New Gusto Data Reveals Small Businesses Are Absorbing Rising Health Costs
According to recent data from Gusto, most small business owners have chosen to absorb the rising costs of health insurance rather than drop coverage for their employees. In fact, only 2.1% plan to eliminate health coverage altogether. The median premium per employee reached $8,743 in 2026, marking a 31% increase since 2022, while around 21% of small businesses continue to offer health insurance.
This information comes from a Gusto analysis that examines anonymized payroll and benefits data from over 500,000 businesses employing between two and 49 people. The analysis has been adjusted to better reflect the broader population of small businesses across various industries and regions. The premium figures specifically relate to the businesses for which Gusto serves as a health insurance broker. Gusto, itself a payroll and HR software company, provides these insights based on its platform clients.
The results suggest that most small employers are maintaining their health coverage, which aligns with the observations from benefits advisers in the industry. However, it’s also insightful to look at where the costs are being directed instead.
Smallest Companies Bear the Heaviest Burden
The cost of health insurance isn’t evenly distributed. Small businesses with only two to five employees reported a median premium of $9,170 per employee in 2026, approximately 6% higher than those with 25 to 49 employees. It’s interesting how health insurance pricing works—insurers manage medical risk across larger groups, and smaller ones can be much more unpredictable.
Additionally, premiums for the smallest companies have surged significantly, with increases exceeding 35% since 2022—this is notably higher than the 31% average increase across smaller firms as a whole. Even when adjusted for inflation, Gusto’s data indicates that the real healthcare costs faced by small businesses have risen about 17% since 2022. This increase is outpacing many other expenses these businesses handle, mirroring a projected 11.1% rise in employer healthcare costs by WTW for 2027, if current plans remain unchanged.
Costs Are Being Absorbed, Not Shifted
As coverage levels stay stable, the way costs are handled becomes crucial. According to Gusto’s August survey, 52.7% of small business owners reported they would choose to absorb premium increases rather than pass those costs to employees or cut benefits. This raises the question of what sacrifices these employers are making instead. The higher premium costs, which don’t translate into reduced coverage, might manifest elsewhere in the business as slower wage growth, reduced retirement contributions, or limitations on hiring. Gusto notes this without providing definitive data on those trade-offs.
One notable shift is in plan design. The percentage of small businesses offering at least one health savings account (HSA)-eligible plan increased from about 9.6% in 2019 to 12.7% by 2026. These high-deductible health plans (HDHPs) tend to have lower monthly premiums but come with higher out-of-pocket costs for employees.
The adoption of HSAs has risen across all sizes of businesses from 2022 to 2026. For example, among businesses with one to 10 employees, the adoption rate climbed from 7.4% to 9.4%. In firms with 26 to 49 employees, it grew from 17.6% to 22.1%. For the smallest businesses, where traditional fully insured coverage can be quite costly, level-funded plans and health reimbursement arrangements (HRAs) are also highlighted as viable alternatives. The trend towards HSAs represents a practical strategy for managing costs without necessarily reducing benefits.
Looking ahead to 2027, the renewal environment does not indicate a decrease in premium costs. An analysis by KFF in September 2025 found that 318 small group market insurers proposed a median premium increase of 11% for 2026, primarily due to rising costs in hospital care, physician services, and prescription drugs. While coverage within the small business market remains intact, conversations between benefits advisers and small business clients are increasingly centered around what other areas might need to be cut to maintain that coverage.
