Rising healthcare costs have put increasing pressure on small businesses across the United States. For firms with fewer than 50 employees, offering health insurance has become significantly more expensive over the past decade, forcing many to reevaluate or eliminate this once-common benefit. While employer-sponsored insurance remains a key component of the U.S. healthcare system, small businesses—facing limited bargaining power and narrower profit margins—have struggled to keep up with premium growth. More than a quarter of the U.S. workforce is employed by firms with fewer than 50 employees, yet only 30% of these businesses offer health coverage.
A new analysis by Take Command—a SaaS company that helps businesses provide Health Reimbursement Arrangements (HRAs)—uses data from the Medical Expenditure Panel Survey (MEPS) to examine how rising costs and policy changes have reshaped the small group insurance landscape. The report tracks changes in insurance premiums and overall coverage rates since before the Affordable Care Act (ACA) was passed. It also highlights geographic disparities, identifying which states have seen the steepest declines in small business coverage and which continue to maintain higher levels of employer-sponsored insurance at small firms.
What Percentage of Small Businesses Offer Health Insurance?
Only 30% of small businesses offer health coverage, down from 47% in 2000
The share of small businesses offering health insurance has declined significantly over the past two decades, dropping from 47.2% in 2000 to just 30.1% in 2023. This long-term decline coincides with a sharp increase in the cost of employer-sponsored insurance. Between 2000 and 2023, the average annual premium for small businesses with fewer than 50 employees rose from $2,827 to $7,974—a cumulative increase of 182%. Over the same period, the Consumer Price Index (CPI) rose by only 77%, underscoring how health insurance costs have far outpaced general inflation.
Several factors have contributed to this shift. The Great Recession of 2008–2009 placed substantial financial strain on small firms, many of which responded by cutting back on benefits to stay afloat. During this period, the share of small businesses offering coverage fell from 43.2% in 2008 to 41.0% in 2009 and continued to decline thereafter.
The implementation of the ACA in 2010 further altered the insurance landscape. While the ACA expanded access to coverage through individual marketplaces and subsidies, it also led some small businesses to reconsider the value of offering group health insurance. Since businesses with fewer than 50 full-time employees were exempt from the employer mandate, some firms that had previously offered coverage opted to drop their plans, reasoning that employees could instead purchase subsidized insurance through the exchanges. This shift contributed to the continued decline in coverage among small businesses, with the share falling from 39.2% in 2010 to 29.4% by 2015.
Small employers have also increasingly turned to Health Reimbursement Arrangements (HRAs) as a more flexible alternative. Models like the Qualified Small Employer HRA (QSEHRA) and the Individual Coverage HRA (ICHRA) allow employers to reimburse workers for health insurance premiums or medical expenses up to a set amount, helping firms keep costs predictable while still supporting employee access to care. According to the HRA Council, adoption of HRAs nearly tripled between 2020 and 2024. More than 80% of employers are offering them to provide benefits for the first time—not because they’re required to, but because it helps them attract and retain talent.
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Declines in Small Business Health Insurance Coverage by Industry
The share of wholesale trade businesses offering coverage dropped by nearly 18 percentage points since 2009
While the magnitude has varied, every major sector of the U.S. economy has seen a decline in the share of small businesses offering health insurance since 2009—the year before the ACA was passed.
Some of the steepest declines occurred in industries that historically had higher rates of coverage. In wholesale trade, the share of small businesses offering health insurance fell by 17.6 percentage points—from 54.2% in 2009 to just 36.6% in 2023. Mining and manufacturing firms dropped from 56.9% to 43.6%, while professional services fell from 48.2% to 35.0%. Sectors such as construction, transportation, and financial services all saw double-digit declines as well.
These reductions have directly affected workers’ access to employer health coverage, though the decline in employee access has been less severe than the drop in employer offer rates. In mining and manufacturing, the share of employees at small firms with coverage fell by 12.8 percentage points, while wholesale trade and professional services declined by 12.5 and 11.5 points, respectively. This smaller impact on employees likely reflects that the largest declines occurred among the very smallest firms, which employ fewer workers. Firms closer to the 50-employee threshold have been more likely to maintain coverage, softening the overall effect.
