How the Small-Business Health Insurance Market Is Faring

Critics of the Affordable Care Act (ACA) were concerned that the law would prove too burdensome on small-business employers and seriously damage the small-group health insurance market, which includes groups with up to 50 employees. President Trump has said that “Obamacare has been especially brutal for small businesses. . . . It caused premiums and deductibles to explode, and health care options to plummet.”

We reported previously that as of 2016, the ACA had not reduced the cost of small-group insurance, but it had made it more accessible and comprehensive. In this post, we update that analysis based on an additional two years of experience.

Enrollment has diminished steadily, but not precipitously, in the ACA-regulated small-group market. This decline continues the trend that preceded the ACA, in part because of employers choosing to self-insure (i.e., pay medical claims directly rather than pay premiums to an insurer).

This enrollment decline does not indicate that small-business employees have fewer coverage options. Others have noted that health insurance reform led to a large increase in coverage for small-business employees because many were able to enroll in the ACA’s subsidized individual market or in expanded Medicaid. Coverage expansions have been especially pronounced among workers at midsize firms (i.e., 20 to 49 workers). According to the Commonwealth Fund Biennial Health Insurance Survey, their uninsured rate plummeted from 30 percent in 2012 to 13 percent in 2018.

Another indication that the small-group market is not in serious decline since the passage of the ACA is the relative stability of premiums, which have increased, on average, at a rate of 5 percent a year, similar to the 4.5 percent average increase in the large-group market. This 5 percent annual increase is much lower than the double-digit annual increases that were common for small businesses in the decade prior to reform.

Another indication of the small-group market stability is that several hundred insurers continue to compete in it because it remains profitable.

Our analysis found that the small-group market was relatively healthy through 2018. Nevertheless, the coronavirus pandemic has been very hard on small businesses, and it could lead to much steeper enrollment declines and premium increases. Also, regulatory changes under the Trump administration could have a negative effect. Of particular concern are new rules that expand the ability of small groups to purchase coverage outside the regulated market, through association health plans. Vigilance will be required to assess whether these or other destabilizing threats cause real damage to the small-group market.