How Affordable Care Act (ACA) delivered record coverage gains for small business and self-employed workers?

Millions of small business and self-employed workers gained coverage under the Affordable Care Act (ACA). The uninsured rate hit a record low in 2022, thanks in part to policies that stabilized Medicaid coverage and expanded premium tax credits to lower the cost of health insurance for millions of people in the ACA marketplace. States that have enacted ACA Medicaid expansion have also played an important role. Extending and building on these policies will help further progress.

Among self-employed workers and employees of small businesses, the rate of uninsurance was consistently higher than among employees of large businesses. A relatively large share of small business and self-employed workers have lower incomes, making health insurance premiums less affordable. In addition, small businesses have long been less likely to offer health insurance to their employees than large businesses, often citing lack of ability to pay for it, as well as higher administrative costs per employee and less ability to pool risk.

Prior to the ACA, small business employees and self-employed individuals were often limited to unaffordable insurance options in the individual and small group markets. In the individual market, insurers could charge much higher rates for people with pre-existing medical conditions, such as cancer or diabetes, or deny them coverage altogether. In the small group market, where many small businesses purchase health insurance, high medical costs for one member could force insurers to raise premiums for the entire company.

The ACA addressed these concerns with a few key provisions:

• It created marketplaces with financial assistance for low- and moderate-income workers to help more people purchase affordable comprehensive coverage in the individual market. It has provided financial assistance to people who do not have access to affordable coverage through their employer, which is common among small business and self-employed workers.
• Insurers were prohibited from denying coverage and charging higher premiums to people with pre-existing medical conditions.
• Insurers in the individual and small group markets were prohibited from charging higher premiums because of people's health status or most other characteristics, including occupation or industry, and insurers were required to set premiums based on health care costs broadly distributed among their customers in the market. For example, in the small group market prior to the passage of the ACA, a costly illness of one employee could result in dramatically higher premiums for the entire firm.
• Low-income small business workers and the self-employed became eligible for coverage under the Medicaid expansion under the ACA, which allowed people with incomes up to 138 percent of the poverty level to enroll in Medicaid in states that adopted the expansion.

Since the ACA's major provisions went into effect, the uninsured rate for small business employees (those working in companies with fewer than 100 employees) has declined from 25.2 percent in 2013 to 17.4 percent in 2016. In recent years, the uninsured employee rate has declined further, reaching a record low of 16.3 percent in 2022. In 2022, the number of uninsured employees of small businesses will be 4.9 million fewer than in 2013.

Trends for self-employed workers were similar, with the uninsured rate falling from 27.3 percent in 2013 to 18.4 percent in 2016 and reaching a record low of 16.4 percent in 2022. The number of uninsured self-employed workers decreased by 1.3 million from 2013 to 2022.

Since the ACA's major provisions were enacted, more than 6.2 million small business and self-employed workers have gained coverage.

Improvements in coverage for both groups were driven by enrollment in the ACA marketplace and Medicaid. From 2013 to 2022, Medicaid coverage increased by 2.5 million small business employees and 1.3 million self-employed workers, according to Census data. In 2021, 2.6 million marketplace participants between the ages of 21 and 64 will be small business owners or self-employed, according to an analysis of Treasury Department tax data using definitions of small business ownership and self-employment based on income and other factors. This would account for about a quarter of all market participants.

These gains can continue to be realized. Recent improvements to premium tax credits in the ACA marketplace have lowered the cost of health insurance for nearly all 19 million people receiving benefits, reduced the number of uninsured by 4 million, and contributed to record growth in marketplace enrollment in 2024. These improvements, which expire after 2025, need to be made permanent and built upon. For workers living below the poverty level, state or federal action is needed to close the Medicaid coverage gap in states that have not adopted Medicaid expansion under the ACA.