How Small Businesses Can Tackle Rising Healthcare Costs in 2025

The rising cost of healthcare is squeezing small businesses across the US. Premiums are on track for the biggest jump in 15 years, threatening insurance coverage for millions of employees. Enter Dr. Andrew Chamberlain of Gusto to break down the numbers and how small-business owners can stay ahead.

1. 📈 Just how big of a challenge are rising healthcare costs?

• Health insurance premiums for small firms are skyrocketing. Between 2020 and 2025, average premiums for companies with 10–199 workers rose from $16,977 to $26,054—a ~54% increase in just five years.
• According to the PwC Health Research Institute, commercial healthcare costs are projected to grow by 8% in 2025, the highest jump since 2012.
• Aon and WTW expected ~9–9.5% premium increases in 2026, marking the biggest rise in at least 15 years.

2. 👥 Who’s feeling the pain most?

• The smallest businesses bear the brunt: firms with 2–5 employees saw premiums climb 18% above inflation since 2022, reaching $8,500 per employee per year in 2025.
• Firms with 10–199 workers face similarly steep hikes—with premiums jumping more than $9,000 in just five years.

3. 🛠️ How are small businesses adapting to rising costs?

Despite the pressure, small businesses remain committed to offering coverage:

• The share of small businesses offering health insurance has stayed steady at ~22% since 2022.
• High-deductible plans paired with Health Savings Accounts (HSAs) are growing in popularity—rising from 33% in 2020 to 48% in 2025.
• Some businesses pivot to HRA or level-funded plans for greater flexibility and cost control.

4. 💡 Ways to keep benefits affordable—without cutting back

• 🌟 High-Deductible + HSA Combo
  These plans lower premiums while empowering employees to manage costs and save pre-tax dollars.
• 🛡️ Health Reimbursement Arrangements (HRAs)
  Section 105 HRAs or QSEHRAs can reimburse employees tax-free for medical expenses—and let employers control budgets.
• 🏥 Self-Insured Medical Reimbursement Plans (SIMRPs)
  Under IRS guidelines, these can reduce employer costs by 20–30% and offer tax-efficient flexibility.
• 🔍 Level-Funded Products
  A hybrid model combining the benefits of fully insured and self-funded plans, offering budgets and claims transparency.

5. 🧾 Tax strategies to help offset healthcare costs

• Health Insurance Deduction:
  Small-business owners can fully deduct their own health premiums—and, in many cases, those of employees—when structured properly.
• Small Business Health Care Tax Credit:
  If you have fewer than 25 FTEs, average wages under ~$50k–$65k, and pay at least half of employees’ single coverage premium, you may claim up to 50% of your premium costs as a dollar-for-dollar credit.
• Payroll Tax Savings:
  Offering HSAs, HRAs, and SIMRPs reduces both employer and employee payroll taxes—FICA, FUTA, and SUTA.
• Section 105 HRAs:
  These out-of-pocket medical expense reimbursements are pre-tax, and therefore fully deductible.

6. 📚 Where to get more help

• Gusto’s Insights Hub:
  Includes reports like “Small Businesses Continue to Offer Health Insurance, Despite Soaring Costs” and research by Dr. Chamberlain and team.
• LinkedIn Insights from Dr. Chamberlain:
  Regular data-driven updates on insurance cost trends and small business policies.
• Professional Advisors:
  Certified accountants, tax attorneys, and benefits consultants can tailor strategies like HRAs or SIMRPs to your unique business structure.

🔍 Why staying informed & proactive matters

Dr. Andrew Chamberlain, Principal Economist at Gusto, emphasizes that while premiums are “still climbing 11–32% next year—the sharpest rise in 15 years,” small businesses aren’t dropping coverage—because insured employees are 25% less likely to quit in their first year. That underscores the critical role of benefits in both retention and morale.

✅ Final Take: Smart Steps for Small Business Resilience

1. Anticipate higher premiums—prepare your budget for the sharpest increases in over a decade.
2. Explore HSA-compatible and HRA/level-funded plans—they can help reduce cost and increase flexibility.
3. Leverage tax credits and deductions—the options are underutilized but powerful.
4. Tap into Gusto and expert advisors—for data, tools, and tailored advice.

By staying informed and strategic, small businesses can continue offering health benefits that support employees—without breaking the bank.

This segment is paid for by Gusto by Tips On TV and is intended as an advertisement. Opinions expressed by the guest(s) on this program are solely those of the guest(s) and are not endorsed by this television station.

All facts from this article were gathered by Studio 512 employees. This article was converted into this format with assistance from artificial intelligence. It has been edited and approved by Studio 512 staff.