Small Firms, Big Costs: Employer Health Coverage Disparities

The cost-effectiveness of the US health care system—or lack thereof, depending on one’s perspective—has long been a topic of debate. We are a nation, after all, that spends 17% of its gross domestic product on medical care but still has a life expectancy that recent research predicts will drop over the next 2 decades.1-3 Many argue that the system’s high spending far outpaces the value of care received, as evidenced by countless personal accounts shared online, including through platforms like the healthcare subreddit.4 This issue has been thrust into the spotlight once again, and been receiving much attention as of late, due in part to recent events5 and the release of a new report from The Commonwealth Fund on health care trends over a 9-year period.6

The report discusses that workers in small businesses compared with those employed by large businesses—fewer than 50 employees vs 50 employees or more—foot a higher overall bill to have and maintain health insurance coverage,6 through their premiums and deductibles. Previous research by The Commonwealth Fund from just last month also shows a high level of uninsured status, even in light of expanded coverage under the Affordable Care Act, and that many who have coverage do not have enough coverage because they can’t afford it.7

In this most recent report, the authors also highlight that employer-sponsored health insurance is the primary health coverage for 63% of working adults aged 19 to 64 years, or 178 million individuals,8 and that total premiums have risen for all employer sizes.6 However, even as they still remain lower for small employers, “small-firm employees are paying a larger share of the premium than large-firm employees and have larger average deductibles.” Further, in 2023, fewer employees (49.2%) at small firms were even offered employer-sponsored insurance (ESI) compared with larger firms (97.6%) despite small firms outnumbering large firms 3 to 1 and more employees at small firms being eligible for coverage. This equated to a 52.9% coverage rate for private-sector employees of small firms compared with a coverage rate of 54.4% for private-sector employees of large firms.

The Cost Comparison

Overall in 2023, the average family premium contribution for workers at small firms in the US was 10.8% higher vs for workers at large firms, at $7529 vs $6796, and deductibles were 43.1% higher, coming in at $5074 vs $3547, for plans with total premiums of $21,351 and $24,312, respectively. The report authors note that these have been the results since 2017 and that the totals reflect “the growing cost of family plans and small firms’ need to share more of that cost with their workers.”

Drilling down even further to within the same state, the authors of the report highlight the considerable gap in 2 states specifically:

• In Massachusetts in 2023 for family plans, workers of small firms paid out $12,604 in premium contributions compared with workers of large firms paying out $6933—that’s 45% more.
• In contrast, in Idaho in 2023 for family plans, workers of small firms paid out $14,039 vs $24,100 at large firms—or 42% less.

A particular highlight of this report is the extreme rate variance within states of premium contributions paid out by employees at small and large firms. | Image Credit: © Fokussiert-stock.adobe.com

These results were seen after the report’s authors broke down total premium costs for family coverage by state and size of firm, into 3 ranges each:

• Small firms:
  • $14,039 to $21,910: 31 states and Washington, DC
  • $11,083 to $23,738: 14 states
  • $24,083 to $27,718: 5 states
• Large firms:
  • $20,795 to $21,932: 4 states
  • $22,288 to $23,987: 19 states
  • $24,015 to $26,875: 27 states and Washington, DC

The authors explained the differences: “While premiums at small firms will reflect higher administration and marketing costs compared to large firms, lower total premiums for small firms across states likely suggest differences in the generosity of coverage between small and large firms.”

Overall, small-firm employee contributions were higher than large-firm employee contributions in 31 states in 2023, leading small-firm employees to shoulder a significantly larger financial burden, with potential implications that include not seeking care and/or accumulating significant medical debt.

The authors suggested several policy options to help with this financial burden:

1. Inform workers with employer coverage about their options to enroll in Medicaid
2. Fill the Medicaid coverage gap
3. Widen eligibility for subsidized coverage in health care marketplaces for small-firm employees
4. Make permanent the enhanced marketplace premium tax credits
5. Improve employer coverage in states that regulate full ensured employer markets

References

1. Fendrick AM. Sharing responsibility for health care successes and failures. Am J Manag Care. 2025;31(1). Accessed December 10, 2024.

2. National health expenditure data: historical. CMS. Updated September 10, 2024. Accessed December 10, 2024. https://www.cms.gov/data-research/statistics-trends-and-reports/national-health-expenditure-data/historical

3. The Lancet. A roadmap to better health in the USA. Lancet. 2024;404(10469):2223. doi:10.1016/S0140-6736(24)02664-3

4. r/healthcare. Reddit.com. Accessed December 10, 2024. https://www.reddit.com/r/healthcare/

5. Sisak MR, Scolforo M. Suspect in the killing of UnitedHealthcare’s CEO struggles, shouts while entering courthouse. AP News. December 10, 2024. Accessed December 10, 2024. https://apnews.com/article/unitedhealthcare-ceo-shooting-suspect-c68d0328f278d85fcf201ae89f634098

6. Kolb K, Radley DC, Collins SR. Trends in employer health insurance costs, 2014–2023: coverage is more expensive for workers in small businesses. The Commonwealth Fund. December 10, 2024. Accessed December 10, 2024. https://www.commonwealthfund.org/publications/issue-briefs/2024/dec/trends-employer-health-insurance-costs-2014-2023

7. Collins SR, Gupta A. The state of health insurance coverage in the U.S. The Commonwealth Fund. November 21, 2024. Accessed December 10, 2024. https://www.commonwealthfund.org/publications/surveys/2024/nov/state-health-insurance-coverage-us-2024-biennial-survey

8. Keisler-Starkey K, Bunch LN. Health insurance coverage in the United States: 2023. US Census Bureau. September 2024. Accessed December 12, 2024. https://www2.census.gov/library/publications/2024/demo/p60-284.pdf