Survey: Michigan Small Businesses Can’t Afford to Hire New Employees, Invest in Resources Due to Rising Health Care Costs

06.11.2025 | 4 min read

Key Takeaways

A recent survey revealed 76% of small businesses struggle to hire due to health care costs and 83% said these costs impact investment in other business areas.
Hospital and prescription drug costs significantly outpace the current 2.3% inflation rate, hindering health insurance affordability for small businesses, according to the survey.
Experts advocate for a shift to value-based care, focusing on patient outcomes rather than the current fee-for-service model.

Health care costs are so expensive that many Michigan small businesses are struggling to hire new employees, provide health insurance to existing employees and invest in resources that would help them grow and succeed, according to a recent survey.

The May 2025 Small Business Association of Michigan (SBAM) survey discovered that 76% of members said the cost of providing health care is affecting their ability to hire more employees, while 51% say they have had to reduce or eliminate benefits due to costs.

Four of five SBAM members surveyed said rising health care costs present a barrier to investment or general expansion of their businesses.

“Those were shockingly high numbers,” said Brian Calley, President and CEO of SBAM, during a recent appearance on A Healthier Michigan podcast. “It’s always been a struggle to deal with but now it’s really getting in the way of employment and in the way of investment.”

Calley believes surging medical costs at hospitals and health systems – as well as skyrocketing drug prices – are driving cost increases and hindering health insurance affordability.

“It’s not the insurers; Blue Cross Blue Shield of Michigan experienced a net underwriting loss of $1.7 billion last year,” Calley said. “That means they undercharged premiums. Obviously, that’s not where the problem is. When you look under the hood you find out that health care systems have become huge conglomerates with a lot of pricing power, and they are raising their costs at an alarming rate. Not quite as much as pharmaceuticals, (which) are driving so much of the cost.”

Both hospital expenses and prescription drug prices are well outpacing the inflation rate in the United States, which currently sits at about 2.3%. The lack of drug price regulation has hampered Americans for decades, according to USAFacts, which states drug prices have risen three times as fast as the overall inflation rate since 1985.

If health care is going to become more affordable, these numbers can’t sustain. Calley said it’s important to elevate the discussion about health care affordability for small businesses.

“Small businesses are saying (rising health care costs) are stopping additional investment and additional employment,” he said. “And our economy is going to pay the consequence for it.”

Here are additional findings from the May 2025 SBAM survey:

91% of small businesses state that providing health insurance is valuable for employee retention and satisfaction. However, 84% said health insurance and employee benefits costs are significant to their overall expenses.
83% said the cost of health care impacts their ability to invest in other areas of the business.
67% said the cost of health insurance has increased by more than 10% this year.
70% said the cost of health care is a significant barrier in their ability to offer coverage as an employee benefit.

Value-based care is a solution.

Calley said now is the time to advocate for the health care system to move toward value-based care. A large driver of medical spending and hospital costs revolve around health care systems consolidating, building new medical centers to expand market share and influence, expanding services, then rewarding providers for prescribing more tests and procedures with higher payments that keep customers tangled in the expensive system they have created. This pattern results in higher health care costs for the customers.

“Today we have a system that incentivizes building more infrastructure and then driving utilization of that infrastructure, and that’s the most expensive way to do it,” Calley said. “What we would rather see is a reimbursement system in the health care industry that is based on value, on health outcomes. How do we avoid people needing to use that infrastructure? Right now, to make their financials work, they literally incentivize the opposite behavior we would want.”

We all suffer from the antiquated “fee-for-service” payment model, and that includes small business owners. This model encourages volume over quality because providers get paid for doing more, regardless of whether the patient’s health improves.

Under the value-based care reimbursement model, providers are paid based on the patient outcomes they deliver — including care quality and overall efficiency — not volume. This payment approach incentivizes prevention and wellness, coordinated and efficient care and better health outcomes.

“Small businesses more than anything needs the entire system itself to move toward this value-based reimbursement method that incentivizes the right types of behaviors of the health systems themselves,” Calley said.

Read more about how Blue Cross is leading the transition to value-based care. And learn more about our commitment to affordability here.

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