Small businesses are giving up on health insurance

Investment Analysis Clubs Macro Economic Trends and Risks
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Out of Pocket, Out of Reach

America’s small businesses are giving up on health insurance

Employers and workers confront unaffordable premium hikes, with no relief in sight

By Bob Herman, Stat News, July 7, 2026

It has never been more difficult for employers to offer health insurance for their workers. That’s especially true for America’s small businesses, the backbones of entire communities. More and more, they’re giving up entirely.

America’s employer-based health insurance system — the dominant form of coverage for people younger than 65 — is crumbling. The percentage of working-age adults who get their health coverage from a job has declined from 67% in 1998 to about 60%. It’s also more expensive than ever… [end quote]

Employee health insurance is a Macroeconomic issue. Health insurance premiums are rising faster than wages and inflation, with employers facing their steepest premium increases since the Affordable Care Act became law.

If an employer stops offering health insurance as a benefit, the employee will be thrown into the private insurance market. Many employees don’t qualify for ACA subsidies. Many employees have pre-existing conditions that make them uninsurable or only insurable at very high premiums with very high deductibles.

That happened to me in 2003. I lost my job in 2001 and was on COBRA. My pre-existing condition was a couple of visits to a chiropractor for a backache, nothing serious but it made me virtually uninsurable in DE. My move from Delaware to Washington State was partly driven by the fact that WA State law forces health insurance companies to offer health insurance to people who were losing COBRA after the 18-month coverage period.

Nowadays, ACA-compliant plans are required to cover everyone without price adjustments for pre-existing conditions. But they are very expensive. Healthy people without pre-existing conditions can buy non-ACA-compliant health insurance for half the price. But that’s only to insure for catastrophes (e.g. a broken leg). Each non-ACA compliant policy is different because they exclude many conditions from coverage entirely. And they can (and do) exclude people with pre-existing conditions so they have a low-cost pool.

According to data from the Small Business Administration (SBA) Office of Advocacy, small businesses (<500 employees) employ 45.9% of the total U.S. private sector workforce.

This translates to approximately 62.3 million workers.

While small businesses employ nearly half of all private-sector workers, they make up 99.9% of all businesses in the United States (totaling roughly 36.2 million firms).

The vast majority of those 36.2 million small businesses (around 82%) are actually “non-employer” firms, meaning they are solo ventures run by a single self-employed individual with no additional payroll. The remaining ~6.4 million small businesses are the employer firms that support that 45.9% of the workforce.

Many small towns have NO large employers and are totally reliant on small businesses. When small businesses in rural America are forced to give up on health insurance, it doesn’t just impact individual workers—it threatens the very survival of the community.

The systemic erosion of employer-sponsored health insurance among small businesses is disastrous to workers as well as their communities.

Approximately 62% to 66.5% of all personal bankruptcies cite medical costs or illness-related income loss as a primary driver. Over 75% of individuals who filed a medical-related bankruptcy had health insurance at the onset of their illness or injury. Many were covered by private, employer-sponsored group plans, but faced massive cost-sharing gaps, such as high maximum out-of-pocket limits ($8,000 to $18,000+ for families), or they lost their job-based insurance because they became too sick to work.

This situation will become even worse as the small businesses withdraw health insurance and throw their employees into the individual health insurance marketplace.

Money spent on health insurance isn’t available to families to spend on consumer purchases. It’s a lot of money, rising fast.

To anchor that with current numbers, the Kaiser Family Foundation’s newest benchmark data shows that the average total premium for an employer-sponsored family plan has reached nearly $27,000 per year (with the worker directly paying an average of $6,850 out of their paycheck just for the premium, before deductibles ever kick in). For an individual buying an unsubsidized Silver plan on the individual market, the average cost has jumped to $752 per month ($9,024 a year).

Getting Medicare was such a relief. But the workers of America are carrying a huge and uncertain burden that is a drag on the economy.
Wendy

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There are some cost sharing arrangements available. I know a number of small business owners and employees utilizing them. One of which is called Christian Care. It does require, for those with pre-existing conditions, a window of stability before future treatment is covered. But, the premium cost is reasonable and the coverage is fairly comprehensive. It is an excellent option for those individuals and families that fall in the gap where they do not qualify for Medicaid or subsidized coverage under the ACA. The downside is that it does not qualify for an HSA.

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Employees who are healthy will likely opt out of paying for health insurance in the marketplace. This will create a vicious cycle where the risk pool will become increasingly more expensive to insure, causing premiums to go up, and up, and up.

Other changes from The Big Fugly will also put upward pressure on premiums.

