Small businesses face health care premium increases of about 11% next year, as health care costs continue to rise, according to Peterson KFF’s Health System Tracker.
The analysis is based on rate filings submitted to state regulators by health insurers outlining their expectations for the coming year and proposing premium changes for Affordable Care Act-compliant plans. The small group market covers plans offered to companies typically with less than 50 employees.
Projected increases for next year among small group market insurers ranged from a decrease of 5% to an increase of 32%. The majority are requesting premium increases of between 5% and 15%, the report said. About 10%, however, are proposing premium increases in excess of 20%.
Overall increases in health care costs are a primary driver of the proposed premium increases, with insurers citing the rising costs of hospitalizations, physician care and prescription drugs. Insurers indicated the underlying increase in the cost of health care is about 9%.
Insurers also point to broader economic factors in their requests for premium increases. General inflation and labor shortages are contributing to increased provider reimbursement rates, and some insurers pointed to provider consolidation as a factor reducing market efficiency and rising reimbursement rates.
The potential impact of tariffs was cited in some requests, with insurers saying higher tariffs could raise the cost of pharmaceuticals and medical supplies. About one-quarter of the insurers studied included tariff-driven uncertainty in their rate-setting analysis.
The increasing cost, prevalence and utilization of GLP-1s and other specialty drugs were frequently cited by insurers to justify proposed rate increases. Some insurers have excluded coverage of GLP-1s for weight loss purposes to mitigate upward pressure on premiums, said the report.
Volatility in the small group market is also driving premium changes, driven by decreases in enrollment for small group plans and a simultaneous increase in relative costs for the remaining risk pool. Competition from lower-cost individual and self-insured options could be a reason behind enrollment declines, as could state stop-loss rules that make self-insurance a more attractive alternative for small employers, said the report.
“Employers may find coverage less expensive because self-funded plans are not subject to state benefit mandates or premium taxes, and their costs are tied directly to the health of their own workforce,” said the report. “For small employers with healthier-than-average workers, this can be especially attractive.”
The growing availability of “level-funded” plans, which pair a steady premium structure with substantial reinsurance protection, has further reduced the financial volatility that once deterred smaller firms from self-insuring, said the report.
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