July 17, 2024

The Health

Your health, your choice

The Burden of Health Insurance Premiums on Small Business

Table of Contents


In the U.S., health insurance is important for managing health care costs, and the majority of people—54.5 percent—get coverage through employer-sponsored plans (Keisler-Starkey, Bunch, and Lindstrom 2023). Small employers who want to offer health benefits to their employees may find it more burdensome compared to their larger counterparts. As policymakers and decision makers consider how to make health benefits accessible and affordable for over 9 million self-employed workers and the 66 million who work at small businesses, we offer the following implications of our findings:

Health insurance premiums are just one part of the total cost of health care.
In this report, we analyzed health insurance premiums relative to operating expenses and payroll, which are important measures of the burden small businesses face. For many small businesses and their employees, premiums may be the largest component of health care costs. However, the premium payments do not tell us about the plan deductibles or employee contributions, which are also part of the total health care costs that small businesses and their employees face, especially if some businesses manage their costs by shifting costs to their employees.

Cost is just one aspect of the health insurance burden small businesses face.
Health insurance premiums are material costs for both nonemployer and employer businesses. However, the value from these premiums, such as the quality of care received may be opaque. In addition, small businesses must navigate a complex health insurance market to find suitable health plans as well as a complex tax system of tax credits and potential penalties. Large businesses may have the staff to manage these issues, but small businesses may struggle to understand all their options. A combination of policy and product solutions could address these challenges.

Health insurance cost and availability may affect entrepreneurship and economic growth.
Lack of health insurance could dissuade potential entrepreneurs from starting businesses that could contribute to innovation and economic growth. For employer businesses, health insurance benefits are part of the total compensation required to recruit and retain the talent needed to grow their businesses. Moreover, both payroll and health insurance premium payments have grown substantially in recent years. While most small businesses may not grow large enough to impact economic growth, the business starts, growth, and exits are important for how the economy reallocates its resources. An economy without this business dynamism risks stagnation.


Our research sample included de-identified firms with Chase Business Banking deposit accounts who made regular health insurance premium payments and satisfied our activity filters. The activity criteria of at least $500 in outflows and 10 transactions in each month ensured that our analyses of health insurance payments relative to business expenses and payroll excluded dormant firms while allowing for variations of business activity.

To ensure that we were capturing regular health insurance payments, we examined firm activity using rolling three-month windows. A firm was included in the sample in a focal month if it made at least three health insurance premium payments during the last three months, and the amount of the payment was the average across the payments. This allowed for variation in timing that was still relatively consistent. For example, payments made towards the end of a short month such as February sometimes posted at the beginning of the next month, which made it appear as though the health insurance payment was twice as large in March and zero in February. 

We divided our sample into nonemployers and employers based on evidence of electronic payroll and estimated annual expenses. Again, we employed rolling three-month windows to determine whether a firm had regular payroll. Firms in our employer sample showed evidence of payroll averaging at least $500 per month in at least three transactions during the three-month window. This relatively low threshold allowed for fluctuations in payroll among employers. Nonemployers did not have payroll in any of the three months and their annual expenses were under $500,000. Firms with relatively large expenses are likely employers even though we may not observe their payroll payments.

For both nonemployers and employers, we created a cross-sectional sample and a longitudinal panel of firms. Firms included in any given month in a cross-sectional sample met the criteria outlined above for the three months ending in the focal month. Firms entered and exited the sample as their circumstances changed. For example, a firm could exit the nonemployer sample if the firm began making payroll payments, if the business owner discontinued health insurance payments, or if the firm closed its deposit accounts. Consequently, the composition of the cross-sectional sample changes over time, although all included firms meet the outlined criteria.

Each longitudinal panel is a balanced panel: the sample consists of firms that meet the criteria in each month of the sample. These firms pay health insurance premiums consistently and do not transition between nonemployer and employer statuses. An advantage of these longitudinal panels is that the composition does not change over time; changes in the typical experience in these samples are not due to changes in the composition of the sample. Each firm may nevertheless undergo changes, such as increased revenue or adding more employees, but they continued to meet the criteria for paying health insurance premiums and remaining either a nonemployer or employer. Only a small fraction of nonemployers become employers (Farrell, Wheat, and Mac 2018).

The disadvantage of such panels is that relatively fewer firms can meet the criteria for every month in a period of several years. Our nonemployer panel included 1,655 firms, and our employer panel included 1,863 firms. About half of new establishments survive five to six years, so a five-year panel consists of firms that have survived longer than many of their counterparts. However, since businesses with fewer than 50 employees do not face penalties if they do not offer health insurance, it may be that the ones that do provide the benefit are also the ones that are more stable.