared to just 7% for firms with revenues exceeding $2.4 million. Small businesses struggling with health insurance costs are also facing rising expenses in home and auto insurance, further stretching already tight budgets.
Small Businesses Absorb Cost Increases
Nearly half (49%) of small business owners report absorbing rising health insurance costs through lower profits, while 46% are raising prices to offset expenses, impacting their ability to remain competitive. Many business owners are also reviewing home insurance quotes and house insurance quotes to reduce operational costs wherever possible.
“The inability of small employers to provide affordable health insurance and compete with their larger counterparts will have severe consequences for the broader economy, federal spending, and the overall health of the small business economy,” the report says.
Without intervention, the crisis could lead to increased employee turnover, difficulty attracting talent, and reduced innovation, job creation, and economic dynamism, the report warns.
Calls for Policy Reforms
The report urges Congress to take action and proposes several measures to support small businesses, including:
- Protecting employer-sponsored insurance
- Targeted health insurance tax credits for small businesses
- Expanding individual coverage health reimbursement arrangements (ICHRAs)
- Employer pooling arrangements
- Expanding access to health savings accounts (HSAs)
- Protecting small business access to stop-loss insurance
- Increasing affordable coverage options
- Eliminating one-size-fits-all mandates that drive up premium costs
- Promoting price transparency and price certainty
- Discouraging hospital consolidation
- Lowering prescription drug prices through innovation
“The rising cost of health insurance continues to strain small businesses, disproportionately burdening them with unsustainable premiums and red tape, particularly compared to their larger counterparts,” the report says. “Without targeted policy reforms, the few coverage options available, such as those sold in the small group market, will continue to decline. Millions may lose access to affordable employer-sponsored health coverage, which most Americans prefer over other options.”
As these challenges persist, small businesses must carefully manage their finances, including reviewing accounting for startups to ensure they are making the best financial decisions. Finding the best payroll for small business can also help firms optimize costs while ensuring employees receive competitive compensation and benefits.
Industry-Specific Solutions Emerging
Recognizing the ongoing challenge of rising insurance costs, the Society of Collision Repair Specialists (SCRS) has been working on industry-specific programs to help businesses in the collision repair sector.
These plans focus on reducing costs for both employers and employees while offering more competitive benefits, such as larger lists of no-cost services that would typically count toward deductibles in traditional plans. Employees can access coverage immediately without facing high out-of-pocket costs before benefits become available.
SCRS has partnered with financial technology firm Decisely to expand the program’s offerings, which are available to employers with as few as two employees.
Features of the SCRS Association Program
One example product within the SCRS program includes:
- $0 deductibles and employee-selected out-of-pocket maximums ranging from $3,000 to $7,000
- No-cost visits to primary care physicians, specialists, urgent care, labs, and X-rays
- Free generic prescriptions and mental health services
- Coverage through Aetna and Cigna networks
As small businesses continue to navigate rising health insurance costs, solutions like these may provide relief for some industries. However, without broader policy changes, the crisis in the small group market is expected to deepen, further straining small employers and their workforce.
Additionally, business owners should explore options such as auto insurance quotes, compare insurance quotes, and automobile insurance to further reduce operational costs. Investing in small business internet services that offer cost-effective solutions can also help businesses streamline operations.
With challenges mounting, business owners are encouraged to seek car insurance quotes, homeowners insurance quotes, and auto insurance plans that align with their financial goals while maintaining essential coverage.
