Over the last 60 years, healthcare costs in the United States have outpaced inflation and wage growth. These cost increases often get passed onto businesses and their employees. With over 180 million Americans getting their healthcare through employer-sponsored plans, and health insurance premiums potentially increasing by double digits in 2025 in some states, empowering entrepreneurs to better manage these rising costs could have a significant impact not only on the health of our workforce, but also on the health of our economy.
Health care benefits are difficult to navigate, causing unnecessary angst and worry for our nation’s small business owners. Therefore, we see an imperative to combine our expertise as the nation’s leading small business bank with deep healthcare insights to guide entrepreneurs toward a more sustainable path when it comes to the cost of care.
Small business owners often cite the growing cost of healthcare as a top concern. Over the last five years, health insurance premium payments alone increased 33% for small business employers, and according to a National Federation of Independent Business study, nearly half of all small business owners reported taking a loss to address healthcare costs. With small businesses responsible for creating two-thirds of jobs in the U.S., these concerns have potentially significant implications for the economy.
In fact, small employers continue to face challenges shielding their employees from continuous increases in health costs. Small business employees incur significantly higher healthcare costs than employees of large businesses: the average deductible for small business employees is $1,000 more than it is for employees of large businesses. Those working for small employers also pay $2,500 more toward family premiums than workers of large businesses.
The impact of rising health costs on small businesses extends beyond higher healthcare costs for their employees. With fewer resources available to navigate a complex health insurance market and find suitable health plans for employees, they are often at a disadvantage compared to their larger counterparts. New JPMorganChase Institute research confirms these trends, showing that among firms with less than $600,000 in annual revenues, health insurance premium payments were nearly 12% of payroll-related expenses, compared to 7% among firms with revenues greater than $2.4 million.
What’s more: employers are starting to prioritize value within their health care benefits. Recent research shows that employers have a greater interest in investing in areas like primary care and mental health, as they are proven to yield better patient outcomes and drive downstream cost savings. But the unfortunate reality is that small businesses often cannot offer access to innovative solutions like their larger counterparts.
In a tight labor market, providing competitive benefits to job candidates can bolster recruitment and help retain talent. A healthy workforce also makes for a healthy business, and ensuring employees have access to high-quality health care can help improve productivity, prevent unnecessary sick days and reduce turnover. But the current landscape has placed small employers in the uncomfortable position of having to choose between risking increased financial instability or potentially losing their most valuable asset: their people.
While more innovative solutions are needed to help drive the affordability of healthcare options for employers, there are several steps businesses can take today to address or contain costs without sacrificing the quality of care they cover for their employees.
- Find the right health insurance broker who offers the best options for their specific business: A licensed insurance broker can be a valuable partner when choosing a health insurance plan, but it’s important to look for one who can offer the best options for businesses and employees. Knowing what questions to ask a broker, who are often incentivized by insurance companies, and adding scrutiny to health benefits selection, can ensure businesses are thoroughly evaluating their options each year. Given the complexity of rising health care costs and growing a small business, having a trusted and knowledgeable partner is essential for every business.
- Consider alternative cost management strategies that don’t sacrifice quality or affordability for employees: Some small businesses are at risk of leaving their employees 'underinsured' because options like high-deductible health plans make costs unaffordable. Alternative funding options can provide additional flexibility in plan benefit design while potentially lowering costs for both employers and employees. For example, bolstering insurance benefits with a health savings account can help keep coverage affordable for employers offering high-deductible plans. Additionally, options like an Individual Coverage Health Reimbursement Arrangement can keep costs predictable while maximizing employee choice, or enabling employees to select a high-quality plan on their state insurance exchange.
- Maximize benefits offered each year: Effectively communicating the value of healthcare offered helps employers and employees get the most out of their benefits. Small employers should use messaging that’s relevant to employees’ needs, reflects company values, encourages uptake and extends beyond the open enrollment period. Communication about benefits should also encourage employees to take advantage of their preventative care benefits, like seeing a primary care doctor and getting preventative screenings, contributing to a healthier workforce.
The health of small businesses is synonymous with the health of the American economy. With the right tools and resources, small business owners can make more informed decisions about their healthcare options and not only also improve access, affordability and quality of care for their employees, but also manage costs more effectively.
Chris Wheat is president of the JPMorgan Chase Institute and Dan Mendelson is CEO of Morgan Health.
