Rising health insurance costs have reached what some are calling a “breaking point” for small businesses across the United States, cementing their position as the top financial concern for entrepreneurs for nearly 40 years.
As premiums spike and coverage erodes, many small-group markets—the primary source of insurance for small firms—are reportedly entering a “death spiral” characterized by soaring rates and shrinking insurer participation.
For small-business owners like Kris Bullinger, the annual arrival of health insurance renewal notices has become a source of predictable “sticker shock” that directly threatens operational viability.
Bullinger, co-owner of Olympic Truck Service in Tumwater, Washington, expects to spend approximately $115,000 on premiums this year for her 17 employees—a sum representing 7.5% of her business’s gross profit. Since 2019, the monthly cost per employee for medical, dental, and vision insurance at her shop has surged nearly 50%, rising from $350 to $525.
“It’s one of the biggest things we pay for besides salaries,” Bullinger told the Seattle Times, noting she is unsure how much more her business can absorb.
The disparity between large corporations and small enterprises is widening. Nationally, about 97% of large firms offer health benefits, while only 59% of small firms do the same. In Washington state, the decline is even more pronounced: only 31.3% of employers with fewer than 50 employees offered insurance in 2024, down from 40.6% in 1996.
“We’ve seen lots of small businesses drop coverage,” said Paul Fronstin, director of health benefits research at the Employee Benefit Research Institute.
The financial burden is disproportionately heavy for smaller players. A 2024 JPMorgan Chase survey revealed that for firms with less than $600,000 in annual revenue, health insurance premiums consumed 12% of revenue.
For larger firms with revenues exceeding $2.4 million, that figure dropped to 7%.
In Washington, the state’s Office of the Insurance Commissioner recently approved an average 12.8% rate increase for the small-group market—the highest in more than a decade. These rates are driven by the rising costs of medical bills, hospital services, and technological advancements in care.
Local Impact and “Just in Case” Plans
For many local businesses, the only way to remain insured is to opt for plans with higher deductibles and lower coverage. Carolyn Koh, chief operations officer for Genesis Advanced Technologies in Kirkland, Washington, saw her family-run business’s premiums jump 17% this year.
The company now pays $4,000 a month for four employees, but the plan carries a $3,000 per-individual deductible. “Higher deductible plans are really ‘just in case’ plans,” Koh said, adding that she now avoids the doctor except for emergencies.
Nonprofits face an even tighter squeeze. Susan Dibble, executive director of Page Ahead, a children’s literacy nonprofit, reported a 35% increase in premiums since 2022. Unlike a traditional business, she cannot raise prices to offset the cost.
“The speed and size of these increases is just plain scary,” Dibble told The Times. She noted that when insurance costs outpace donations, the organization is forced to serve fewer children.
Despite the costs, many owners feel they have no choice but to offer benefits to remain competitive in a tight labor market. A 2022 U.S. Chamber of Commerce poll found that 80% of workers rank health insurance as one of the most important benefits an employer can offer.
Jon Ward, CFO of First Call Truck Parts, which has 20 employees across Georgia and Florida, said his company went 20 years without offering insurance before finally adding a “Honda Civic” style plan—basic but functional—to attract and retain talent.”It’s not ideal,” Ward said. “Nothing with health insurance is.”
For businesses like Olympic Truck Service, the opportunity cost of these premiums is clear. Bullinger noted that if insurance costs were lower, the money would likely go toward direct employee benefits such as larger raises or more vacation time.
With the small-group market under intense pressure, organizations like the National Federation of Independent Business (NFIB) are calling for urgent policy interventions. Proposed solutions include targeted tax credits, expanded access to individual coverage health reimbursement arrangements (ICHRAs), and allowing small businesses to band together in association health plans (AHPs) to gain the purchasing power of larger firms.
Without relief, experts warn the trend of eroding coverage will only accelerate.
“You’ll see the trend continuing of small businesses forgoing insurance for employees,” said Emily Brice, co-executive director of Northwest Health Law Advocates.
For owners like Bullinger, the issue remains a fundamental matter of worker welfare. “For now,” she said, “I just want to make sure that they can go to the doctor.”