Higher Financial Burden for Small-Firm Employees in Health Insurance Costs Compared with Large Firms, Study Finds

Employees in small firms or businesses face a higher financial burden for health insurance coverage compared with those in large firms, according to a new study by The Commonwealth Fund.

Employer-sponsored health insurance (ESI) is the largest source of health coverage in the nation, covering 178 million people, including 63% of working-age adults, the study says. Researchers found that costs for premiums and deductibles under employer-sponsored health insurance varies based on employer size, which they divided into small firms (fewer than 50 employees) and large firms (50 or more employees).

Regulations differ for these markets, which affects what employers can do and how much employees pay. Large firms must follow the Affordable Care Act (ACA) regulations, which means they must offer affordable coverage and cover at least 60% of healthcare costs.

Small firms, however, are not required to offer coverage but do have to follow ACA reforms. These rules protect workers from having to pay higher premiums because of their health conditions and make sure the insurance covers essential health benefits. However, about 40% of small-firm employees work at companies with self-funded or level-funded plans, and these businesses don’t have to follow all the ACA rules

Using data from the Medical Expenditure Panel Survey Insurance Component (MEPS-IC), researchers of the study examined trends from 2014 to 2023 for employer-sponsored health insurance costs, deductibles and premium contributions to assess the disparities between small and large firms at national and state levels.

They found that in 2023 98% of large firms offered health insurance, but only 49% of small firms did. Total premiums were generally lower for small firms, but employees paid more for their share of premiums and faced higher deductibles.

For example, small-firm employees nationally paid an average of $7,529 in family premium contributions compared with $6,796 at large firms, while family deductibles averaged $5,074 at small firms versus $3,547 at large ones. Workers at small businesses also paid a larger share of their plan costs.

In 2023, small-firm employees contributed 35% of total family health plan costs, compared with much smaller percentages for large-firm workers.

In states such as Mississippi and Louisiana, small-firm workers contributed more than half of the total premium for family plans. Deductibles were higher, with small-firm employees in North Carolina paying $3,953 more for family plan deductibles than the state’s larger firms.

These trends place a significant financial strain on small-firm workers, highlighting the need for reform, researchers said.

Researchers suggested the below policy changes to make health insurance more affordable and accessible for small-firm workers:

1. Increase Awareness of Medicaid: Employers could inform workers about Medicaid, a low-cost or free option for those with qualifying incomes, even if job-based insurance is offered.
2. Expand Medicaid Nationwide: In the 10 states that haven’t expanded Medicaid, federal intervention could help low-income workers access affordable care.
3. Improve Marketplace Access: Adjust eligibility rules so workers with expensive or inadequate job-based plans can access marketplace subsidies.
4. Maintain Marketplace Tax Credits: Enhanced tax credits from the American Rescue Plan Act and Inflation Reduction Act, set to expire in 2025, should be made permanent to prevent premium increases.
5. State-Level Reforms: States could regulate premium and deductible growth or explore additional coverage measures, as some did before the ACA.

Authors of the study state these changes could reduce disparities and financial strain, making health insurance more fair for employees of small businesses.