Health insurance premiums are putting major pressure on small businesses, according to a new analysis from the JPMorganChase Institute.
More than half of workers in the U.S. are covered by employer-sponsored health plans, which makes premiums a key issue for a large swath of the population. More than 27% of people in the private sector work for a small business with between one and 49 employees, according to the study.
Many (81%) small businesses have no employees, and so can secure coverage for themselves on the Affordable Care Act's exchanges if they don't have another source, such as a family member's plan. However, the study found that health costs are an increasing concern for both non-employers and small businesses with employees.
Premiums represent a growing chunk of expenses for non-employers, according to the report, increasing more quickly than overall expense growth.
Health costs are also on the rise among small businesses who do have employees, the study found. For organizations bringing in less than $600,000 in revenue each year, insurance premiums accounted for about 12% of payroll expenses. By comparison, they were 7% of payroll expenses on average for firms with $2.4 million or more in annual revenue.
Close to half of small businesses reported a loss within the past five years due in part to rising premiums, the study shows.
Dan Mendelson, CEO of Morgan Health, the banking giant's healthcare arm, told Fierce Healthcare small firms are seeking new insurance products that meet their needs on both cost and quality, as that also remains a challenge.
"What the data shows is that small businesses, in particular, see health insurance premiums eating up a bigger and bigger portion of their expense basis," he said. "And a lot of these small businesses are not at profitability because of health insurance costs going up."
The study found premiums rose by 19% for the median firm over the past five years. For example, a firm that spent $400 on insurance premiums in 2018 saw that increase to $476 by 2023.
For firms that offer coverage to employees, there are several factors at play that could be driving up their payroll burden related to premiums, according to the report. For one, they likely have far more limited negotiating power in working with payers given their small size, and there is a dearth of plans specifically designed for this size of business.
Ultimately, the costs associated with providing or accessing health coverage for small businesses could hinder entrepreneurship or innovation that drives economic growth, the researchers said.
"Lack of health insurance could dissuade potential entrepreneurs from starting businesses that could contribute to innovation and economic growth," they wrote. "While most small businesses may not grow large enough to impact economic growth, the business starts, growth, and exits are important for how the economy reallocates its resources. An economy without this business dynamism risks stagnation."