Trends in Employer Health Insurance Costs, 2014–2023: Coverage Is More Expensive for Workers in Small Businesses

Introduction

Employer-sponsored health insurance (ESI) is the primary source of health coverage in the United States, covering 178 million people, including 63 percent of working-age adults (ages 19 to 64).¹ The associated costs for premiums and deductibles that employees pay can vary considerably based on the size of their employer. ESI is broadly divided into small- and large-group markets by firm size (generally less than or greater than 50 employees), with different regulations affecting employers offering coverage based on this threshold.

About 36 million people in 2023 worked for private businesses with fewer than 50 employees. While most American workers are employed by large businesses, the number of small firms is greater overall (see table below). About 49 percent of those at small firms worked at establishments offering health insurance.⁵ Large employers are more likely to offer health insurance than small employers, with coverage offered to roughly 98 percent of employees in firms with 50 or more workers. Reflecting the much lower offer rates in small firms, an estimated 9.5 million people were covered by ESI at small firms in 2023 (data not shown).

Using the most recent data from the federal Medical Expenditure Panel Survey Insurance Component (MEPS-IC), we explore:

• The differences in costs, quality, and affordability of ESI for employees at small firms compared to large firms.
• Trends in costs to employees of small and large firms at the national level from 2014 to 2023, including how deductibles and employee premium contributions changed over time.
• How costs for workers at small and large firms varied across states in 2023.

Findings

Average total family premiums (both worker and employer contributions) were lower for small firms than large firms at the national level in 2023. Total premiums have risen over time but generally have been lower for small firms than large firms for family coverage since at least 2014.

Despite the lower overall total premium size for small companies, both the amount that their employees contribute to premiums and the size of their plan deductibles are larger, on average, than they are in large companies. A deductible, which is the amount employees pay out of pocket before an insurer pays most health expenses, can pose a significant financial burden on employees. Small-firm employees are paying proportionally more for health plans that provide less — their plans require larger premium contributions and offer less financial protection.

Total premiums were generally lower for small firms than large firms in most states (33 states plus the District of Columbia for single coverage and 47 states plus D.C. for family coverage) in 2023 (Appendix Table 1). Total premiums vary significantly by company size even within the same state. For example, the average annual family premium for small firms in Idaho in 2023 was $14,039, compared to $24,100 for large firms. While premiums at small firms will reflect higher administration and marketing costs compared to large firms, lower total premiums for small firms across states likely suggest differences in the generosity of coverage between small and large firms.⁶

The average dollar amount that workers and their families contribute to their premiums has climbed over time across both large and small firms. But every year since 2017, employees in small companies have spent more for their contribution toward premiums for family coverage than employees in large companies have spent. This likely reflects the growing cost of family plans and small firms’ need to share more of that cost with their workers.

Over time, small-firm employees have paid an increasing share of the total premium cost (Appendix Table 3). In 2017, small-firm employees contributed 31 percent of the premium for family coverage (data not shown), a share that reached 35 percent, on average, in 2023. In large firms, the employee share of family premiums has remained relatively flat.

While workers at small firms paid less on average for single-person coverage than employees at large firms up until 2021, small-firm employees faced slightly higher premium contributions for single coverage in 2023. Small-firm workers also contributed a slightly larger percentage of premiums for single coverage in 2023 (Appendix Table 3).

Insurance premium costs for workers vary not only by the size of their employer but also by the state in which they live (Appendix Table 2). Average annual small-firm employee premium contributions for family coverage in 2023 ranged from a low of $2,232 in Hawaii⁷ to a high of $12,604 in Massachusetts.

For family coverage, employee premium contributions in small firms exceeded those in large firms in 31 states in 2023. For single coverage, small-firm employees in 27 states and the District of Columbia also paid more toward premiums than large-firm employees.

Employees at small firms in 40 states and D.C. pay a higher share of their premium for family coverage than those at large firms. Small-firm workers in Mississippi, Louisiana, and Arkansas contributed more than half of the premium for family plans in 2023. Yet there is high variability in this percentage contribution across states.⁸

For single coverage, employees at small firms in 27 states and D.C. contributed a greater percentage of premiums than employees in large firms.

The state variability in the premium contributions that small-firm workers pay reflects variability in local insurance and health care markets, state insurance regulation, local labor markets, and type of industry. There also has been robust growth in the share of small businesses with self-funded or level-funded plans, meaning they generally do not have to comply with the ACA’s small-group regulations (see “Understanding How the Small- and Large-Group Insurance Markets Are Regulated” above). This trend may place upward pressure on premiums in some small-group markets if these companies have healthier workers on average — as the remaining pool of less-healthy workers will be costlier to cover.

This larger share of premium costs can pose a significant financial burden for employees. Even though total premiums are lower on average for small firms, employees pay for a greater share of it, leading to higher costs for these workers.

An unaffordable deductible can discourage people from seeking care and raise their risk of accumulating medical debt.⁹ Deductibles for both single and family coverage are higher for employees of small firms and have been consistently higher for these workers over time (Appendix Table 4).

