Small Employers Consider Dropping Health Benefits as Rising Costs Become Unsustainable
Small and midsize employers are increasingly considering abandoning traditional health insurance offerings as healthcare costs continue to rise beyond what businesses can absorb. The federal No Surprises Act's independent dispute resolution process is creating unexpected cost pressures for self-funded employer plans, with one large employer reporting IDR-related payments nearly doubling from $3.5 million in 2025 to $6 million. The convergence of these cost pressures threatens to worsen healthcare access for millions of Americans who rely on employer-sponsored coverage.
The No Surprises Act, designed to shield patients from unexpected out-of-network medical bills, has inadvertently created financial strain on employers who self-fund their health plans. When disputes arise over payment amounts, a federal arbitration process now determines outcomes—and providers are winning roughly 88% of these cases. Employers absorb approximately 90% of the resulting award costs, transforming what should be patient protection into a mechanism that can significantly inflate healthcare spending for businesses.
Small and midsize companies are beginning to view employer-sponsored insurance as economically unfeasible. When IDR-related costs alone can add 1% to 6% to annual healthcare spending, combined with general premium increases, the cumulative burden becomes difficult to justify. This convergence of rising costs suggests employers may increasingly withdraw from offering traditional coverage, potentially shifting millions of workers toward individual markets or leaving them uninsured.
If employers abandon traditional health benefits at scale, millions of Americans could lose their primary insurance access, potentially expanding the ranks of the uninsured and underinsured. Workers would face higher out-of-pocket expenses and less predictable coverage. The shift may paradoxically worsen patient affordability despite the No Surprises Act's intentions—the arbitration mechanism designed to protect consumers could instead accelerate employer exits from health benefits, ultimately reducing overall coverage options available to the workforce.