“The implementation of the federal law H.R. 1 also known as the One Big Beautiful Bill Act is driving significant shifts in how individuals and families qualify for coverage and what they pay for their health plans. Further, the expiration of enhanced premium tax credits has affected affordability, reducing the financial support that previously made health insurance more accessible for our members. These federal policy changes negatively affect the risk pool, through the loss of lower-risk members and limit access to more affordable plan options, particularly for our Health Connector members.” – Mass General Brigham Health Plan, Inc. (Massachusetts)

“CHPW anticipates that the potential influx of former Medicaid members related to new HR1 requirements could also affect morbidity and risk adjustment dynamics.” – Community Health Plan of Washington (Washington)

“In accordance with the federal Public Law 119-21 (the “One Big Beautiful Bill” or “OB3”), an additional adjustment of 1.056 was applied to account for temporary legal immigrants losing APTC eligibility in 2027, as well as the continued 2026 impacts of immigrants earning less than 100% FPL losing APTC eligibility. This factor also reflects expected impacts of the reduced state premium subsidies for 2027 and the continued impacts of the subsidy cliff returning for consumers above 400% FPL beginning in 2026.” – Optimum Choice – UnitedHealthcare (Maryland)

This was a game changer for La Demonia, as it was for millions of people with pre-existing conditions. She was diagnosed with rheumatoid arthritis as a kid. Back when I was in school and she worked for a small business child care company, the owners convinced her to refuse health insurance because they argued it would hike premiums for everyone else who worked for them.

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Very likely. And this is why bigger employers require all employees be covered, to help the risk pool and reduce premiums.

It’s also short-sighted by the “healthy”. I’ve had two major surgeries the last 15 years. Neither of those were due to me being unhealthy or making “poor choices”. They could have happened to anyone. And either surgery could have bankrupted most people if they were uninsured.

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Health care inflation is a serious problem. Costs rise faster than inflation. Health care costs continue to eat a larger share of GDP.

This cannot continue. Eventually the problem must be addressed.

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These “cost sharing arrangements” aren’t insurance, and aren’t regulated by your state insurance commissioner.

You may as well buy a crypto-funded health plan.

intercst

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Yep, Washington State has very customer-focused insurance regulation. I suspect mostly because the State Insurance Commissioner is an elected position with a 4-year term, and accountable to the voters.

In Texas, the State Insurance Commissioner was appointed by the Governor and typically was a former insurance company lobbyist.

When I moved from Texas to WA State in 2006, my health insurance premium dropped by 60%.

Minimize the Skim

intercst

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You are correct it is not insurance but a non profit sharing pool. We’ve utilized this one personally and so have several of our friends and clients. There has never been an issue with paying claims. You have no idea what you are talking about in terms of reliability. My own GP uses it and first recommended it to me.

For those that fall in the gap, it’s been a cost effective and reliable solution.

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True dat, but that doesn’t mean they aren’t regulated. Regulations vary from state to state, and can include financial disclosure and consumer protection laws. As with anything, where there’s a willing fraudster, there will be others left holding the bag.

Not all of these programs are the same. Faith-based programs often have strict requirements for members to adhere to their religious principals. Other programs are HSA-eligible, many are not. Pre-existing condition “coverage” rules can vary dramitically from one program to the next.

I agree that they can provide an option-of-last resort to some, but they’re not a good option for many more.

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As to adherence requirements and Christian care, your statement is completely false. It only requires a simple acknowledgement that you believe in God and the principles of Christianity through self attestation. There is no third party verification as to whether an applicant’s statement is true and no ongoing review. Essentially, you are taken at your word, when applying for coverage. One nice thing they do that no insurer has ever done is end each call with a question to members. Is there anyone in your life or anything going on in your life that I can pray with you about today? You can say no or take a moment or share something but it’s your choice.

I wasn’t speaking to the broad category but making a specific recommendation for those that find themselves in the gap that @WendyBG described where coverage is incredibly expensive. I already mentioned it is not HSA eligible and specifically to how Christian Care treats pre-existing conditions.

It’s has become more than an option of last resort. It is a growing industry filling a gap and problem created by the ACA. If you can get coverage for 600 per month vs 1400 and save away the difference for unforeseen medical events, it is question of whether the economics of it and one’s own health situation make it the right approach.

As my own physician says, he saves away the cost savings and if need be, taps it for uncovered items. For younger people that are independent contractors or others that are largely healthy and no regular and recurring expensive medical issues, it may in fact be the ideal solution. It is also more geared for small business owners where the traditional solutions are high priced and they have the means to set aside for expenses within the deductible.

Do you have a recommendation for those that fall into this category or just a critique?

