If your renewal notice landed with a double-digit number on it this year, you're not imagining things. According to a Peterson-KFF Health System Tracker analysis of preliminary rate filings from 318 small-group insurers across all 50 states and D.C., the median proposed premium increase for 2026 is 11% — and for the smallest employers, the pain has been building for years. Businesses with just 2–5 employees have seen premiums surge 23% since 2022, outpacing general inflation by 13 percentage points and pushing average costs toward $8,500 per employee per year.
For a five-person shop, that's not a rounding error. It's the difference between hiring a sixth person and not.
The good news: this year's spike isn't random, and it isn't unmanageable if you understand what's driving it and which levers you actually control.
Why Premiums Are Climbing So Fast
Insurers don't raise rates on a whim — they file justifications with state regulators, and this year's filings point to a consistent set of causes.
The underlying cost of care is up about 9%
The single biggest driver is simple: healthcare itself got more expensive. Hospitals are charging more for inpatient and outpatient services, physician fees are rising, and prescription drug costs continue to climb. Insurers pass roughly a 9% increase in underlying medical costs straight through to premiums.
GLP-1 drugs are a real line item now
Weight-loss and diabetes drugs like Ozempic, Wegovy, and Zepbound have gone from a niche cost to a material factor in small-group rate filings. These drugs can run over $1,000 a month per patient, and enough employees are now using them that insurers are pricing the risk explicitly — some 2026 plans have started excluding GLP-1 coverage for weight loss entirely as a cost-containment move.
Small groups have a shrinking, sicker risk pool
As healthier small businesses shift employees to individual marketplace plans, ICHRA arrangements, or gig work, the small-group risk pool left behind skews older and costlier. Fewer, sicker enrollees paying into the same pool means everyone's rate goes up — a slow-motion adverse-selection spiral that's been building for several renewal cycles.
Tariffs and general inflation add uncertainty
Insurers cited ongoing uncertainty about tariff-driven cost increases on medical equipment and supplies, plus broad inflation and healthcare labor shortages, as secondary factors padding this year's filings.
The spread is wide — so shop around
Not every insurer is raising rates the same amount. Among the 318 insurers KFF tracked, requested changes ranged from a 5% decrease to a 32% increase, with about 68% landing in the 5–15% band and roughly 10% asking for 20% or more. That spread means your specific carrier's rate says less about the market than it does about that carrier's book of business — which is exactly why a renewal shock is a good trigger to re-shop, not just accept.
What You Can Actually Do About It
You can't change the national trend, but you have more control over your own plan structure than most business owners realize.
1. Ask about level-funded plans
Level-funded arrangements blend the predictability of traditional group insurance with the cost savings of self-funding. You pay a fixed monthly amount covering expected claims, administrative fees, and stop-loss protection — and if actual claims come in under projection, you get a refund at year-end. For a healthy, younger employee group, this can meaningfully undercut fully-insured small-group rates.
2. Consider an ICHRA instead of a group plan
An Individual Coverage HRA lets you set a fixed monthly contribution per employee (with no IRS contribution cap, unlike a QSEHRA) and let each employee choose their own marketplace plan. Your cost becomes a fixed, budgeted number instead of a variable one at the mercy of a single carrier's renewal filing — and employees who value different coverage (a young single employee vs. a parent of three) can each pick what fits.
3. Pair a high-deductible plan with an HSA
Moving to a qualified high-deductible health plan lowers the premium line directly, and employer HSA contributions can offset the higher deductible for employees while giving both sides a tax advantage. It's a well-worn strategy for a reason — it works especially well for younger, healthier teams.
4. Start shopping 3–4 months before renewal
Waiting until the renewal notice arrives leaves you almost no leverage. Brokers and carriers need lead time to quote level-funded or ICHRA alternatives properly, and switching plans well ahead of your effective date gives you room to communicate the change to your team instead of scrambling.
