The JPMorgan Chase Institute released new data showing small business owners who purchase their health insurance on the individual marketplace are facing growing premium costs that are outpacing revenues operating expenses. In 2014, 16 percent of individual market participants were self-employed.

While growth rates in insurance premiums have slowed in recent years, from 10 percent in 2014 to 7 percent in 2017, typical small business owners still spend about $500 per month on premiums to cover themselves and/or their families. Additionally, the data show small business owners who paid at least 6.5 percent of their expenses toward healthcare costs in 2016 were more likely to stop making healthcare payments and perhaps left the marketplace entirely in the following year.

The report, Paying a Premium: Dynamics of the Small Business Owner Health Insurance Market provides insight into the decisions of small business owners as participants in the individual health insurance market and a unique perspective into the magnitude of health insurance premiums relative to other operating expenses small business owners face. 

“The majority of America’s small business owners face a real financial burden when purchasing insurance for themselves and their families,” said Diana Farrell, President and CEO, JPMorgan Chase Institute. “Small businesses operate under fragile circumstances, with the average small business having only 27 cash buffer days. These businesses are significantly vulnerable to revenue shocks and health insurance premiums represent a material and growing operating cost for these business owners. As policymakers consider the path forward on healthcare, it’s important to keep these small businesses in mind as we look for solutions.” 

More than 75 percent of small businesses are nonemployer firms, including sole proprietors, contractors and freelancers, representing the overwhelming majority of America’s small businesses. Of the 29.6 million small businesses in the US in 2014, 23.8 million were non-employer firms.

While issues faced by small employers who offer health insurance have drawn significant attention, there is limited research on the topic for nonemployer small businesses.

Some of the report’s key takeaways include:

• Health insurance premiums have increased dramatically in recent years, but the rate of growth has decelerated over time. Small business owners saw their premiums grow 10 percent in 2014, though that growth rate declined to 7 percent in 2017.

• Health Insurance premiums for small business owners have grown significantly faster than their operating expenses. In 2014, the median health insurance premium burden was 2.3 percent. In 2017, the median burden among the same set of firms had grown to 2.9 percent, increasing about 0.2 percentage points each year.

• Small business owners with the highest insurance burdens are leaving the individual market, and possibly going without health insurance. Forty-two percent of firms in the sample with health insurance payments amounting to 6.5 percent or more of their expenses in April 2016 were no longer in the sample a year later. Firms with high health insurance premium burdens were more likely to leave the sample the following year – as opposed to firms with lower health insurance premium burdens – most commonly because they discontinued those payments.