Executive Summary: The Cost of Offering Nothing: What Happens to Small Employers Who Do Not Provide Coverage
LFP-04.09 — The 1-to-50 Market#
The ACA employer mandate does not apply to employers below 50 full-time equivalents. The KFF 2024 EHBS reports that 54% of all small firms offered health benefits, against 98% at large employers. The gap is deliberate regulatory architecture. For many service economy employers, the cost-benefit analysis genuinely does not support offering. But a meaningful share of employers who could afford to offer have not examined the costs of not offering with the same rigor they apply to other operational decisions. The decision to offer nothing is often a default rather than an analysis, and defaults carry costs.
Those costs arrive through three channels. Talent attraction is the first: the SHRM 2024 Employee Benefits Survey consistently shows health insurance ranking among the most highly valued employee benefits. An employer with a comparable base salary but no health coverage is presenting an incomplete total compensation offer in any labor market where competing employers do provide it.
Retention is the most directly calculable cost. SHRM benchmarking data finds that replacing a salaried employee typically costs six to nine months of their annual salary. Gallup’s research places the range at 50% to 200% of annual salary depending on role complexity. For an employer with a $65,000 skilled technical employee, the lower SHRM estimate puts replacement cost at approximately $32,500. An employer contributing $500 per month in health coverage spends $6,000 per year. If coverage prevents the loss of that employee even once every five years, coverage pays for itself in retention savings alone. The retention argument is strongest where the employee is hardest to replace: licensed trades workers where the AGC documents 94% of construction firms with difficulty filling craft positions, and healthcare employers competing for clinical staff. It is weakest in service economy segments where neither the employer nor most competitors offer coverage and turnover is driven primarily by wages and scheduling.
Workforce health effects are the third channel and the hardest to attribute causally. Employees without coverage defer care, chronic conditions go unmedicated, and preventive screenings go unscheduled. The productivity consequences are directionally negative and supported by a substantial academic literature reaching back to Currie and Madrian’s foundational 1999 chapter in the Handbook of Labor Economics.
When employers offer nothing, employees access Medicaid if income qualifies, marketplace subsidies if they are not offered affordable employer coverage, or spousal coverage that shifts cost to another employer. The employer who offers nothing externalizes coverage cost rather than eliminating it. The decision belongs to the employer. The broker’s role is to ensure it is made with full visibility into both sides of the ledger, not as an unconsidered default.