Health Insurance Costs Are Growing Too Expensive for Small Businesses

March 01, 2024 - While small businesses know the advantages of providing health insurance, many employers are concerned about the rising costs of health benefits, with most businesses that do not offer health insurance saying it is too expensive for them to cover, according to a survey from eHealth.

In January 2024, eHealth interviewed 560 small and mid-sized business owners using a third-party survey tool. Almost half of the participants ran businesses with less than 50 employees.

Small business owners are aware that offering health insurance is key to attracting and keeping high-achieving employees.

“It’s a challenging time for smaller employers,” the survey began. “Most say it’s harder to find good workers today than it was three years ago. While some simply can’t afford it, offering group health insurance helps many to hire and retain quality employees.”

Over two-thirds of small business employers reported that they offer group health benefits (68 percent). Nine out of ten of them agreed that this approach positively impacted their hiring and worker retention rates. This is crucial for employers in an environment where over eight in ten employers say finding and keeping strong talent is harder today than three years ago.

Whether employers offer healthcare coverage, whether they will continue to offer coverage—it all comes down to cost. For most small businesses (82 percent), coverage costs $200 or more per employee each month, and 29 percent spend at least $500 per month per employee.

Over a third of respondents said that they could not cover health benefits because the cost was out of reach (35 percent). A third of respondents could spend up to $100 per month on each employee—less than half what the typical small business actually spends on these benefits per employee per month. Another 17 percent could manage to spend $100 to $200 per employee per month.

For those who currently can afford coverage, the situation is still tenuous. Many say it would not take much of an increase to make health insurance unaffordable, with 47 percent of employers offering group health insurance plans saying that a 15 percent premium boost would make it impossible for them to offer healthcare coverage.

The costs of health insurance extend beyond dollar amounts for small business employers. The administrative burden can be overwhelming as well. Three out of ten employers called the group health insurance plan benefits administration a “huge burden.”

Employers do not have to offer group health insurance plans. Individual health insurance plans can be a very effective source of coverage for small business employees. However, new regulations and lack of awareness about individual health insurance options stymie uptake among employers.

New policies that go into effect in March 2024 could make gig workers eligible for health benefits, but 47 percent of employers did not know about this development. Additionally, over half of the employer respondents did not know about individual health coverage reimbursement arrangements (ICHRAs), a prominent group health plan alternative (55 percent).

While many large businesses are also struggling with unsustainable costs and hiring challenges, large employers have significant influence over health insurance costs. Small businesses, on the other hand, have little leverage and face a steep cost cliff. These employers may need to improve their awareness about alternatives to group health insurance coverage in order to remain competitive.