Some US Small Businesses Are Dropping Health Insurance Coverage Amid Skyrocketing Costs

Some American small businesses are being forced to drop health insurance coverage amid the nation’s ongoing affordability crisis.

In 2025, just 51% of firms with 10 to 24 employees offered health benefits, while 97% of firms with at least 200 workers did so, according to KFF. Rising health costs may leave Main Street business owners facing increased difficulty attracting new employees and making key investments, experts warned the Daily Caller News Foundation.

“Sky-high and rapidly escalating health plan costs are a major problem for small businesses, which often run on razor-thin margins,” Job Creators Network Foundation president Elaine Parker told the DCNF. “These expenditures prevent small businesses from making productive investments in expansion, equipment, or personnel, reducing Main Street dynamism. As a result, more and more have no other choice but to drop health coverage entirely.”

“Policymakers must allow small businesses to group together in association health plans to negotiate better rates for care, share risk, and avoid costly Obamacare regulations,” Parker added. “[Association health plans (AHPs)] also offer more flexibility and choice, and they streamline expensive administrative functions. These savings would significantly reduce health plan costs for small businesses and their employees.”

AHPs can set different monthly premiums based on risk characteristics such as age, gender, and industry factors, according to Healthcare Insider.

Health insurance costs have been surging across the U.S., with average family premium costs climbing from $16,977 in 2020 to $26,054 in 2025 for employers with 10 to 199 workers, according to estimates from KFF.

The majority of U.S. small businesses, 98%, currently offering health insurance are concerned that healthcare costs will become unaffordable for them over the next five to ten years, an analysis from the National Federation of Independent Business (NFIB) found.

“Small business owners want to invest in their employees, but rising healthcare costs are one of the toughest affordability challenges facing small businesses,” NFIB Principal of Federal Government Relations Tyler Dever explained to the DCNF. “For over 40 years, increasing health costs have been their number one problem. As costs continue to explode, fewer small businesses are able to offer health benefits to their employees.”

“Small businesses are the foundation of the American economy; they shouldn’t be priced out of taking care of their employees,” Dever added. “The explosive health cost increases are not sustainable.”

Health costs are projected to continue climbing in 2027. Benefits consultant Aon expects U.S. employer healthcare costs to rise 9.5% next year, pushing average costs above $19,000 per individual worker.

“Given that premiums have been increasing drastically in recent years with no sign of slowing down, small businesses are forced to make difficult decisions such as whether or not they want to continue offering healthcare coverage to their employees,” Small Business Majority senior director of federal government affairs Alexis D’Amato Falvey told the DCNF. “This has become something of a no-win situation: If a small business continues to offer coverage as costs rise, it reduces its profit margins. If a small business drops coverage or scales it back significantly, it makes it difficult for them to attract and retain talented employees.”

“And in some cases, small business owners who can’t afford healthcare coverage may close up their business and go work for someone else so they can have access to critical benefits like healthcare coverage,” Falvey continued.

Additionally, a spate of U.S. businesses are weighing stopping GLP-1 weight-loss drugs coverage amid climbing healthcare costs, Human Resources association SHRM reported. Coffee chain Starbucks confirmed that it is scrapping coverage for weight-loss drugs beginning in October, Business Insider first reported on Aug. 7.