Health insurance premiums are putting serious pressure on small businesses, according to a new analysis from the JPMorganChase Institute.
More than half of workers in the U.S. are covered by employer-sponsored health plans, making premiums a key issue for a large portion of the population. According to the study, more than 27% of people in the private sector work for small businesses with one to 49 employees.
Many (81%) small businesses do not have employees and therefore can provide their own coverage on the Affordable Care Act exchanges if they have no other source, such as a family member's plan. However, the survey found that health care costs are a growing concern for both non-employer companies and small businesses with employees.
According to the report, insurance premiums make up an increasing portion of non-employer spending, rising faster than overall spending growth.
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Health care costs are also rising among small businesses with employees, according to the study. In organizations with annual revenues of less than $600,000, insurance premiums accounted for about 12% of payroll costs. By comparison, in companies with annual revenues of $2.4 million or more, they averaged 7% of labor costs.
Nearly half of small businesses reported losses in the past five years, partly due to rising insurance premiums, the study said.
Dan Mendelsohn, CEO of Morgan Health, the healthcare arm of the banking giant, told Fierce Healthcare that smaller companies are looking for new insurance products that meet their needs in terms of both cost and quality, as that also remains a challenge.
"The data show that small businesses, in particular, are seeing health insurance premiums eat up more and more of their costs," he said. "And many of these small businesses are not achieving profitability because of rising health insurance costs."
The study found that insurance premiums for the average firm have increased by 19% over the past five years. For example, if a company was spending $400 on insurance premiums in 2018, that amount will increase to $476 by 2023.
According to the report, companies that offer employee coverage have several factors that may be increasing their payroll premium burden. First, they likely have a much more limited ability to negotiate with payers given their small size, as well as a lack of plans specifically designed for this size of business.
Ultimately, the costs associated with providing or accessing health insurance for small businesses can discourage the entrepreneurship and innovation that drives economic growth, the researchers said.
"Lack of health insurance coverage may discourage potential entrepreneurs from starting businesses that could contribute to innovation and economic growth," they wrote. "While most small businesses may not grow large enough to affect economic growth, business start-ups, growth, and exits play an important role in reallocating the economy's resources. An economy deprived of such business dynamism risks stagnation."