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The state of small business health insurance hasn't been great this year (like last year, and the year before that, and—well, you get the point). Unfortunately, things aren't poised to get much better in 2025. The situation isn't hopeless, though. But before we get into possible solutions, let's take a look at what to expect of the small business health insurance market in 2025.
What to expect of small business health insurance in 2025
We can't predict everything small businesses should anticipate in 2025, but when it comes to health insurance there are some solid trends and predictions to help set your expectations:
1. Higher marketplace premiums: Average 7%
Health insurance premiums generally rise each year to keep up with rising medical costs. And this year is no different. According to a KFF review of 324 insurers planning to offer plans on the marketplace in 2025, you can expect to see a median premium increase of 7%. That's pretty typical. People who regularly shop on the marketplace know that the best news you can generally expect is when premiums increase by a lower amount than usual (that happened back in 2023, when the increase was only 3.4%, so it's not unheard of).
Insurance companies gave a few main reasons for costs going up this year:
- Inflation took a bit longer to hit healthcare, and now it's driving up the cost of medical services and medication at the same rate we saw other industries a year prior.
- Healthcare labor shortages lead to higher labor costs, further increasing the cost of medical services.
- Hospital market consolidation gives insurance companies less negotiating power, which drives up costs even further.
- The growing popularity of expensive specialty drugs like GLP-1 weight loss drugs and new gene therapies also adds to overall costs.
Anything that increases expenses for insurance companies gets inevitably passed onto patients via higher premiums.
2. Even more expensive: group plans (especially for small businesses)
The higher costs don't just apply to marketplace plans. Employer-sponsored plans are expected to go up even more than the individual marketplace, with a 9% rise anticipated. That's the expected increase across the board, but higher costs inevitably fall harder on small businesses than big ones, since they have fewer options and less negotiating power
An analysis by JPMorganChase found that while non-employer health insurance premiums have gone up 19% in the last five years, employer payments have increased 33%. They also found that businesses with fewer than 10 employees got stuck with the highest premiums of anyone.
No matter how much small businesses want to provide employees health insurance, these high price tags often put it out of reach. Unsurprisingly, 65% of small business owners cite cost as the reason they don't offer health insurance to employees.
3. Fewer options in small group
Small businesses already face limited options when it comes to group plans, and that's only going to get worse in 2025 as a number of insurance companies pull out of the small group market:
- Humana announced plans to stop offering group plans about a year ago, both to small and large businesses, claiming that they don't see commercial insurance as sustainable long-term.
- Cigna + Oscar Health have announced an end to their co-branded group insurance plans, saying they plan to focus on individual plans instead.
- We see lots of changes at the state level, too. For instance, Aetna is leaving Connecticut’s small group health insurance market, joining Harvard Pilgrim Healthcare and ConnectiCare, who had both recently left the market.
Having fewer plan options than before puts you in an even more tenuous position, as the options left will likely be less competitive.
4. Marketplace enrollment will hit the highest level ever
In 2024, the health insurance marketplace saw a boost, with enrollment jumping to 21.4 million—up 30% from the year before. We’re expecting more growth in 2025, with the expansion of premium tax credits set to continue at least one more year. Since 2021, the American Rescue Plan has been offering more generous financial aid to help lower the cost of healthcare, and this support is set to continue through 2025 thanks to the Inflation Reduction Act. What happens in 2026 will depend on whether these tax credits get renewed next year.
4. Health insurance (still) the top small business challenge
After reading all this, it won't surprise anyone to learn that, according to the Small Business Problems and Priorities report released by National Federation of Independent Business (NFIB), the number one chronic issue small businesses face is the cost of health insurance. It's a long-term, familiar problem, and one that never seems to get better.
Or does it?
The one silver lining: ICHRA (pre-tax health benefit)
It feels like things only ever get worse in the world of small business health insurance, but there's one big, meaningful exception to that rule: the advent of ICHRA (Individual Coverage Health Reimbursement Arrangement).
As of 2019, employers have the option to offer employees a pre-tax fixed benefit to put toward health insurance. In other words, you can easily give employees money to spend on premiums for a health insurance plan they choose themselves on the marketplace. What makes ICHRA special versus just handing employees extra cash for health insurance is that they get to use the full amount, rather than losing a large portion of the money to taxes.
Basically, you decide the amount of money you can afford to offer employees for health insurance. The employees that want to take advantage of the benefit select the individual health insurance plan that works best for them. They apply the money you provided toward the premiums. And everybody wins.
You end up with healthier, happier employees; they get to choose their own health insurance without shouldering the full cost themselves. StretchDollar provides a platform and support to make the whole process easy for everyone involved. Getting started only takes a few minutes, so why not jump right in?
