Dive Brief:
- Small businesses could face a double-digit increase in premiums for their health coverage next year, as insurers contend with rising medical prices, expensive specialty drugs and other factors inflating spending.
- Insurers are requesting a median 14% premium increase for the small group market next year, according to a new analysis of rate filings from health policy research group KFF. Most insurers want to raise rates between 10% and 20%, though six want to hike rates above 30%.
- Steep premium hikes will worsen the financial strain on small businesses, which could be forced to turn to cheaper plans with worse consumer protections — or stop offering coverage altogether, exacerbating years of declining enrollment in the small group market.
Dive Insight:
Employer-based insurance is the dominant form of healthcare coverage in America, enrolling about 165 million working-age adults. But it’s becoming increasingly burdensome for businesses to offer insurance as spiking healthcare costs race past inflation and eat into company budgets.
The situation is especially acute for small employers, which already have a trickier time funding benefits. Last year, only 51% of firms with fewer than 25 workers offered insurance, compared to 97% of companies with at least 200 employees.
The number of small companies providing health benefits could sink further if premiums rise into the double digits next year, as the KFF analysis suggests.
Most insurers are asking for a 10% to 20% raise, though some are aiming higher
Researchers analyzed preliminary rate filings from all 50 states and Washington, D.C. for nearly 300 insurers selling small group coverage, which is offered to employers with fewer than 50 employees.
Insurers told regulators that they need the higher premiums to cover spiking underlying medical costs. Covering services like hospitalizations and items like prescription drugs are getting more expensive, while members are using more of them, insurers argued.
“Costs for medical care and medications for our members have escalated rapidly and spending is now growing at the fastest rate in more than a decade,” Blue Cross and Blue Shield of Massachusetts wrote in its rate request. “The surge in spending is putting a heavy burden on our employer customers and members who are struggling to keep up with rising costs.”
GLP-1s are a major factor, according to the filings. The drugs — traditionally used to keep diabetes in check — are increasingly in demand for weight loss, and have shown promise in helping with other conditions too.
Some insurers are discontinuing anti-obesity coverage due to exorbitant price tags for GLP-1s. But that hasn’t stopped spending from rising as more diabetes patients use the drugs, the KFF found.
Interestingly, of the 82 small group insurers with rate filings the KFF reviewed in detail, two plans in New York also cited the impact of the No Surprises Act, a landmark consumer protection legislation passed in 2020.
The law created a pathway for insurers and providers to hash out reimbursement for out-of-network services, so patients aren’t hit with unexpected bills. But providers are prevailing in a majority of billing disputes and winning payouts well above network rates, driving up costs that insurers are starting to pass along to employers and members in the form of higher premiums, research suggests.
Oxford Health Insurance of New York and UnitedHealthcare Insurance Company of New York said they added 0.8% to their rates next year because of the NSA.
Both are owned by insurance giant UnitedHealthcare, which disappointed investors last month when it reported unexpectedly high spending in its commercial business. Executives blamed the NSA.
According to the KFF, higher premiums are spurring more businesses to consider cheaper options than what they might find in the small group market. Some are jumping ship, which is also driving up costs for employers that remain.
The number of people in the fully-insured small group market has declined from 17 million in 2013 to 10 million people in 2024, according to the KFF. But at the same time, coverage rates of small business employees have remained steady, suggesting that many employers have shifted to self-funded or level-funded products rather than dropping coverage.
In level-funded products, employers pay a fixed amount for health coverage, but can be paid back if their members’ actual medical spending is lower than anticipated. It’s generally less expensive for small businesses with healthy employees. But there are downsides: Level-funded arrangements are generally not subject to the ACA’s benefit requirements, meaning insurers can eyeball a population and jack up premiums — or decide not to cover it — based on pre-existing medical conditions and other factors.
“Continued growth in the popularity of alternative coverage options for small businesses, like level-funded plans, has the potential to further erode the fully-insured small group risk pool and could contribute to future premium increases for small businesses, particularly those with sicker employees who may not qualify for or are priced out of a level-funded arrangement,” KFF researchers wrote.
The 14% median increase is higher than the 11% insurers asked for coming into 2026, but similar to the rate hikes that insurers in the Affordable Care Act marketplaces are proposing for next year.
Along with rising spending, exchange insurers are contending with added risk pool turmoil from the loss of more generous federal subsidies.
