As a small business owner, you’ve come to dread renewal season. I’ll bet health insurance is your largest expense after payroll. And to make matters even worse, it’s rising at a pace that doesn’t feel sustainable.
If your company employs 10 to 199 workers, you saw the average family premium hit $26,054 in 2025, up from $16,977 in 2020. You can expect factors like expensive prescription drugs and new medical technologies to drive costs up again in 2026. It’s no wonder that 98 percent of small employers who offer health insurance are concerned that the cost will become unsustainable.
Why health care insurance is overwhelming small businesses
If today’s rising health care challenges cause you undue stress, I can understand. Your decisions in this area affect your business’s cash flow, your employees’ trust and even your legal compliance.
Complex regulations add to the anxiety. The ACA sets strict rules for affordability and reporting. ERISA requires plan documents and summaries. COBRA mandates timely notices for employees who lose coverage. And HIPAA governs privacy.
If you have 50 or more full-time employees, you face additional ACA requirements and penalties. Even very small employers must handle enrollment windows and pre-tax payroll deductions correctly.
Expectations are also rising, as employees compare your benefits to those at bigger companies and expect similar options. When your operating margins are thin, meeting those expectations can feel impossible.
Common coverage mistakes that create financial risk
Insurance isn’t a space where you can afford to misstep. One of the most common mistakes you can make is renewing at the last minute, which leaves you with no choice but to accept the carrier’s renewal and hope for the best. That approach can lock you into a plan that no longer fits your workforce or budget.
Start renewals early. If you begin 120 days before your plan expires, you can get quotes to compare and negotiate plan designs. Making carriers compete for your business can produce real savings.
Another pitfall is offering the same plan for everyone because it seems simple, but this will find you over-insuring some and under-serving others. You can be sure you’ll be paying more than necessary.
Pre-tax rules are another area where good intentions can cause trouble. You can’t let employees pay for their individual marketplace plans with pre-tax payroll deductions unless you use a compliant health reimbursement arrangement. Doing it the wrong way results in penalties.
Employers also stumble on ACA requirements. They miscount full-time equivalents, fail affordability tests and miss IRS filings. The same is true for ERISA and COBRA paperwork.
Overlooking pharmacy costs can also blow up your budget. Specialty medications can drive a large share of spending, and without a plan that manages formularies and directs members to cost-effective alternatives, costs can spike midyear. Level-funded plans are a good choice for some small businesses, but they come with risk.
One of the worst mistakes is silence. Weak communication can hurt both compliance and employee satisfaction. If your employees don’t understand their options, they often make choices that cost everyone more.
Practical strategies for small businesses that want to offer competitive benefits without overspending
Start by deciding what you can afford, then design your benefits around that number. Treat your employer contribution as a firm budget. From there, give employees a choice of plans that match different needs and price points.
You may want to consider HRAs, especially if the small group market in your area is limited or overpriced. For employers with fewer than 50 full-time equivalents, a QSEHRA lets you give tax-free dollars that employees can use to buy individual coverage. For employers of any size, an ICHRA can replace group coverage or be offered to specific classes of employees. These arrangements provide cost predictability and allow employees to choose plans that fit their families.
If you prefer to stay in group coverage, you can explore level-funding, but this option requires extensive research. Ask your broker to explain every term in plain language, and look closely at pharmacy management.
The right tech can be a huge help. A benefits administration system that connects to payroll can track eligibility, measure hours for ACA purposes, handle open enrollment, and automate COBRA notices. Decision-support tools help employees compare plans based on their individual needs around doctors and expected usage.
Most importantly, hold plain-language sessions to explain how the plans work and what the company pays. Explain how your employees can get the most value from their benefits, and show total compensation so employees see your contribution. When you support employees, satisfaction rises even if the plans aren’t the richest on the market.
The contributions you offer will be a big part of the puzzle. Many small businesses find stability by covering a higher share of the employee-only premium while asking employees to share more of the cost for dependents. Some use spousal carve-outs when a spouse has access to other employer coverage.
Whatever the plan, match your contribution strategy with your hiring and retention goals and put it in writing so it’s consistent and transparent.
Hani Rihan is the CEO of BiG Agency and a veteran entrepreneur in the life and health insurance industry. He has founded and scaled multiple national insurance organizations, with a focus on distribution strategy, compliance and technology-enabled growth.
