Paying a Premium: Dynamics of the Small Business Owner Health Insurance Market

Abstract

This report analyzes the financial experiences of nonemployer small business owners who purchase health insurance through the individual market for themselves or their families. We leverage 117 million anonymized transactions from over 30,000 nonemployer firms who hold business banking deposit accounts with Chase to produce a monthly view of health insurance premium payments from January 2014 to April 2017. We find that health insurance premiums are a material expense for nonemployer business owners, who spend about $500 per month on premiums. Moreover, health insurance premiums have grown substantially since 2014 and have increased as a share of operating expenses. While we found that the within-firm growth rate of health insurance premiums slowed from about 10 percent in 2014 to about 7 percent in 2017, many firms appear to exit the health insurance market. In particular, nonemployer businesses for whom health insurance premiums are most burdensome are most likely to exit the health insurance market. Forty-two percent of firms in our sample with health insurance payments amounting to 6.5 percent of expenses or more in April 2016 were no longer in the sample a year later. These findings provide 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.