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@FOOLME45 I agree that insurance that is not ACA-compliant may be the best answer for many people. ACA compliance requires coverage of pregnancy and psychological problems (and some others) which may be a total non-issue in the life of the insured but add a lot of cost to the insurance pool.

The real issue is whether the insurer is financially sound enough to cover the cost of an expensive illness, such as cancer which can require surgery, chemo and expensive diagnostic tests. That is the type of catastrophe the insurance is meant to cover - rare but very expensive.

Wendy

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You’ve totally nailed one of the largest problem with the ACA. It attempted a one size fits all in terms of required coverages to meet compliance. It ignores that many consumers are looking for affordable coverage rather than something that covers all the bells and whistles. With it, policymakers failed to realize what these add ons in coverage would do in terms of the base cost.

My recommendation of Christian Care is specific only to that provider. You are correct that individuals need to exercise caution and assess for themselves the financial stability and the actual claims paying history and experience of members.

It is though another example of private markets trying to find solutions and efficiencies to address needs and wants of consumers.

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Traditional Medicare is a “one size fits all” health plan that works very well for seniors – and operates with about 1.2% of program costs lost to Admin expenses.

Bringing in a for-profit Medicare Advantage insurer to “make your health care more efficient” and a high-commission Broker/Medicare Advisor to help you select a plan costs a minimum of 12% in Admin expenses (15% in areas with less competition)., plus what they can take from you in generic drug price gouging. Add in what the insurance company makes with the “prior authorization” scam and you’ll be spending a lot of time on the phone trying to get the health care you thought you paid for.

https://www.wsj.com/health/healthcare/medicare-health-insurance-diagnosis-payments-b4d99a5d

intercst

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Medicare is not a one size fits all in the broad sense. If it were, it would not be just for those that reach a certain age of eligibility or are defined as disabled as defined under SSD.

Part of the cost structure problem of the ACA is the requirement that all coverage include birth related medical care, along with other coverages. This is obviously not an issue under traditional Medicare coverage. In addition, there is a large segment of the population that opts out of coverage entirely, because of employer based coverage, Medicaid, cost sharing arrangements or they simply decide to go without. It skews the pool of covered individuals to those that probably need more medical treatment.

The cost to administer the program is not a reflection of the total cost of the program. It is often cited as a measure of efficiency but is not reflective of the total cost to taxpayers and a metric by which to properly evaluate different medical insurance coverage approaches.

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So…you’re going to counter my statement…

by claiming that all faith-based programs are the same? That’s completely false. Some require regular church attendance. Many won’t cover members who are “living in sin”.

I suppose that if I’m a dishonorable Muslim gay man who’s living with his partner, I could qualify for some of these programs as long as I’m willing to lie. Other programs require a formal attestation from a member of a church and other forms of “proof”.

There are other options that aren’t faith-based, those don’t have the same requirements. Whichever program a healthcare consumer chooses, they should be aware of, and be prepared to comply with the requirements. If not, they could be setting themself up for an expensive lesson.

What gap and problem was created by the ACA? Healthcare costs are going up because the overall healthcare risk pool has been getting smaller and sicker.

If you’re paying $600 per month and none of your cost is covered, it probably doesn’t make sense. I agree that it’s largely dependent on each person’s and family’s medical situation.

There are impactful differences between programs and traditional healthcare insurance, that was my point. It’s important that healthcare consumers understand what these differences are before signing up and being surprised when they aren’t covered.

My recommendation would be to not have a bazillion different options for all sorts of medical / lifestyle situations. Different options increases complexity and cost for everyone. My recommendation would be to mandate coverage for all citizens in order to balance the financial burden of high-cost consumers across a broader, healthier population.

What’s the total cost that you’re referring to?

Medicare efficiency is vastly better than private insurance. That makes sense since it doesn’t have to pay for marketing, complex negotiations with providers, nor does it have profit margins funneling money away from providing care.

Lower efficiency isn’t the only differentiator. Private insurance pays a lot more for the same services, this is one of the factors driving up healthcare costs.

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I am and was speaking only to the Christian Care Program and my experience with it. The original purpose of this program was a recognition that many small churches, their staff, and congregation were struggling to provide or find cost effective healthcare coverage solutions.

Shortly after the passage of the ACA, the market consolidated and many players left the market. The requirement of broad full coverage as base coverage changed the cost structure and created a gap in which the consumers faced enormous increases in costs. Some coverages tripling in cost less than a year after the ACA passage. If effect, the Affordable Care Act made health insurance unaffordable for a segment of the population.

This is separate and apart from the structural problems of the US system and the inflationary issues with medical costs in general.

