Small Businesses Continue to Offer Health Insurance, Despite Soaring Costs
Key Findings
The median health insurance premium for small businesses in America has risen 23% since 2022, outpacing inflation by 13% over the period. Yet despite soaring costs, the share of small businesses offering coverage to their employees has held steady. This resilience highlights how deeply small business owners value health benefits as a core part of compensation, a critical tool for retaining talent and a way to take care of their teams.
Health insurance costs are rising fastest for the smallest businesses. For companies with 2–5 employees, annual premiums have increased 18% faster than inflation since 2022. Premiums for this group reached nearly $8,500 per employee per year in 2025, the highest cost of any employer size group.
With rising health costs, more companies are shifting toward high-deductible, health savings account (HSA) eligible plans. In 2020, about 33% of companies offered these plans, compared to nearly 48% in 2025. This is a significant increase that suggests employers are looking for ways to give employees more control over their health costs.
Where a small business operates strongly influences whether its employees receive employer-sponsored health insurance. Offer rates are highest in states with knowledge-based economies like California, Illinois, and Washington. In contrast, Southern states such as Georgia, Florida, and South Carolina lag behind. These gaps leave many workers in states with lower health insurance offer rates facing less access to health care, and potentially widening regional inequalities.
Introduction
America’s healthcare system is mostly based on employer-provided health insurance. Because roughly 46% of Americans work at small businesses, the ability of small companies to affordably offer health benefits to their employees is a critical national priority.
However, based on our analysis of real-time payroll and benefits data from Gusto, we find that since 2022 the cost of offering health insurance has risen sharply for small businesses, far outpacing inflation. Additionally, health insurance premiums are expected to rise sharply in 2026, and many employers are bracing for the largest increases in costs in more than 15 years. Without new policies to make health benefits more affordable for small businesses, this hidden tax on America’s small businesses is likely to continue growing.
However, despite rising costs, most small businesses have remained committed to providing health coverage for their employees. Overall, about 22% of small businesses offer health insurance, a share that has remained remarkably stable in recent years, even as premiums have continued to climb. These numbers reflect an understanding among small business owners that health insurance is not a discretionary expense, but a core component of compensation and a vital tool for attracting and retaining talent. Previous Gusto research found that offering health insurance reduces the likelihood of an employee leaving their job by as much as 25%, underscoring its importance in workforce stability and long-term retention.
Additionally, for the smallest businesses (those with 2-5 employees) health insurance costs have grown 18% in inflation adjusted dollars since 2022, the fastest growth of any group over this timeframe. These smallest employers now face the highest health insurance costs per employee in America, and are often underrepresented in major health insurance data sources. This could become an increasing barrier to entrepreneurship, serving as a hidden tax that makes it harder for new businesses to get started and compete for talent as they grow.
Health Insurance Premiums Are Up 23% Since 2022, Outpacing Inflation by 13%. But Coverage Remains Stable.
The median health insurance premium for small businesses has risen 23% since 2022, far outpacing inflation over the same period. Even after adjusting for inflation, health insurance costs still outpaced inflation by more than 13% since 2022, leaving many small business owners struggling to keep up with cost increases. Health insurance costs are becoming a growing financial burden for business owners that squeezes margins and limits flexibility to invest elsewhere, whether in hiring, wage growth, or expansion.
However, for many workers, health insurance is one of the most valued components of compensation, and business owners increasingly recognize that offering health coverage delivers a clear return on investment. In fact, in previous Gusto research, we found that providing health insurance reduces the likelihood of an employee leaving their job by 25%, underscoring its role in retention and workforce stability. This makes it essential for small businesses to find ways to continue offering coverage despite rising costs, both to remain competitive and to sustain long-term employee loyalty.
Median Individual Premium by Year
This is exactly what we see in the data: even as premiums have climbed sharply in recent years, small businesses have continued to offer health insurance at stable rates and have largely maintained their contributions toward employee premiums. As shown in the figure below, employers typically cover about two thirds of the premiums for their employees. In other words, small employers are absorbing higher costs rather than scaling back coverage.
Employer and Employee Share of Individual Premiums by Year
Health Insurance Costs Are Rising Fastest For The Smallest Businesses
For the smallest employers, those with just 2 to 5 employees, annual health insurance premiums have surged 18% since 2022 after adjusting for inflation, reaching nearly $8,500 per employee per year. In 2022, this group paid the lowest premiums of any employer size, but today they pay the highest of any employer size group. In many ways, health insurance functions as a hidden tax on entrepreneurs, a cost that falls disproportionately on the smallest employers and entrepreneurs, those building companies from the ground up. If this trend continues, rising premiums could become a significant barrier to entrepreneurship, making it harder for new businesses to get started and to compete for talent as they grow.
