For small business owners, navigating health insurance options can be a challenge, especially with rising premiums and fewer available plans. In 2025, while the landscape looks tough, there’s still a promising option: ICHRA (Individual Coverage Health Reimbursement Arrangement), a pre-tax fixed benefit that helps businesses provide health insurance coverage more affordably.
Health Insurance Trends for Small Businesses in 2025
When it comes to health insurance in 2025, small businesses are in for some significant shifts. Here’s what to expect:
1. Marketplace Premiums Rise by 7%
Health insurance premiums usually go up every year, and 2025 is no exception. According to a KFF review of insurers offering plans in the marketplace, premiums are expected to increase by an average of 7%. This hike is driven by factors like inflation, healthcare labor shortages, and the growing popularity of expensive specialty drugs. While premium increases of this size are typical, it’s important for small businesses to be prepared for the added financial strain.
2. Small Group Health Plan Costs to Rise Even More
For employer-sponsored health plans, the cost increases are even steeper, with a 9% rise expected in 2025. Small businesses with fewer than 10 employees face the highest premiums due to limited options and less negotiating power. An analysis by JPMorgan Chase found that small businesses are especially affected, as premiums for these companies have increased 33% over the past five years, compared to just 19% for non-employer plans. As a result, many small business owners are unable to offer health insurance to their employees.
3. Fewer Options for Small Group Plans
The small group market is shrinking, with several major insurers pulling out. For example, Humana has exited the small group market entirely, and Cigna and Oscar Health have stopped offering their co-branded group insurance plans. This contraction is making it harder for small businesses to find affordable, competitive plans for their employees. In some states, insurers like Aetna and ConnectiCare are also leaving, further reducing the options available.
4. Marketplace Enrollment at Record Levels
Despite the challenges in the small group market, the health insurance marketplace has seen substantial growth. In 2024, enrollment reached 21.4 million, marking a 30% increase from the previous year. This trend is expected to continue in 2025, thanks to expanded premium tax credits from the American Rescue Plan. These credits help make healthcare more affordable, and their extension through 2025 means more people will gain access to subsidized insurance plans.
5. Health Insurance Remains the Top Small Business Challenge
As premiums rise and options dwindle, it’s no surprise that small business owners continue to cite health insurance costs as their number one challenge. The National Federation of Independent Business (NFIB) has consistently ranked health insurance as the top concern for small businesses, and this issue shows no signs of easing in 2025.
The Bright Spot: ICHRA (Individual Coverage Health Reimbursement Arrangement)
While the outlook for small business health insurance may seem grim, there is a silver lining in the form of ICHRA. This relatively new pre-tax health benefit allows businesses to give employees a fixed amount of money to use toward purchasing their own health insurance plans on the marketplace.
With ICHRA, small business owners can set a budget for health insurance contributions, and employees can choose the individual plan that works best for them. This flexibility not only gives employees more control over their healthcare but also allows employers to provide support without the burden of skyrocketing premiums. The pre-tax nature of ICHRA contributions means that employees get to use the full amount without taxes eating into it.
Why ICHRA Is the Best Option for Small Businesses
ICHRA offers a simple, cost-effective alternative to traditional small group insurance. Here’s why it’s a top choice for small businesses in 2025:
- Employer Control: Business owners can decide how much to contribute, ensuring predictable costs each year.
- Employee Choice: Employees select their own health plans, giving them the flexibility to find coverage that suits their needs.
- No Participation Requirements: Employees are not required to enroll, and their decision doesn’t impact others.
- Simplicity: Setting up an ICHRA is quick and easy, saving time and reducing administrative burden.
For small businesses struggling with the rising costs of health insurance, ICHRA presents an excellent way to offer benefits without breaking the bank. While the overall landscape for small business health insurance in 2025 may be challenging, embracing flexible solutions like ICHRA can help you provide your employees with the coverage they need at a manageable cost.
