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Small Business Employee Benefits and HR Blog

FAQ - How Many Small Businesses Offer Health Insurance?

If you’re a small employer, there’s a 50-50 chance you don’t currently offer traditional small business health insurance. If you’re a micro business, the chances are even less likely. So, how many small businesses currently offer health insurance? And, what does this mean for small business health insurance options? Hint - The answer may surprise you.How Many Small Businesses Offer Health Insurance?

Over 2.7 Million Small and Medium Businesses Do Not Offer Health Insurance

There are approximately 7.4 million employers in the US. Did you know the majority are micro and small businesses?

Currently in the U.S., 6 million firms have less than 200 employees. That’s 82% of all employers.

But what might surprise you is that a majority (62% of all U.S. employers) have fewer than 10 employees - 4.6 million firms.

It’s these employers who are less likely to offer traditional group health insurance.

  • 46% of all small and medium businesses (with less than 200 employees) don’t offer traditional employer-sponsored health insurance. That’s over 2.7 million employers.

  • 56% of all micro employers (with less than 10 employees) don’t offer traditional employer sponsored health insurance. That’s 2.6 million employers.

The reason small businesses do not offer health insurance? According to a recent survey by Kaiser Family Foundation, the primary reason is cost.

When you look at the numbers, it’s not surprising.

From 1999 to 2014, the cost to cover a single employee with group health insurance nearly tripled from $2,196/year to $6,025/year in 2014. Similar with family coverage. From 1999 to 2014, the cost to cover a family with group health insurance also nearly tripled from $5,790/year to $16,834/year in 2014.

Small Businesses Canceling Group Health Insurance

The rate of premium increases for group health insurance is unsustainable, particularly for small and micro employers.

As such, the percent of employers providing group health insurance has been on a decline for the past decade due to the cost increase and due to health insurance alternatives.

In just the past four years, the number of micro employers that offer health insurance dropped from 59% in 2010 to 44% in 2014.

kff_offering_chart

Chart Source - KFF

Small Businesses Adopting Individual Health Insurance Reimbursement

So, if 2.7 million small and medium sized businesses are not offering group health insurance, what are they offering?

The prevailing trend is to adopt individual health insurance reimbursement.

With individual health insurance reimbursement, the business may cancel its group health plan (if offered) and instead reimburse employees for individual health insurance premiums.

There are a couple ways to go about reimbursing employees for individual health insurance (see this guide), and there are pre-tax and post-tax options available.

Conclusion

How popular will individual health insurance reimbursement get? All signs say this approach is the future of small business health benefits, not just a passing fad. In a recent Whitepaper we predict that 60% of small businesses will eliminate traditional group health insurance in favor of individual health insurance reimbursement by 2017 - just over two years away.

8 Small Biz Health Benefit Trends

Photo credit - iStock