Offering health insurance is important to small business owners, but premium costs may make it unattainable to do so

Key Findings

• Businesses that offer health insurance have an easier time finding employees. Compared to small businesses that offer benefits but do not offer health insurance, small businesses that offer health insurance are 13% more likely to say they didn’t have issues finding employees in 2024.
• Employees perform above expectations at small businesses that offer health insurance. Small business owners who offer health insurance are 25% more likely to say that their employees have exceeded their expectations.
• Offering health insurance is important to small business owners, but premium costs may make it unattainable to do so. Small business owners who offer health insurance are very likely to do so because it’s important to them, but 75% said that the next Presidential administration should address employer premiums. Continuing to provide this benefit may become unattainable to some of the smallest businesses.

More than half of small businesses that provide benefits offer health insurance

For many workers health insurance is a crucial part of their compensation, which was reflected in the benefits that small businesses report offering in Gusto’s 2024 State of Small Business Survey. Nearly 60% of small businesses that offer any benefits, and nearly 40% of all small businesses, offer health insurance to their employees.  

Over half of small businesses with more than 6 employees offer health insurance

More than 50% of businesses with six or more employees report offering health insurance to their employees, and more than two-thirds of employers with more than 10 employees do so. While only 25% of businesses with 1-5 employees offer health insurance, nearly half offer any benefits. This suggests that most employers seek to offer benefits to their employees.

Small businesses offering health insurance are 25% more likely to say their employees perform better than expected compared to firms that offer benefits without health insurance

Not only does offering health insurance increase employee retention and drive down costs related to employee turnover, but more than 1-in-3 small business owners who offer health insurance report that their employees’ performance has exceeded their expectations. Providing health insurance to employees shows a small business’s commitment to employee well-being and financial security, which may increase their engagement and lead to better business outcomes.

Small businesses that offer health insurance had an easier time finding employees this year

While businesses generally reported being able to find employees this year, small businesses that offered health insurance were 13% more likely than those that offered benefits but not health insurance to find employees. We didn’t just see this difference at the largest businesses – 70% of businesses with fewer than 10 employees offered health insurance reported being able to find employees compared to 64% of businesses with fewer than 10 employees who offer benefits but do not offer health insurance. When given the choice, employees seem to prefer working at small businesses that offer health insurance.

Businesses that offer health insurance typically do so in their first benefit package

Nearly 60% of small businesses that offer health insurance do so as part of their first benefits package, suggesting that many small businesses offering health insurance consider it to be a key benefit to offer to their employees. 

Paid time off is often the first benefit offered by small businesses, and nearly ⅔ that eventually offer health insurance start by offering their employees this benefit. Additionally, ¼ of businesses offer work flexibility through alternative work schedules (e.g. hybrid work or staggered start times) and paid time off. This suggests that many small businesses that end up offering health insurance may start with benefits that are less expensive. 

Small businesses offering health insurance were more likely to say they did so because it was personally important to them

Offering health insurance to employees provides several benefits to employers: it increases employee retention, they may receive a tax benefit for doing so, and it provides a meaningful piece of compensation to employees. Importantly, nearly 80% of small businesses that offered health insurance as part of their first benefit package did so because it was personally important to them. Business owners offering their employees health insurance were 10% more likely to cite a personal desire to offer benefits than businesses that offer benefits other than health insurance. Additionally, about 1-in-10 small business owners who offered health insurance in their first benefits package did so because they were able to benefit from tax benefits like the Small Business Health Care Tax Credit.

75% of small businesses that offer health insurance want the next administration to address health insurance costs

Even though small business owners want to offer health insurance to their employees, they are very likely confronted with the rising cost to do so. Health insurance premiums for employers have increased an average of 3.5% a year since 2018. This is perhaps why three-quarters of small business owners who offer health insurance told us that the next administration should address health insurance premiums, compared to less than 60% of businesses that offer benefits but do not offer health insurance. Small business owners value a strong compensation package that supports their employees’ wellness – and should be supported in this endeavor.

Conclusion

Offering health insurance is a way for small business owners to display care for their employees’ well-being and financial security, and provides benefits for the business too. While it’s documented that health insurance increases retention, offering health insurance seems to increase employee productivity and make the small business a more attractive employer.