Small business owners in every state are preparing for a perfect storm when it comes to healthcare costs. Premiums have already increased by more than 350% since 1999, and the average family premium for firms with 10 to 199 workers increased from $16,977 in 2020 to $26,054 in 2025. Healthcare is the second-largest expense for most small employers after payroll, and the potential expiration of Affordable Care Act enhanced premium tax credits at the end of this year would push costs even higher.
1. The ACA Enhanced Premium Tax Credits at Risk
Enhanced premium tax credits, established in 2021 and extended to 2025 under the Inflation Reduction Act, have doubled ACA marketplace enrollment from roughly 11 million to more than 24 million people. The credits reduced the share of income enrollees pay for premiums and expanded eligibility to middle-income households above 400% of the federal poverty level.
Without them, premiums will more than double on average, rising by more than $1,000 annually for the typical enrollee receiving credits. For some, the impact will be much larger a 60-year-old couple earning $85,000 could see annual premiums rise from $7,225 to more than $31,800.
2. Small Businesses Hit Hardest
Half of all ACA marketplace enrollees are small business owners, self-employed workers, or employees of small firms. John Arensmeyer of Small Business Majority warns, “Any increase is challenging for small businesses because most small firms are already operating on thin margins.” A survey by Small Business for America’s Future found 84% of small business owners are concerned about affording healthcare in 2026 if the credits expire, with nearly 40% expecting severe financial strain and a quarter likely to drop employee coverage.
3. Legislative Uncertainty and Policy Crosswinds
Congressional action on the credit renewals has stalled amidst partisan divides, with Democrats seeking renewal to avoid “sticker shock” and Republicans pointing to cost issues and alleging marketplace fraud. The CHOICE Arrangement Act seeks to give small businesses more flexibility with tax-advantaged health reimbursement accounts, but it remains in committee. According to the Congressional Budget Office, 3.8 million more people will be uninsured in 2035 if these credits are allowed to expire.
4. The GLP-1 Drug Cost Factor
Pharmacy spending is another big driver of the premium increases, with GLP-1 drugs like Ozempic, Wegovy, Zepbound, and Mounjaro driving the trend. More than 57 million privately insured adults qualify for the pricey medications, which often require continuous use. Large employers are more likely to cover them, though many are scaling back amid costs. Some firms require participation in weight management programs before coverage, while others restrict use to diabetes treatment. Employers report GLP-1 spending is rising as much as 50% year over year, with some medications accounting for over half of total pharmacy costs despite representing a small fraction of prescriptions.
5. Cost-Control Strategies for Small Employers
Smaller businesses have fewer ways to absorb increasing costs than large corporations can, but some targeted strategies can help. These include:
- Offering a variety of plans with different deductibles to give employees options.
- Partnering with benefits advisors to negotiate better rates.
Implementing techniques of pharmacy benefit management for high-cost drugs, such as step therapy or prior authorization. - Exploring self-funded plans to offer more control over design and spending.
- Auditing dependent eligibility in order to prevent covering ineligible people.
6. Utilizing Technology and Data
Technology can help employers in streamlining the efficiency of the plan and enhancing employee engagement. Data mining and predictive modeling can identify high-risk groups to target interventions. AI-driven tools may guide employees toward cost-effective plans. While becoming standard, telehealth services reduce emergency room visits and can lower overall costs.
7. Balancing Benefits and Talent Retention
While this move can cut health benefits and save money, there is always a risk of losing the best and most talented employees to bigger firms. As Arensmeyer says, “Access to quality, affordable health insurance isn’t just a cost issue for small businesses it’s a labor issue as well.” Low-cost extras, like Employee Assistance Programs, flexible work arrangements, and wellness perks can help maintain morale and retention even when healthcare coverage is pared back.
8. The Road Ahead
If Congress fails to act, small businesses will face a “double whammy” of rising premiums and reduced subsidies. For a family of four making $66,000, premiums could rise from $1,452 to $4,477 annually. In rural areas, where enhanced credits saved enrollees an average of $890 in 2024, the loss could lead to a 37% increase in uninsured rates. Employers must prepare now by reassessing benefits, engaging employees in cost-saving programs, and advocating for policies that sustain affordability to weather the coming surge in healthcare expenses.