States With the Largest Drop in Small Business Health Coverage
States in the Northeast reported the largest decrease in health coverage among small businesses
States in the Northeast have experienced some of the steepest losses in small business health coverage. In Connecticut, the share of small businesses offering health insurance dropped by 24.6 percentage points between 2009 and 2023—the largest decline in the nation. New Jersey and Vermont followed closely behind, with decreases of 22.7 and 21.5 points, respectively. Other Northeastern states, including New York, Rhode Island, and Delaware, also ranked among the states with the largest declines.
This regional pattern reflects a combination of structural and policy factors. Northeastern states generally had higher small business coverage rates to begin with, leaving more room for declines. Employers in the region also face some of the nation’s highest healthcare and business costs, which can make offering coverage more challenging to sustain. Meanwhile, many Northeastern states developed strong individual insurance markets, which gave small employers more confidence that workers could obtain affordable coverage outside of the workplace.
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The Best & Worst States for Small Business Health Coverage
States in the Southeast and Mountain West have the lowest share of small businesses offering coverage
As of 2023, there remains wide variation in how likely small businesses are to offer health insurance across the United States. Hawaii leads the nation by a wide margin, with 71.8% of small businesses providing coverage—more than twice the national average. This outlier status is largely due to the Hawaii Prepaid Health Care Act, a 1974 state law that requires most employers to offer health insurance to employees working at least 20 hours per week. The District of Columbia follows at 57.0%, benefiting from a high concentration of white-collar industries that offer strong pay and benefits packages.
At the other end of the spectrum, small businesses in the Southeast and Mountain West are the least likely to offer health insurance. In Wyoming and Alaska, fewer than one in five small firms provide coverage—just 18.3% and 13.6%, respectively. Other states in these regions with low offer rates include Idaho (20.5%), South Carolina (20.5%), Utah (20.8%), and Florida (20.9%). Overall, many of the states with the lowest rates are concentrated in regions with fewer insurance mandates, lower average incomes, or more limited access to competitive small group insurance markets.
Final Thoughts
The long-term decline in small business health insurance coverage is often seen as a sign of strain—but it does not necessarily indicate reduced access to care. As long as workers can obtain affordable, comprehensive coverage elsewhere, the shift away from traditional employer-sponsored plans may reflect greater flexibility rather than outright loss. In fact, the national uninsured rate has reached historic lows, a sign that alternative pathways to coverage can be effective.
Rather than eliminating benefits entirely, many small businesses are adopting novel approaches like HRAs, which help control costs while still contributing to employee healthcare. Going forward, the sustainability of coverage for employees at small firms will likely depend on strengthening individual markets, expanding flexible benefits models, and ensuring affordability remains within reach—regardless of how coverage is delivered.
What’s often overlooked is how the absence of health benefits can impact a business’s ability to attract and retain workers. In a competitive labor market, even small contributions toward healthcare can make a meaningful difference. Employers who find creative ways to offer some form of coverage—especially those doing so for the first time—may gain an edge when it comes to hiring and keeping talent.
Methodology
This analysis draws on data from the Medical Expenditure Panel Survey (MEPS), a program administered by the Agency for Healthcare Research and Quality (AHRQ) under the U.S. Department of Health and Human Services. The focus is on private-sector establishments with fewer than 50 employees, with the most recent data available through 2023. Unless otherwise noted, changes are calculated between 2009—the year before the Affordable Care Act was passed—and 2023—the most recent year of available data. Employee-related figures reflect individuals working at establishments that offer health insurance, regardless of whether the employees are enrolled in the offered plans. Premium statistics are average annual single-coverage premiums.
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I wrote this blog because I care about ideas (big and little) that can help fix our healthcare system. I used to work on projects for Kaiser Permanente and the Parkland Health & Hospital System so I've seen the system inside and out. It's so important that consumers keep up with industry shifts and changing health insurance regulations. I'm also Take Command Health's Content Editor and a busy mom. Learn more about me and connect with me on our about us page. Thanks!
