Employee health care costs are increasingly eating up larger shares of payroll costs for America’s smallest businesses, according to a new analysis from the JPMorgan Chase Institute.
Why it matters: The pain of health care costs is nothing new. But this analysis, based on de-identified data from Chase business banking accounts, offers a more granular look at the disproportionate burden on the smallest businesses that often isn’t captured by other data.
What they found: For the typical small business with at least two employees and revenues of $600,000 or less, 12% of payroll costs went to health care benefits last year, the analysis found.
- For businesses with revenues of at least $2.4 million, that figure was 7%.
- The U.S. Bureau of Labor Statistics reported that health insurance on average was 5.8% of compensation costs for small businesses, which it defines as firms with up to 49 employees.
What they’re saying: “Health care expenses are eating a bigger and bigger chunk of the expense and profitability line for these businesses,” Dan Mendelson, CEO of Morgan Health, told Axios.
- “It is more difficult for these small businesses, which really are the engine of the of the economy, to thrive.”
The big picture: The analysis is the latest to dive into the economic impacts of rising health costs at a time when small businesses are still grappling with inflation and a tight labor market.
- A National Bureau of Economic Research report this week found that a 1% increase in local health care prices lowered an employer’s headcount by about 0.4%.
- “One of the things that that I was thinking about most when starting up, was ‘When can I hire that next person?'” Mendelson said about his previous role founding and running health consultancy Avalere Health.
- “There are a lot of factors that go into that decision, but your expense basis is a critical factor.”