What’s behind these cost increases? While our data don’t tell the complete story about causes, several factors may help explain these trends:
Lack of benefits experts. One possible explanation is that very small businesses often lack dedicated HR or benefits staff, and many don’t work with brokers or advisors who can help them navigate the complex health insurance marketplace. As a result, these business owners may be less likely to evaluate alternative plans each year at renewal, missing opportunities to switch to lower-cost or more efficient coverage options. In some cases, they may simply renew their existing plan out of convenience or uncertainty, locking in higher premiums over time.
Impact of family-run businesses. Another possible reason for the increase is that many of the smallest firms are family-run businesses, where many insured individuals are the owners and their relatives rather than unrelated employees. These groups often select more comprehensive plans with broader networks or lower deductibles, prioritizing coverage quality and continuity over cost. Larger firms, by contrast, often adjust plan design to manage expenses when costs are rising, whereas family-run businesses are less likely to downgrade coverage, preferring to absorb rising costs rather than reduce benefits.
Median Individual Premium by Year and Employer Size
More Small Businesses Are Offering HSA-Eligible Health Plans
Small businesses aren’t just holding steady — they’re adapting. The share of small businesses offering HSA-eligible health plans has grown from 33% in 2019 to nearly 48% in 2025. These plans trade higher deductibles for lower monthly premiums, giving employers a way to manage costs while helping employees save pre-tax dollars for future medical needs. They also give their employees more choice over their health coverage and associated costs. This steady growth reflects how many small employers are adapting to rising health care costs, choosing to give employees more control over their health insurance costs by offering high deductible HSA eligible plans.
Share of Companies Offering HSA-Eligible Plans, by Year
Larger Small Businesses Are Four Times More Likely to Offer Health Insurance Than the Smallest Firms
Smaller businesses are significantly less likely to offer health insurance compared to larger small businesses. Among firms with 25–50 employees, the likelihood of offering health coverage is more than four times higher than for those with just 2–5 employees. While larger small businesses are more likely to offer health coverage, new models like HRAs and level-funded plans are making it easier for very small teams to join them. This gap has persisted over time: despite year-to-year fluctuations in costs and economic conditions, offer rates by firm size have remained largely stable, with little upward or downward movement in recent years.
Share of companies offering Health Insurance by size (2025)
Small Businesses Health Insurance Offer Rates Range Widely Across States
The likelihood that a small business offers health insurance depends heavily on where it operates. In states with large clusters of knowledge workers, such as California, Illinois, and Washington, small businesses are far more likely to provide coverage than the national average. In these economies, dominated by professional and technical industries, offering health benefits isn’t just a perk—it’s often a requirement to stay competitive for talent. Illinois stands out in particular: nearly one in three small businesses (30.4%) offer health insurance, compared with the national average of 22%.
By contrast, many Southern states lag behind in health insurance offer rates. In Georgia, only 16.7% of small firms offer coverage; in Florida, 17.7%; in Louisiana, 19.8%; and in South Carolina, just 16.6%. These states have a higher concentration of small businesses in lower-wage, high-turnover sectors like retail, food services, and hospitality, industries that are less likely to offer benefits.
These regional gaps matter. Where a business operates plays a major role in whether its employees have access to affordable, employer-sponsored coverage. In states with lower offer rates, more workers are left to purchase insurance on the individual market, or go without coverage altogether. Over time, these disparities can translate into worse health outcomes, greater financial strain for workers, and widening inequalities between regions with strong employer benefit networks and those without.
Share of Companies Offering Health Insurance by State (2025)
Health Insurance Offer Rates Range Widely By Industry
Health insurance offer rates among small businesses vary widely across industries. In 2025, 38% of small businesses in the Information sector offer health insurance, more than three times the rate in Accommodation and Food Services, where just 11% of employers provide coverage.
Health Insurance Offer Rates by Industry
Small businesses are proving that even in challenging times, they adapt, innovate, and keep showing up for their people. They’re finding creative ways to offer coverage — from HRAs to HSAs to level-funded plans — and their steady commitment demonstrates that health benefits remain a cornerstone of great workplaces.
Methodology
The data in this report is based on anonymized payroll and company health insurance data from a stratified random sample of over 250,000 small businesses with between 2 and 49 employees across all 50 states between 2019 and 2025.
Analyses of health insurance offer rates include all companies in the sample, regardless of whether Gusto acts as the health insurance broker. Analyses of health insurance costs are restricted to the subset of companies for which Gusto is the broker.
The sample is weighted to be representative of the U.S. small business population by industry, size, and geography, using data from the Bureau of Labor Statistics’ Quarterly Census of Employment and Wages.
Note: The data this report is based on is broadly comparable to MEPS estimates for health insurance costs and coverage among private-sector establishments with fewer than 50 employees. However, there are two key differences. First, our sample includes a larger share of very small businesses than MEPS, more closely reflecting the true distribution of small firms in the economy. Second, our data from Gusto cover primarily independent small businesses – not small establishments that are part of larger companies. In general, these smallest employers are less likely to offer health coverage and, in some cases, may face larger premium increases than their bigger counterparts.
