Some 97% of large U.S. firms offer health benefits, but only 48% of small businesses do. Compounding the issue, employees in small businesses fork over higher premiums and deductibles than those at large firms – and in return receive “less financial protection” – according to a Commonwealth Fund report last December. In certain states such as Arizona and North Carolina, premiums and deductibles cost twice as much for employees at small companies as for those at large firms.

Question is, how do we fix this widespread problem? The good news is that health plans designed specifically with small firms in mind, plus new tax incentives in many states, could prove to be a lifeline for small employers and employees in desperate need of affordable, high-quality health benefits.

Three reasons explain why small business is on the losing end when it comes to health benefits.

First, it’s a matter of plan design. With group health insurance, employers have essentially two options. They can fully fund a health plan, which costs more because it puts all the risk and responsibility for administering a plan on the carrier. Or they can self-fund, which costs less but requires employers to assume all risk and manage the plan. That’s really a dilemma.

Second, the underpinning of group health insurance is the sharing of costs. Small businesses have a proportionately smaller pool of employees among whom to spread hypothetical risk that carriers use to calculate premiums and other out-of-pocket expenses. As a result, all members of a group—even the healthy ones with no medical expenses—must pay more in premiums and other out-of-pocket costs in order to cover the medical expenses of the sicker members of the group.

Related: Report: Many SMB employees face higher health care costs

Third, the administrative burden of managing a group health plan is a barrier to coverage. The smaller the business, the larger the burden involved in administering a health benefits plan. Few small businesses are sufficiently staffed – many have no HR department – to handle the logistical intricacies entailed.

But during this National Small Business Month, let’s take notice of an emerging innovation known as the ICHRA, or Individual Coverage Health Reimbursement Arrangement.

Created in 2019 through an executive order, ICHRAs enable employers to give each employee a defined financial contribution that can then be applied toward buying health insurance in the individual market. With the help of an ICHRA provider, employees can then navigate the market and pick the most suitable health plans for their individual needs, all while facilitating payments among employer, employee, and carrier. Although still new, ICHRAs have grown popular among employers of all sizes, but especially for smaller firms. According to the HRA Council, ICHRA adoption between 2023 and 2024 soared nearly 30%.

We’ve seen the results with our own employer clients. Some who offer ICHRAs are saving as much as 29% at renewal compared to the previous year.

There are steps the federal government can take immediately to make ICHRAs accessible to more businesses. A federal ICHRA statute that replaces the current executive order would go far toward convincing skeptical employers and carriers that ICHR are viable long-term.

State governments can also play a role. Indiana lawmakers enacted legislation that gives tax credits to businesses who offer ICHRAs. Ohio, Georgia and other states are following suit.

Making such health plans more accessible to small businesses has never been more urgently needed as more entrepreneurs join the marketplace than ever before. According to the U.S. Chamber of Commerce, there were 5.5 million new business applications filed in 2023—a new record.

Besides, let’s face it: the most spectacular innovations and disruptions have already rippled through every sector of the health care industry, whether pharma, medical devices or health IT. The opportunity to spark the same kind of seismic quivers in health insurance for the small business community – entrepreneurs so often overlooked yet no less deserving of fair play – is long overdue.