Small Employers Are Paying for Texas’s Mandate Problem

By: TAHP | Thursday, May 28, 2026

Part of TAHP's Affordability Series: What's Driving Up the Cost of Coverage

What's new: Most Texans with employer coverage are already in plans free from expensive Texas health insurance mandates. Their coverage is just as comprehensive, but often costs 19% less. Meanwhile, small employers and their workers are stuck on the other side, paying some of the highest premiums in the country.

Texas mandates land on small employers: 4 out of 5 Texas workers with employer coverage, or 12 million people, are in federally regulated ERISA plans that are more affordable and exempt from Texas mandates. The other 3 million work at small or mid-sized businesses that can't easily move to ERISA coverage, so they're stuck paying for every expensive Texas mandate.

As a result, small employers end up with three choices: pay more, pass the cost to workers, or drop coverage altogether.

Why it matters: Texas employers cover 15 million people, the single largest source of health insurance in the state. Workers value that coverage, and employers want to offer it, but affordability challenges are eroding coverage for smaller businesses.

Key Question for Lawmakers: Will we keep building on a system that prices small businesses out of the market, or give smaller employers the same flexibility the rest of the employer market has used to keep coverage affordable?

The price small employers pay:

• Premium shock: Small employer premiums in Texas are jumping 15-20% in 2026, that's 36-82% above the national average.
• Sounding the alarm: 87% of Texas employers say their health care costs are rising at an unsustainable rate.
• The coverage gap: Only 38% of small Texas employers offer health benefits today, compared to 96% of large employers.

Why employers are leaving the TDI-regulated health insurance market:

• Already expensive: Texas is the 5th most expensive state for health care.
• Mandate-heavy: Texas is one of the most heavily mandated states in the country, with regulations that exceed the ACA and federal requirements.
• The savings: For employers who can make the move to mandate-lite ERISA plans, the alternative is working. They are paying 19% less for the same comprehensive benefits.
• The shift: The share of small and midsize employers moving to mandate-lite, level-funded plans jumped from 7% to 37% in the past six years.
• The protections: Workers still get every federal coverage protection, just without expensive state mandates.

The fairness problem: When Texas buys health coverage for state employees and teachers, most state mandates don't apply. When small employers buy coverage, all of them apply. Small employers buying state-regulated coverage should have access to the same flexible options available in the ERISA market.

What Texas should do to help smaller employers afford health coverage:

1. Mandate-lite for small and mid-sized employers: Give them access to the same kind of affordable, mandate-lite, ERISA-style coverage 80% of Texas workers already have.
2. Moratorium on new mandates: Texas employers can't absorb more state regulation. If lawmakers consider a new mandate, require an HB 138 fiscal note first so employers and lawmakers understand the real cost.
3. No double standard: Don't impose mandates on private employers that the state won't apply to ERS or TRS.
4. Repeal the two-plan mandate: Texas law requires employers that offer a lower-cost HMO to also offer a more expensive PPO. Give them the flexibility to choose.
5. Support ICHRAs: Help small employers afford coverage through tax-advantaged ICHRAs, which let employees use a monthly allowance to buy a plan that fits their needs.

Go deeper: Read TAHP's Employer Market & Mandates one pager for more on this issue, and the Affordability Solutions one pager for the full 90th Legislature agenda.

Keep up with TAHP's affordability series:

• May 7: Health Insurance 101, Latest Texas Data
• April 29: Shopping Around Matters: Where Texans Get Their Care Can Mean Very Different Prices
• April 14: Addressing affordability starts with hospital prices.
• April 7: Health care fraud is wasting billions.
• April 2: The No Surprises Act is protecting patients, but private equity is creating a new affordability crisis.
• March 30: Hospitals are using AI to charge more.
• Series Opener: Why is health insurance getting more expensive?