Survey finds cost is top hurdle in small business healthcare

Numbering more than 33 million, small businesses are the backbone of the American economy. While they provide crucial jobs and services, they often struggle to offer affordable healthcare benefits for their employees. 

To gain a deeper understanding of current small business challenges, we conducted a survey to explore current trends in employee health benefits. By surveying small business owners across the country, we sought to uncover their most pressing issues and identify potential solutions.

Cost concerns top the list of small business challenges around health benefits

Small businesses across the country are grappling with the rising costs of providing healthcare benefits to their employees. 

Our survey revealed that affordability is the number one challenge cited by small business owners. Thirty-six percent of those who currently offer benefits identified overall affordability as their biggest hurdle, highlighting the significant financial strain that healthcare costs place on small businesses.

High premium percentages (14%) and high administrative costs (10%) emerged as the second and third most significant challenges, respectively. These statistics highlight the complex and costly nature of providing healthcare benefits, particularly for smaller businesses that may lack the resources to manage these expenses effectively. 

This aligns with recent research from JP Morgan Chase that identified a significant increase in health insurance premiums over the last five years, with employer payments rising by 33%.

As these healthcare costs continue to rise, small business owners are increasingly struggling to balance the needs of their employees with the financial health of their businesses.

93% of small business owners worry about the sustainability of employee benefits

A staggering 93% of small business owners surveyed expressed concerns about the long-term sustainability of their current employee benefits programs. This widespread anxiety underscores the significant challenges facing small businesses in the current economic climate.

Among those who currently offer benefits to their employees, the primary concern for the majority of respondents (52%) was the rising cost of healthcare. 

This result aligns with national trends. 

According to the Business Group on Health, healthcare costs have risen 50% since 2017. The group also estimates these costs will increase by almost 8% in 2025. This rapid cost escalation has made it increasingly difficult for small businesses to provide affordable and comprehensive benefits packages.

The second major concern, cited by 20% of respondents, was the impact of economic uncertainty. During economic downturns, healthcare costs can rise, revenue can decline, and unemployment rates can increase, making it even more challenging for small businesses to provide competitive benefits.

That challenge is amplified when we see that concern about attracting and retaining top talent without competitive benefits is the third biggest worry for small business owners. 

Their concerns are valid. In September 2024, the National Federation of Independent Business found that 40% of small business owners reported having open positions that they were unable to fill the previous month.

Small business owners are caught between a rock and a hard place. They must balance the need to provide competitive benefits to attract and retain talent with the financial constraints imposed by rising healthcare costs and economic uncertainty.

73% feel competitive benefits are important for business survival

In today's tight labor market, offering competitive benefits packages is crucial for attracting and retaining skilled employees. A majority of small business owners recognize this. In fact, 73% of respondents indicated that offering competitive benefits is important to their business's survival.

A closer look at the data reveals that:

• 30% consider competitive benefits to be "extremely important" 

• 29% view them as "very important"

• 14% said they’re “somewhat important” 

These findings suggest that small businesses are increasingly investing in benefits as a strategic tool to gain a competitive edge. And they’re smart to do so since a 2023 MetLife study found that more than 60% of employees feel their benefits increase their loyalty to their employer.

However, as we noted earlier, the rising costs of healthcare and other benefits can make it challenging for small businesses to compete for skilled new hires with larger employers.

4 most popular strategies for balancing costs and benefits

The survey results reveal a nuanced approach among small business owners when balancing the cost of employee benefits with their bottom line. While there's no one-size-fits-all solution, four key strategies emerged as particularly popular among respondents:

• Reassessing benefits plans regularly: Many prioritize flexibility and adaptability by regularly reviewing and adjusting their benefits plans. This proactive approach allows businesses to respond to changing economic conditions, employee needs, and industry trends.

• Implementing cost-saving measures: Some turn to cost-saving strategies such as wellness programs and telemedicine. These measures reduce healthcare expenses and contribute to a healthier and more productive workforce.

• Prioritizing cost-effectiveness: Many prioritize cost-effectiveness above all other factors. This approach may involve offering a limited number of benefits options or choosing to offer them to only exempt or non-exempt employees.

• Prioritizing Core Benefits: Others prioritize core benefits like health insurance and retirement plans while limiting additional perks. This strategy allows businesses to provide essential benefits while controlling costs.

Is ICHRA the Solution for Your Business?

While many small business owners are exploring ways to manage healthcare costs and offer competitive benefits, 28% remain unfamiliar with a promising option — Individual Coverage Health Reimbursement Arrangements. ICHRAs offer a flexible and cost-effective approach to providing employee health benefits.

We also found that, for those who are familiar with ICHRAs, 14% have implemented ICHRAs, while 27% have considered but not yet implemented them. 

The low implementation numbers are unsurprising, considering that 88% of small business owners in a National Federation of Independent Businesses survey reported they secured their company’s health insurance through a broker, but 52% of them admitted their broker never mentioned ICHRAs as an option.

It’s interesting to also note that 84% of business owners who chose to adopt a budget-friendly ICHRA or QSEHRA (Qualified Small Business Employer HRA) were able to offer benefits to their employees for the very first time, according to a survey from the HRA Council.

How do ICHRAs work?

Unlike traditional group health plans, ICHRAs allow employers to reimburse employees for individual health insurance premiums. This approach empowers employees to choose plans that best suit their needs and budgets.

By implementing an ICHRA, small businesses can:

• Control costs: ICHRAs allow businesses to set a fixed reimbursement amount, providing greater predictability and control over healthcare expenses.

• Offer flexible benefits: Employees can choose plans that meet their specific needs, leading to higher satisfaction and retention.

• Reduce administrative burdens: ICHRAs simplify the administration of employee benefits, saving time and money.

For small business owners seeking to provide competitive benefits without breaking the bank, ICHRAs may be a good solution. An employee benefits broker can help get a plan in place for you and your employees.

Navigating the path forward with Thatch

The findings of this survey highlight the challenges that small business owners face in providing affordable and competitive healthcare benefits. As healthcare costs continue to rise, small businesses must explore innovative solutions, such as ICHRAs, to ensure the sustainability of their employee benefits programs.

Thatch can help small business owners navigate these complex issues by providing expert guidance and innovative ICHRA solutions. Schedule a demo to learn how we can help you understand your options, implement cost-effective strategies, and ensure compliance with ever-changing regulations.

Methodology

The survey of 420 US-based small business owners was conducted via Centiment for Thatch on October 24, 2024. Of those surveyed, 67% currently offer healthcare benefits to their employees. Data is unweighted and the margin of error is approximately +/-3% for the overall sample with a 95% confidence level.