The small-group health insurance market has quietly split in two. When the ACA's rules took effect in 2014, self-insured and non-community-rated plans held 18 percent of enrollment. By 2024, that share had reached 46 percent. Community-rated plans, which peaked at 60 percent in 2018, had slipped to 50 percent. A new Congressional Budget Office (CBO) report, Health Insurance Options for Small Businesses, traces the decade of market migration behind those numbers.
Level-funded plans drove most of that shift. They bundle self-insurance with stop-loss coverage and flat monthly payments, which makes them easier to budget. Stop-loss policies cap the employer's exposure when individual claims exceed a set threshold, limiting the financial risk that would otherwise make self-insurance impractical for smaller firms.
Because they are experience-rated, businesses with younger or healthier workforces often pay less than they would in the ACA-compliant community-rated pool. That cost advantage has drawn lower-risk groups steadily away from community-rated plans, leaving those pools more concentrated with higher-risk enrollees.
The premium data bear that out. From 2014 to 2024, average premiums in ACA community-rated small-group plans rose 46 percent in nominal terms, against 35 percent for experience-rated plans. The gap widened in the most recent year: community-rated premiums grew 6.1 percent from 2023 to 2024, compared with 2.6 percent for experience-rated plans. Those figures put the CBO data in direct context with the 14 percent median premium increase proposed for the small-group market in 2027, which KFF analysts have also linked to the erosion of the fully insured risk pool.
The most acute version of this dynamic is playing out at the state level. In states where community-rated enrollment has fallen below 25 percent of the small-group market, premium growth has run well above the national average. That group grew from two states in 2020 to seven by 2024, with Georgia, Indiana, Kentucky, Missouri, and South Carolina joining Ohio and Wyoming.
The CBO data illustrate how the cycle feeds itself. As community-rated pools shrink and skew toward higher-risk enrollees, costs climb, which encourages more healthy groups to leave.
The contrast across states is striking: the 12 with the fastest community-rated premium growth saw increases averaging 89 percent from 2014 to 2024, while those with the slowest averaged 31 percent. Ohio, Kentucky, and Georgia each had 10 percent or less of small-group enrollment in community-rated plans by 2024. Michigan, with 83 percent in community-rated plans, recorded among the slowest premium growth in the country.
Market concentration among providers and insurers also drives cost variation, so the pattern is not strictly causal. The CBO, however, describes it as consistent with adverse selection. In the seven states identified in the report, community-rated costs are diverging from the national trend.
The gap is likely to widen as pools thin further. Where a client's state sits on that spectrum changes the weight of a plan-type recommendation at renewal. The CBO data provide a concrete and defensible basis for that conversation.
These enrollment shifts are occurring in a market where coverage access is already uneven. About 38.3 million people worked in small businesses in 2024, yet only 53 percent were at firms that offered any health plan. Offer rates fell to 32 percent at firms with fewer than 10 employees. As of 2023, people in small business households were about three times as likely to be uninsured as those in large business households - 13.6 percent compared with 4.4 percent.
Small business owners have not been exempt. The CBO found that 20 percent of owners with at least one employee were uninsured in 2023.
The underlying constraint is cost. Group premiums in 2024 averaged about $8,500 for single coverage and $24,500 for family coverage. At small businesses, average full-time wages ran approximately $54,500 that year, leaving little margin at lower-revenue firms.
Research from the JPMorgan Chase Institute, cited by the CBO, found that small businesses with revenues below $600,000 carried a median health insurance payroll burden of 11.8 percent. That is nearly double the 7.1 percent recorded at firms above $2.4 million. The cost gap helps explain why roughly half of small business workers remain without employer-sponsored coverage, and why the rising cost pressure in the fully insured market is accelerating interest in level-funded and alternative arrangements.
The CBO, however, does not recommend a policy direction. What the report establishes is that the regulatory structure of the small-group market shapes which businesses offer coverage and which plan type they select.
As more of the market migrates into experience-rated territory, the community-rated pool in many states faces mounting pressure. The advisers best positioned to navigate that environment are those who can read the state-level data, explain the mechanics behind the rate environment their clients are facing, and and match plan structure to workforce risk before the client has already made a decision based on the rate alone.
