Small employers face substantial disadvantages relative to large employers when providing health insurance to their workers. These problems can largely be summarized as higher administrative costs of insurance, limited ability to spread health care risk, and a workforce with lower wages. All of these problems must be addressed if insurance coverage is to increase significantly among workers in small firms. Allowing small employers and individuals to purchase coverage through organized purchasing pools, substantial subsidies targeted to the modest income, and strategies to more broadly spread the risk associated with small-group and individual purchasing will be key components of successful reforms.