Small Businesses Face Health Insurance Breaking Point

Business owners face tough choices. Health costs soar. Workers lose coverage.

A new report from the JPMorganChase Institute reveals a troubling trend that affects millions of American workers and thousands of small businesses nationwide. As health insurance premiums continue their relentless climb, small businesses are increasingly making the difficult decision to drop coverage entirely.

The data paints a stark picture. When monthly premiums increase by 10%, the likelihood of a small business discontinuing health insurance rises by over 1%. This might seem like a small percentage until you consider the cumulative effect across the economy and the human impact on workers who suddenly find themselves without coverage.

For restaurant businesses, the situation is dramatically worse. The same 10% premium increase drives a 5.5% increase in coverage discontinuation. Between 2018 and 2019 alone, 36% of restaurant businesses dropped health insurance coverage for their employees. The restaurant industry, with its traditionally thin margins and competitive labor market, represents the canary in the coal mine for what other sectors might soon experience.

The Ripple Effect

When small businesses drop health coverage, the consequences extend far beyond balance sheets. Employees must scramble to find alternative coverage, often at higher individual market rates. Many go without insurance entirely, risking financial catastrophe from unexpected medical events. Businesses lose a crucial recruitment and retention tool in an already challenging labor market.

This creates a downward spiral. As more small businesses drop coverage, fewer healthy individuals remain in risk pools, driving premiums even higher for those businesses still offering insurance. The cycle continues, squeezing more businesses out of the market.

Potential Solutions

The JPMorganChase report highlights a potential path forward that policymakers should consider: expanding access to Association Health Plans (AHPs). These plans allow small businesses to join with self-employed individuals and independent contractors in their industry to purchase health plans in the large-group market.

The key advantage? AHPs are exempt from many Affordable Care Act mandates that drive up costs. This exemption can translate into significantly lower premiums than coverage available on the exchanges, making insurance sustainable for small businesses again.

By pooling risk across a larger group, these plans can negotiate better rates while still providing quality coverage. For restaurants, retail establishments, and other small businesses operating on tight margins, this approach could mean the difference between offering health benefits and leaving employees to fend for themselves.

Finding Balance

The health insurance crisis for small businesses represents a complex challenge requiring thoughtful solutions. While Association Health Plans offer one promising approach, the broader issue demands attention from policymakers, insurers, healthcare providers, and business advocates.

Small businesses form the backbone of the American economy, employing nearly half of all private-sector workers. Their ability to offer competitive benefits directly impacts millions of families. When health insurance becomes unsustainable, everyone loses.

The JPMorganChase Institute report should serve as a wake-up call. The current trajectory is unsustainable, particularly for vulnerable sectors like the restaurant industry. Without intervention, we risk creating a two-tier system where only large employers can afford to offer health benefits.

For self-employed individuals, gig workers, and small business employees, navigating these challenges requires expert guidance and innovative solutions. Finding affordable, quality health coverage remains possible, but increasingly requires specialized knowledge and strategic approaches.

The time for addressing this challenge is now, before more small businesses reach their breaking point and more workers find themselves without the protection health insurance provides.