The median health insurance premium for small businesses has risen by 23% since 2022, far outpacing inflation over the same period. Even after adjusting for inflation, health insurance costs still exceeded inflation by more than 13% in that period, leaving many small business owners struggling to keep up with cost increases.
“Health insurance costs are becoming a growing financial burden for business owners that squeezes margins and limits flexibility to invest elsewhere, whether in hiring, wage growth or expansion,” according to a new report from the payroll service Gusto.
Health insurance premiums are expected to rise sharply in 2026, and many employers are bracing for the largest increases in more than 15 years. ”Without new policies to make health benefits more affordable for small businesses, this hidden tax on America’s small businesses is likely to continue growing,” the report said.
However, despite rising costs, most small businesses remain committed to providing health coverage for their employees. Overall, about 22% of small businesses offer health insurance, a share that has remained stable in recent years, even as premiums have continued to climb. Previous research found that offering health insurance reduces the likelihood of an employee leaving their job by as much as 25%, underscoring its importance in workforce stability and long-term retention.
Gusto analyzed the challenges facing small businesses and how they are addressing them:
- Health insurance costs are rising fastest for the smallest businesses. For companies with 2 to 5 employees, annual premiums have increased 18% faster than inflation since 2022. Premiums for this group reached nearly $8,500 per employee per year in 2025, the highest cost of any employee group.
- With rising health costs, more companies are shifting toward high-deductible, health savings account-eligible plans. In 2020, about one-third of companies offered these plans, compared to nearly half in 2025. This is a significant increase that suggests employers are looking for ways to give employees more control over their health costs.
- Where a small business operates strongly influences whether its employees receive employer-sponsored health insurance. Offer rates are highest in states with knowledge-based economies such as California, Illinois and Washington. In contrast, Southern states such as Georgia, Florida and South Carolina lag behind. These gaps leave many workers in states with lower health insurance offer rates facing less access to health care and potentially widening regional inequalities.
“Small businesses are proving that even in challenging times, they adapt, innovate and keep showing up for their people,” the report concluded. “They’re finding creative ways to offer coverage — from HRAs to HSAs to level-funded plans — and their steady commitment demonstrates that health benefits remain a cornerstone of great workplaces.”