Lisa Jarvis: Healthcare costs have small businesses in an impossible bind

The healthcare affordability crisis is crushing everyone, but it has become downright calamitous for small businesses. Survey after survey after survey shows that employers expect healthcare costs to rise nearly 10% on average in 2027, a figure that could be twice as high for small firms.

Those businesses - a key driver of the U.S. economy - are running out of ways to make the math on healthcare coverage work. Many have been pushed to the breaking point. They need relief, and so do the millions of Americans they employ.

Americans who get their health coverage through work, which is to say most Americans, likely don't think much about the cost to their employers. They're far more likely to notice how much of their paycheck goes toward their plan's premium - and their anxiety when that amount creeps up by more than their annual raise.

Yet employers typically foot around 80% of that premium. And as costs get steeper each year, they must decide how much to absorb themselves, and how much to ask their employees to shoulder. For some small businesses, that decision is more existential: Do they keep their doors open, or do they offer their employees healthcare?

The healthcare industry hasn't seen double-digit inflation in 20 years - and back then, coverage was comparatively cheap. The situation is dire for small businesses. Over half of small-group insurers, which typically offer plans for companies with under 50 employees, expect to raise rates between 10% and 20%, according to a recent analysis by health policy researchers at KFF.

For companies grappling with other pressures, like tariffs, surging costs could obliterate razor-thin margins. "People's backs are up against a wall to a degree that they haven't been before," says Ellen Kelsay, president and CEO of Business Group on Health, which each year surveys employers about healthcare benefits.

Smaller firms have already pared back coverage over the past decade amid the steady rise in healthcare costs. Throughout the aughts, roughly 80% of companies with under 200 workers offered health benefits; by 2025, that had dropped to just 59%, according to KFF's annual employer health benefits survey.

Yet small business owners also know how much their employees value healthcare. One recent survey of people with employer-sponsored insurance found that 96% considered it important to their household's financial security - and 85% said they'd leave their job if their employer stopped offering the benefit.

That's backing small business owners into a corner. They might want to offer coverage, but it could mean cutting salaries or forgoing new hires or investments.

Some are turning to compromises. An increasingly popular approach is to jettison traditional plans for Health Reimbursement Arrangements, or HRAs, under which workers receive a set amount of money to buy their own insurance. As Bloomberg recently reported, some 20,000 companies opted for HRAs in 2026, an increase of 53% over the prior year.

Yet that solution is far from ideal. Not only does it risk dumping far more medical costs on workers, but it comes at a time when buying insurance has gotten much more expensive. Republicans' refusal to renew Biden-era subsidies that made Affordable Care Act plans more accessible has caused premiums to spike in many parts of the country - a situation that will only worsen in 2027.

To be clear, big companies and their employees aren't exempt from the pain, either. A survey by Marsh found that two-thirds of large businesses will ask workers to pay a greater share of their monthly premiums in 2027. Others are asking employees to pay more when they see a doctor or paring back the care they cover.

Yet bigger companies are in a better position to deal with rising costs. They have more negotiating power and alternative plan options open to them when trying to defray costs.

And they also have more wiggle room when looking for places to save. Strategies include limiting eligibility for family members and cutting back on certain benefits, such as paying for the popular but expensive GLP-1 obesity medicines. (Employees, of course, might wonder how many premiums or GLP-1 prescriptions could be covered by their CEO's annual windfall).

But if healthcare costs continue to surge - and all signs point to things getting worse before they get better - big corporations will eventually run out of options, too.

If there's any silver lining to be found in this grim trend, it's this: The pain has become so acute that large corporations are finally taking a close look at where their healthcare dollars are going - and demanding more accountability and transparency from the U.S. healthcare system's many middlemen.

That could shift the broader dynamics in areas of healthcare where reform has been too slow coming. For example, a recent survey found the share of employers wedded to the big three pharmacy benefit managers dropped to 54.3% this year - and more than half of those still in contract with those behemoths were considering shifting to a new and more transparent partner within the next three years. Ideally that scrutiny will help everyone, big and small.

Yet companies alone can't fix the broader system. Lawmakers need to treat healthcare affordability as the five-alarm fire that it is. One obvious first step would be to restore the subsidies that made higher-quality ACA plans accessible to millions. That would instantly ease the pressure on the little guys that are so crucial to the U.S. economy - and offer relief to millions of workers who deserve access to basic care.

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This column reflects the personal views of the author and does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Lisa Jarvis is a Bloomberg Opinion columnist covering biotech, health care and the pharmaceutical industry. Previously, she was executive editor of Chemical & Engineering News.

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