In nearly all states (46 and D.C.), workers in small firms had larger deductibles for family coverage in 2023 than those in large firms. In North Carolina, small-firm employees seeking family coverage faced average annual deductibles $3,953 greater than large-firm employees. In nearly every state, single-coverage deductibles were also larger for workers in small firms. Even though those in small firms are paying more in up-front premium contributions, the coverage they receive provides less cost protection: deductibles are larger, on average.

Discussion

Our findings indicate that workers in small firms pay more for health insurance on average and face higher deductibles than workers in large firms. While total premiums have been rising for firms of all sizes, they were somewhat lower for small firms nationwide in 2023 and prior years. But small-firm employees are paying a larger share of the premium than large-firm employees and have larger average deductibles.

Small-business owners are motivated to offer health insurance as a way to compete for workers with large firms, most of whom offer coverage. However, they face unique challenges: small businesses often lack the human resources capacity needed to get the best deal on a health plan; they have limited negotiating power with insurers; and they face higher administrative costs per employee than larger firms do.¹⁰

Workers’ premium contributions and plan deductibles vary across states and within individual states, with costs varying considerably depending on employer size. In three states, workers at small companies contribute more than half the cost of their premium for family coverage. The difference in annual premium contributions for small-firm employees in different states can be as much as $10,000.

These differences reflect variability in local health care and insurance markets, labor markets and industries, and state insurance regulations. The rise in the share of workers in small companies with self-funded or level-funded plans may also be a factor. To the extent these companies have healthier workers, leaving the small-group market may increase premiums for those companies that continue to buy insurance for their employees.

Ultimately, health care cost growth drives premium costs. Compared to other high-income countries, the United States consistently has the highest health care costs.¹¹ One of the drivers of these costs are the prices providers charge for their services.¹² Variation in health care across and within states contributes to state variation in premiums.¹³ While all firms face growing premiums, small employers may have less capacity to absorb these rising costs and may pass on greater portions of these costs to their employees. Half of participating small-business owners in a 2024 survey reported raising employee contributions in response to rising health care costs.¹⁴

What can be done to help reduce the financial burden for employees who are insured through ESI at small firms? Policy options include:

• Require employers to inform workers with employer coverage about their options to enroll in Medicaid. Under the ACA, workers with incomes below 138 percent of the federal poverty level ($20,783 for an individual and $43,056 for a family of four in 2024) are eligible for Medicaid, regardless of whether they are offered a plan through their employer. Medicaid, which has no or low premiums and limited cost sharing, may be a more affordable and comprehensive coverage option for people facing unaffordable premiums or deductibles in employer plans in states that have expanded Medicaid eligibility (40 states and D.C. have expanded).
• Fill the Medicaid coverage gap. Congress could create a federal fallback option for Medicaid-eligible people in the 10 states that have yet to expand their program. This would enable lower-income people with unaffordable employer plans to enroll in Medicaid in those states.
• Make it easier for workers at small firms who are offered unaffordable or low-quality health plans to become eligible for subsidized coverage in the marketplaces. People with an offer of employer coverage that exceeds 9.02 percent of their income or covers less than 60 percent of their health care costs on average (the percentage paid by the plan, also known as its actuarial value) are eligible for premium tax credits through the marketplace if they meet other eligibility requirements. Current tax credits limit premium contributions on the marketplace from $0 (for those with incomes up to 150% of poverty, or $22,590 for an individual and $46,800 for a family of four) to 8.5 percent of income (for those with incomes at 400% of poverty and above, or $60,240 for an individual and $124,800 for a family of four).
  
  Additionally, those with incomes under 200 percent of poverty ($30,120 for an individual and $62,400 for a family of four) are eligible for plans with an actuarial value of 87 percent to 94 percent. Congress could lower the affordability threshold for ESI below 9.02 percent and increase the minimum required actuarial value. Or lawmakers could allow all small-firm employees or those with low incomes to access marketplace plans, regardless of their offer of employer coverage, as Medicaid allows.
• Congress could make permanent the enhanced marketplace premium tax credits that have led to record enrollment in the marketplaces and more affordable options for small-firm workers. Set to expire in 2025, the enhanced tax credits were passed as part of the American Rescue Plan Act in 2021 and extended under the Inflation Reduction Act of 2022. The Urban Institute estimates that if Congress fails to extend these enhanced tax credits, annual premiums would be $387 more for the lowest-income enrollees, who currently pay no premium costs, and nearly $3,000 more for people earning $60,240 or more.¹⁵
• States, which regulate their fully insured employer markets, could improve employer coverage in those plans. Rhode Island, for example, used rate regulation to limit growth in premiums and cost sharing.¹⁶ States could explore other policy options to improve coverage, just as many did before the Affordable Care Act in requiring coverage of young adults on parents’ plans.¹⁷

Small-firm employees are paying more for their health insurance coverage but getting less financial protection in return. By implementing policies like the ones above, lawmakers could help ease the growing financial burden for many workers with coverage through their employers.