You described it as coverage of last resort. I can tell you from personal experience and speaking with others it is in fact becoming the best option for a segment of the population. The truth is these sharing programs wouldn’t exist but for the fact the ACA destroyed the private market with a one size fits all approach. It’s another example of where policy ideas had unintended consequences that have made the coverage problem that much worse for a segment of the population.

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For some, it is. For others, it probably makes sense.

The ACA was hardly a one-size-fits-all approach, even when it was initially enacted. Many were pushing for a public option that would have been better, but the heavy lobbying by the private health insurers made that impossible. They feared being pushed out of business. Ultimately, a compromise with the health insurance devils was made.

The mandate intended to ensure everyone was paying in. However, allowing people to opt out and pay the penalty led healthier people to do just that. This created a risk pool that was sicker and more expensive. When the mandate was terminated in 2017, the problem became much worse.

The truth is, the ACA was an imperfect solution to our healthcare crisis. It provided healthcare to many who couldn’t access it before, while increasing cost for some who didn’t require comprehensive care. The whittling away at it since its enactment has made it worse, and worse, and worse.

The ACA is an example of politicians pandering to private industry at the expense of American citizens. Unfortunately, now its failures are used as an argument against universal care, even though it was never even close to existing as a public option.

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Again, my conservation with Wendy was solutions for a very small subset of population. Obviously, for those employed or that fall into one of the govt available programs, those are best for those groups.

Yes, it was and made only a few minor distinctions on coverage, Age, gender and then whether a person smoked or not. Beyond that, it was designed to provide essentially the same level of coverage regardless of medical conditions. If I am wrong, explain to me how the law as enacted was not intended as one size fits all. We may be defining it differently.

It doesn’t matter. The ACA in its final form is what was passed. By the way, much to the objection of the public at large. It was deeply unpopular and ended up being passed through reconciliation. Congress was told to pass it and then they could read it. I doubt the President understood and for sure congress didn’t get it. No doubt the private health insurers played a hand in it. I know people at Anthem that said Democratic leadership effectively booted it to lobbyist to cobble together and write the details. That’s hardly the fault of the insurance industry for protecting itself. It’s feckless politicians that abdicated their responsibilities. Remember, President Obama said from the very beginning that this would be a bill debated and discussed in full transparency of the American Public. He and his advisors did the exact opposite and took it behind closed doors and simply forced a solution to lawmakers. Like with so many things, the bigger concern would be that a failure to pass something would tarnish his Presidency and harm his ability to lead going forward. Obama owns this failure as much as anyone and I bet he has never even actually read the entire legislation.

It was a disaster and increased the cost for almost anyone buying coverage personally in the open market. 9.3 million people lost coverage within the first quarter of open enrollment of the ACA. Under the program, they narrowed the approved treatment networks that excluded major medical centers. Do you remember during the first few weeks of open enrollment, you couldn’t even access the online portal, since it wasn’t even equipped to handle the traffic.

It’s typical of well meaning policy ideas by those that never fully think through all the likely outcomes. It has been neutered over the years but mostly to put it out of its misery and remove penalties that harm the lower and middle class the most.

True and it is an argument as to why government intervention can cause as many problems if not more than they solve. It certainly doesn’t help the argument for Universal healthcare. I suspect we will run into the same problem in the future. It could be that a stripped down low cost ACA policy or a universal care version might be a great solution. But, politicians will start to weigh in with all kinds specialized demands, like mandatory birth care, transgender surgeries and treatment, and then a whole host of other items. The problem is that then puts a price tag on it that may just be wholly unsustainable.

But, if someone wants to put forth a plan in detail (rather than just saying look at Europe), I think we need to find another solution.

  • The stupidity of the American voter… was really, really critical for the thing to pass." – Dr. Jonathan Gruber
    • The Reality: The ACA’s chief architect issued a public apology after NPR released video of him admitting to intentional deceit and utilizing the lack of voter understanding to get the bill passed. [1, 2]
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I could be wrong, but I think people are saying things like “look at Sweden”, not because they think we should do things exactly like Sweden, but rather to suggest that if other countries can figure this out, we should be able to figure it out as well.

Our challenges are not related to a lack of policy ideas. There’s a glut of policy ideas, ranging from universal health care, to public / private options, to making changes to the existing ACA. Those who are getting rich off the status quo want us to believe there aren’t any other options.

Unfortunately, there’s not a big appetite to make any changes as long as our politicians are in the back pocket of Big Healthcare and Big Pharma. Fix that, and fixing healthcare becomes much easier.

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100%

Don’t be divided by ideology.

Let’s find what works, from any ideology.

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