Affordable, quality health care. For everyone.

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Affordable Coverage for Small Business Employees

Small businesses—which have historically struggled more than large companies to provide adequate health insurance to their employees—will be one of the first groups to benefit from the Affordable Care Act (ACA), in the form of tax credits designed to offset health insurance premium costs. These credits are an important step toward helping all Americans obtain comprehensive health insurance coverage.

Currently, businesses with fewer than 25 employees pay up to 18 percent more in premiums than large employers do for comparable insurance policies. The difference in costs between large and small firms is due to higher administrative costs, greater per-employee costs of offering coverage, and underwriting in many states that can lead to more costly premiums for sicker, older, or female-dominated workforces.

As a result, small firms are less likely to offer coverage. While 98 percent of businesses with 200 or more workers report offering health benefits, less than half of those with fewer than 10 employees do. Furthermore, less than half of workers in companies with fewer than 50 employees have adequate health insurance compared with more than 70 percent of those in larger businesses.

Enter the Affordable Care Act. Along with the small business tax credit starting this year, provisions that will protect small firms and their workers include:

  • new limits on the amount insurers can spend on administrative costs;
  • new processes to review premium increases; and
  • new preexisting condition insurance plans.

In 2014, small businesses and workers will be able to purchase coverage though state-based insurance exchanges that has an essential benefits package, premium and cost-sharing subsidies, and lower administrative costs. In addition, new rules will prevent insurance carriers from denying coverage or charging higher premiums to companies and workers on the basis of health or gender.

For the nearly 70 percent of small firm workers who attempted to buy coverage on the individual market but found it difficult or impossible and never bought a plan, the ACA offers several new paths to affordable coverage. Learn more in the Fund issue brief "Realizing the Potential of Health Reform: Small Businesses and the Affordable Care Act of 2010," the second in a series of Fund publications that examines the way health care reform will benefit different groups.

Publication Details

Publication Date: September 3, 2010
Citation: S. R. Collins, Affordable Coverage for Small Business Employees, The Commonwealth Fund Blog, September 2010.


Sara Collins
Vice President, Health Care Coverage and Access, The Commonwealth Fund