Small Businesses Continue to Offer Health Insurance to Employees, Despite a 7% Annual Rise in Premiums

September 22, 2026

Small businesses employ close to half of America's private-sector workforce, and health insurance is consistently one of the benefits workers value most. Each year Gusto looks at how small employers are navigating the changing landscape of offering health insurance. This report focuses on what is happening to the cost of coverage, where premiums are rising the fastest, and how employers are adapting. Our data indicates that coverage continues to remain stable even as small business health costs continue to rise.

Key findings

Health insurance premiums keep climbing. The median individual premium at small businesses reached $8,743 in 2026, up 7% since last year and 31% since 2022.
The percentage of small businesses offering health insurance to employees has remained stable over the last year. The share of small businesses offering health insurance held at about 21% this year, and employers still cover roughly two-thirds of the premium (68% in 2026).
The most common response to higher health insurance premiums was for the business to absorb the cost. 52.7% said they would absorb the cost in order to continue providing healthcare coverage to employees. Notably, only 2.1% of small businesses said they would drop coverage altogether.
The smallest businesses are paying the highest premiums. Businesses with 2–5 employees now pay a median of $9,170 per employee, among the highest of any company size group. This is roughly 6% more than firms with 25–49 employees.
More small businesses offer HSA-eligible plans. The share offering at least one HSA-eligible plan rose from about 9.6% in 2019 to nearly 13% by 2026.

Despite Rising Costs, Small Businesses Continue to Offer Health Insurance

The median premium rose about 7% (not inflation adjusted) over the past year: up from roughly $8,169 in 2025 to $8,743 in 2026. Additionally, since 2022 costs have increased 31%. However, despite these rising costs, coverage rates have barely moved. The offer rate for health insurance has held steady at around 21%. Small business owners see health coverage as core to attracting and keeping good people, so they keep offering it even as prices climb.

The chart below shows those same premiums in constant 2026 dollars: even after accounting for inflation, they are up about 17% since 2022. This means that health costs have meaningfully outpaced the prices small businesses face on many other line items.

Small business owners’ responses to a potential premium increase reinforce what the payroll data suggests. In an August 2026 survey, the most common response to higher health insurance premiums was for the business to absorb the cost: 52.7% said they would do so. Notably, very few small businesses said they would drop coverage altogether—just 2.1%, an extremely low share.

Health Insurance Costs Weigh Heaviest on the Smallest Businesses

The rising costs of health insurance are not felt evenly by all businesses. The smallest employers, those with 2–5 employees, pay among the highest per-employee premiums of any size business. Specifically, the median individual premium for a business with between 2 and 5 employees is $9,170 per year in 2026, which is roughly 6% more than the premium for small businesses with 25–49 employees. Historically, the explanation for higher premiums among smaller groups is because insurers spread medical risk across a pool of people, and a group of 2 to 5 people is much more volatile. If a single employee has a major medical claim, it drastically spikes the cost for the entire group. A group of 40 people, for example, absorbs high claims much more easily.

Some small businesses may respond to increased cost pressure by looking at different health benefit models. Two that are becoming increasingly popular are level funded plans and health reimbursement arrangements (HRAs). Level-funded plans can offer lower costs for healthier groups by pricing coverage based more closely on a company’s employees, though employers may take on more risk if claims are higher than expected. HRAs take a different approach: employers set a fixed contribution amount, and employees use those funds to help pay for individual health coverage. For the smallest businesses, where traditional coverage can be especially expensive, these options may offer more flexibility and control over health care costs.

Costs aren't just higher for the smallest employers, they're also rising fastest. Since 2022, companies with 2–5 employees have seen the largest health insurance premium growth of any size group, up more than 35% (not adjusted for inflation). Yet despite that squeeze, this segment has kept offering health insurance at about the same historical rate, roughly 12%.

One might think that the speed at which costs are increasing for very small businesses, above their already high base, could push some businesses to stop offering health insurance. But instead, the share of businesses offering health insurance has remained stable. Health insurance is consistently the benefit workers rank as most important, and for a business with only a handful of employees, it's a large part of how they compete for talent. However, employers may be cutting costs in other places to handle price increases.

What employers give up in exchange for these higher premiums is the open question. Higher premium costs for employers that don't show up as dropped coverage have to surface somewhere else in the business, potentially as slower wage growth, smaller retirement matches, or reduced hiring.

More Small Businesses Continue to Turn to HSA-Eligible Health Plans

One way employers are managing rising costs is by offering HSA-eligible (high-deductible) health plans. The share of small businesses offering at least one such plan climbed from about 11.4% in 2025 to 12.7% by 2026, and from 9.6% in 2019. These plans trade higher deductibles for lower monthly premiums, giving employers a way to keep offering coverage while letting employees set aside pre-tax dollars for health spending.

The shift reflects employers actively adapting to cost pressure rather than simply dropping coverage, and it gives workers more control over how they spend their health care dollars.

Larger small businesses are more likely to offer HSA-eligible options than smaller ones. In 2026, 22.1% of companies with 26–49 employees offered at least one HSA plan, compared to 9.4% of businesses with 1–10 employees. This likely reflects the more complex HR and benefits structure of the larger small businesses.

Still, HSA adoption grew across every company size between 2022 and 2026, rising from 7.4% to 9.4% for the smallest businesses, 13.1% to 17.5% for mid-sized firms, and 17.6% to 22.1% for the largest small business. It’s clear that demand for HSA-eligible plans is expanding across the entire small business market, rather than staying confined to larger companies.

Conclusion

Over the last few years, small businesses have faced significant increases in health insurance costs, but they aren’t dropping coverage. Since 2022, premiums have jumped 31%. Despite the sticker shock, the overall offer rate has held steady at roughly 21%. Rather than cut one of the benefits employees value most, small businesses are finding workarounds that allow them to maintain coverage. These include more than half of small businesses absorbing the cost themselves. Additionally, many are shifting to lower-premium setups, like HSA-eligible plans.

Methodology

The data in this report is based on anonymized payroll and company health insurance data from over 500,000 small businesses with between 2 and 49 employees across all 50 states between 2019 and 2026.

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.

Unless otherwise noted the sample is reweighted 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.

Inflation adjustment uses the CPI-U (Consumer Price Index for All Urban Consumers), pulled live from the Bureau of Labor Statistics.

The data on HSA-eligible plan share is defined as funded HSA activity, not plan design: a company counts as offering an HSA-eligible plan only if at least one employee or employer contribution actually moved through payroll into an HSA that year.

Tom Bowen is an economist at Gusto, where he develops innovative metrics and methods to analyze entrepreneurship, small business labor markets, and technology adoption. He is passionate about using data to shed light on complex economic dynamics affecting small businesses and their workforce. Since joining Gusto in 2022, Tom has collaborated with policymakers, academics, and the media to deliver timely insights that support the small business community. He holds a Master’s degree in Economics from the University of California, Santa Cruz. Tom currently lives in New York, NY.

Nich Tremper is the Head of Gusto Insights and Senior Economist at Gusto. He researches entrepreneurship and the small business life cycle in the modern economy. Nich has worked in research offices in the federal government and financial service industries, studying small business outcomes and their roles in local economies. He holds a Master's degree from the University of Minnesota, where he researched local government business expansion efforts.