Small Business Health Insurance Affordability Crisis

Why Small Businesses Deserve a Level Playing Field

The latest NFIB policy report underscores what many in the health policy community already suspect: the small group health insurance market is eroding, and small employers are reaching a breaking point.

Over the last two decades, small business premiums have increased dramatically, by as much as 120% for individual plans and 129% for family plans. At the same time, the percentage of small firms offering health insurance as a benefit to employees has dropped from nearly 50% in 2000 to just 30% in 2023. These employees have been forced to receive their coverage from less desirable ACA plans that have higher deductibles and limited coverage from more narrow networks. Participation in the small group market has declined sharply, with issuer participation dropping from an average of 13 carriers in 2015 to fewer than five in 2020. This means fewer options and higher prices for America's job creators.

In states like Connecticut, major carriers have exited the market, leaving employers with few, if any, viable options. The cost of health insurance has been the top small business concern for nearly 40 years; however, it has become a growing percentage of total operating costs for businesses operating on tight margins. This has disproportionately impacted smaller firms, which pay twice as much for health insurance as their larger counterparts, leading to reduced profits and higher prices.

Close to 80% of small employers surveyed by NFIB expressed interest in pooling together with other businesses to purchase coverage as a larger group, mirroring the risk-spreading and negotiating power that large employers already enjoy. This is where Association Health Plans (AHPs) become relevant. AHPs offer a promising option to address market failures by enabling small businesses to aggregate demand, share risk, and access broader, more affordable plan options. However, current law prohibits many small employers from pooling resources to purchase group health insurance, as large employers can.

Congress has an opportunity to act.

Congress can provide relief by expanding access to AHPs through legislation such as the Association Health Plans Act of 2025, while also updating regulatory guidance to ensure that both industry-based and non-industry-based associations, especially those serving self-employed individuals, can participate. Enhancing the legal and operational framework for AHPs would promote more flexible, cost-effective plan designs while preserving important consumer protections.

The overarching theme is clear: without Congressional action, small businesses will continue to face disproportionate pressure from rising health insurance costs, leading to lower offer rates, higher turnover, and diminished economic dynamism. Providing small businesses with increased flexibility and options that enable voluntary pooling arrangements is not only good policy but essential to stabilizing a market segment that serves about half of the private U.S. workforce.

As Congress considers next steps on health reform, affordability and access for small businesses must remain a central focus. Association Health Plans represent one of the tools available to rebalance the market in a way that is both equitable and sustainable.