5. Get a broker who works small-group specifically
The gap between the -5% and +32% outcomes in this year's filings is enormous, and a broker who actively shops the small-group market (rather than defaulting to your incumbent carrier's renewal) is often the highest-leverage move available to a business under 20 employees.
6. Check if an association or MEWA plan fits your industry
Some trade associations and chambers of commerce sponsor Association Health Plans (AHPs) or Multiple Employer Welfare Arrangements (MEWAs) that pool small businesses together to negotiate group-scale rates. Not every industry has one, and the plans vary widely in quality, but if your trade group offers one, it's worth a comparison quote — pooling your five employees with hundreds of others in the same field can meaningfully change your risk profile.
7. Revisit plan design before you revisit carriers
Switching carriers isn't the only way to cut costs — reshaping the plan itself often gets you further. Raising the deductible slightly, narrowing the provider network, or adding a wellness/preventive-care incentive tier can shave real percentage points off a renewal without changing who covers you. Run the numbers both ways: a carrier switch plus a plan-design change often beats either move alone.
A Worked Example: What an 11% Increase Actually Costs
Say you run a seven-person consulting firm currently paying $650/month per employee for a mid-tier PPO — about $54,600 a year in premiums. An 11% renewal bump adds roughly $6,000 to your annual spend before you've changed a single benefit. Layer in a couple of employees who are on GLP-1 medications, and your carrier's actual claims experience could push the real renewal number higher than the headline 11%, since group rates are partly experience-rated even in small-group markets.
Now run the alternative: moving to a level-funded plan with a $600/employee monthly cap and pairing it with a $75/month employer HSA contribution. Your fixed cost lands close to your prior year's premium, you retain the possibility of a claims-experience refund, and employees get a portable HSA balance instead of a benefit that resets to zero every January. The math doesn't work identically for every business — a younger, healthier team benefits more from level-funding than an older team with predictable high claims — but running both scenarios before you sign a renewal is the whole point.
Common Questions Small Employers Are Asking This Renewal Season
Is an 11% increase negotiable? Rarely with a single carrier once the filing is final — state-approved rate filings aren't typically subject to individual negotiation. What is negotiable is your plan design, deductible, network tier, and whether you switch carriers or funding models entirely. The leverage is in the shopping, not the haggling.
Will premiums keep rising like this next year too? The structural drivers — an aging small-group risk pool, specialty drug costs, and underlying medical inflation — aren't one-year phenomena. Treat double-digit renewal increases as the new normal for planning purposes rather than a one-off spike, and build a few percentage points of benefits-cost growth into your annual budget by default.
Should a very small business (under 10 employees) even offer group coverage anymore? For many micro-businesses, an ICHRA or QSEHRA now beats a traditional small-group plan on both cost predictability and employee choice, especially once you're below the size where group underwriting gives you much leverage. It's worth a real side-by-side comparison rather than defaulting to "that's what we've always done."
Track the Real Cost, Not Just the Premium
Whichever direction you go, the total cost of employee health coverage is more than the premium line — it's premiums plus HSA/ICHRA contributions plus any admin fees, and it typically touches payroll, benefits, and tax categories separately. If those pieces live in a spreadsheet or three different systems, it's easy to lose track of what coverage is actually costing you per employee, per year — which is exactly the number you need going into a renewal negotiation.
This is where clean, structured bookkeeping pays for itself. When health benefit costs are tracked as their own line items in your ledger — not buried inside a generic "payroll" or "operating expenses" bucket — you can pull a real per-employee cost trend in minutes instead of reconstructing it from twelve months of invoices.
Keep Your Benefits Costs Visible Year-Round
As premiums climb and benefit structures get more complex — level-funded plans, ICHRA allowances, HSA contributions — having clear, categorized financial records makes it far easier to see exactly what you're spending and negotiate from a position of knowledge next renewal. Beancount.io offers plain-text accounting that gives you full transparency and control over your financial data, with every expense category — including benefits — fully auditable and version-controlled. Get started for free and see why developers and finance-minded business owners are switching to plain-text accounting.