Individual Insurance Market Changes Affect Small Business Owners

Larry Levitt, Anthony Damico, and Gary Claxton of the Kaiser Family Foundation, wrote in a recent blog post:

“The biggest effects the [Affordable Care Act] ACA will have on small business owners may not be changes in the rules for the small business insurance market, but rather the changes in the individual insurance market. ”

health insurance

That’s because most owners of businesses with fewer than 25 employees are much more likely than other Americans to get their health insurance from the individual insurance market.

If they are insured, most Americans get their health insurance from one of four sources:

  • their employers;
  • a family member’s employer;
  • the government (through Medicare or Medicaid);
  • or from other private insurance.

Small business owners differ from Americans who don’t own businesses in terms of health insurance coverage, but not in the way most people think.

Roughly the same share of small business owners and non-elderly Americans has health insurance. According to unpublished analysis of the Survey of Income and Program Participation for the second quarter of 2011 by the Kaiser Family Foundation, 25 percent of small business owners were uninsured, a similar fraction to the 22 percent of all non-elderly adults who have no health care coverage.

The Foundation’s analysis also shows that 21 percent of small business owners and 18 percent of all non-elderly adults get their insurance from a family member’s employer – numbers that are also not too different. Finally, a relatively similar 6 percent of small business owners and 10 percent of non-elderly adults get their insurance through either Medicare or Medicaid.

Where small business owners differ from other Americans lies in the share that gets insurance coverage from their employer and from “other private insurance,” most of which is insurance purchased in the individual market.

While 37 percent of all non-elderly Americans get health insurance from their employers, only 19 percent of small business owners with fewer than 25 employees do. The numbers are reversed for “other private insurance,” with 30 percent of the small business owners and only 13 percent of all non-elderly Americans getting their insurance from that source.

This difference leads the Kaiser Family Foundation analysts to conclude that the really important changes in the ACA for owners of small businesses lie in the individual insurance market, such as new coverage requirements, rules about pre-existing conditions, and the creation of insurance exchanges.

Health Insurance Photo via Shutterstock


Scott Shane Scott Shane is A. Malachi Mixon III, Professor of Entrepreneurial Studies at Case Western Reserve University. He is the author of nine books, including Fool's Gold: The Truth Behind Angel Investing in America ; Illusions of Entrepreneurship: and The Costly Myths that Entrepreneurs, Investors, and Policy Makers Live By.

3 Reactions
  1. It appears that only 19% of small businesses are offering group health coverage that the owners utilize. The segment is defined as employers with less than 25 employees.

    The population of this segment is heavily skewed to the 1 and 2 employee groups which don’t qualify for group plans. What would this look like if the study looked at 3 to 24 employees instead?

  2. I’m an SMB owner and purchase my own insurance through the private market and I’m seriously concerned with the impact the ACA will have.

  3. As a small business owner, i appreciate this blog. Great Information for small business owners. Information about individual health insurance plans is extremely helpful. As a small business owner more options are now available for affordable health insurance in Florida and the United States.