Small businesses may face another year of significant health insurance cost increases. According to the KFF analysis published August 6, 2026, preliminary ACA-compliant small-group rate filings from nearly 300 insurers across all 50 states and the District of Columbia show a median proposed premium increase of 14% for 2027.
The filings indicate that 59% of insurers are proposing increases between 10% and 20%. Approximately 15% are proposing increases above 20%.
These are proposed rates, not final approved rates. State regulators may modify the filings before premiums are finalized. However, the data provides a clear reason to begin the renewal process early.
Insurers cite several cost drivers:
- Higher prices for hospital and physician services
- Increased healthcare utilization
- Expensive specialty medications
- Declining small-group enrollment and changes in employer coverage strategies
Costs are also increasing for individuals and families. KFF reports that the average ACA Marketplace deductible reached $3,786 in 2026, up 37% from $2,759 in 2025.
Small business owners should evaluate more than the renewal premium. Review the plan’s actual performance, compare available structures, and determine whether your employees need a different combination of comprehensive and supplemental coverage.
1. Review your current plan before the renewal proposal arrives
Do not wait for the renewal packet to begin evaluating your coverage. Start with the plan’s financial and utilization data.
Request the following information from your broker, carrier, or benefits administrator:
- Current monthly premium and employer contribution
- Employee contribution by coverage tier
- Deductible and out-of-pocket maximum
- Claims paid compared with premiums paid
- Large claims and recurring high-cost conditions
- Prescription drug spending
- Emergency room, urgent care, and telemedicine utilization
- Preventive care usage
- Enrollment by employee, spouse, and dependent
- Network disruption or provider access issues
The objective is not to identify individual employees or make medical decisions based on protected health information. Use aggregated data to understand how the plan is being used and whether the design matches the workforce.
Separate predictable expenses from catastrophic exposure. A plan with high emergency room use may require stronger primary care or urgent care access. A plan with significant specialty drug spending may require a closer review of formularies, specialty pharmacy rules, and stop-loss terms.
Also compare the plan’s total annual cost rather than focusing only on the monthly premium. Include employee payroll deductions, deductibles, copayments, coinsurance, out-of-pocket limits, and employer administrative expenses.
2. Compare private medically underwritten options for eligible healthy employees
Traditional group plans are not the only option available to every small business. Some employers and individuals may qualify for private health insurance plans that use medical underwriting.
Medical underwriting means the insurer reviews an applicant’s health history when determining eligibility, pricing, exclusions, or plan terms. These plans are not guaranteed issue in the same way as ACA Marketplace coverage. Eligibility and availability vary by state, carrier, age, health status, and plan design.
For relatively healthy employees, medically underwritten options may provide a different premium structure than community-rated ACA coverage. They may also offer broader provider access or different deductible and benefit configurations. These features must be evaluated against the plan’s exclusions, limitations, waiting periods, renewal terms, and claims provisions.
Ask for a written comparison that includes:
- Eligibility requirements
- Medical underwriting questions
- Pre-existing condition provisions
- Deductible and out-of-pocket exposure
- Hospital and physician benefits
- Prescription drug coverage
- Preventive care benefits
- Network requirements
- Annual or lifetime benefit limits, if applicable
- Renewal and rate-change provisions
- Whether the plan is comprehensive major medical coverage
This option may be relevant for health insurance for small business owners who have a healthy workforce and want to examine alternatives before accepting a double-digit renewal increase. It can also be relevant to health insurance for entrepreneurs who do not have access to a traditional employer plan.
Do not replace comprehensive coverage based only on a quoted premium. Confirm that the plan addresses the medical risks the business and its employees need to protect.
3. Explore level-funded or self-funded arrangements
Level-funded plans combine a fixed monthly payment with self-funded plan mechanics. The monthly amount commonly includes:
- Expected claims funding
- Administrative fees
- Network costs
- Specific stop-loss coverage
- Aggregate stop-loss coverage
The employer may receive a refund or credit if claims are lower than projected, depending on the contract. The employer may also retain some claims risk up to the applicable stop-loss attachment points.
A self-funded plan generally gives the employer more control over plan design and claims funding. It also creates additional administrative, fiduciary, disclosure, and compliance responsibilities. Level-funded plans are generally treated as self-funded plans for many federal compliance purposes.
Before selecting this structure, request a detailed explanation of:
- Specific stop-loss attachment points
- Aggregate stop-loss attachment points
- Claim funding assumptions
- Run-out and incurred-but-not-paid claims
- Renewal methodology
- Refund or surplus provisions
- Exclusions from stop-loss reimbursement
- Third-party administrator responsibilities
- ERISA plan documentation
- Employee disclosure requirements
Level-funded coverage is not automatically less expensive. It may be appropriate for a stable, relatively healthy employee population, but the employer must understand the financial risk and administrative requirements.
Review the arrangement with a qualified benefits adviser and legal or tax professionals when necessary. The employer remains responsible for operating the employee benefit plan even when outside administrators and insurers are involved.
4. Consider fixed indemnity or medical indemnity coverage
Fixed indemnity plans pay a stated benefit when a covered event occurs, such as a hospital admission, outpatient procedure, physician visit, or other defined service. The benefit is usually based on the schedule in the policy rather than the provider’s full charge.
Medical indemnity insurance can be used as a supplemental benefit alongside major medical coverage. It may help employees manage deductibles, copayments, or other out-of-pocket expenses. Employers can also evaluate it as part of a broader benefits package designed to give employees more control over how certain benefits are used.
When reviewing fixed indemnity health insurance benefits, confirm:
- The covered events and payment amounts
- Whether benefits are paid per day, per service, or per occurrence
- Annual and lifetime maximums
- Exclusions and waiting periods
- Pre-existing condition provisions
- Whether the plan coordinates with other coverage
- Whether providers must be in a network
- Whether the plan is supplemental or intended to stand alone
- Whether it qualifies as comprehensive major medical coverage
Fixed indemnity coverage does not generally function the same way as comprehensive health insurance. It may not cover all essential health benefits, and the stated benefit may be less than the actual cost of care.
For that reason, use fixed indemnity coverage only after determining what type of protection employees require. It may supplement a major medical plan, support a defined benefit strategy, or provide a lower-cost option in situations where state law and plan terms permit. Do not describe it as comprehensive coverage unless the policy is specifically designed and approved as such.
5. Use Section 125 pre-tax strategies where applicable
A Section 125 cafeteria plan may allow eligible employees to pay their share of employer-sponsored health insurance premiums with pre-tax salary reductions.
The IRS explains that a cafeteria plan must be a separate written plan maintained by an employer. It must allow participants to choose between at least one taxable benefit, such as cash, and one qualified benefit, such as accident and health coverage.
When properly structured, employee salary reduction contributions for qualified benefits generally are not treated as wages for federal income tax purposes. They may also be excluded from certain payroll taxes.
Before using this strategy:
- Adopt a written Section 125 plan document.
- Define eligibility and permitted benefits.
- Provide employee election materials.
- Configure payroll deductions correctly.
- Maintain records of elections and deductions.
- Review nondiscrimination and applicable tax requirements.
- Confirm how the arrangement affects any small-business tax credit.
Section 125 treatment does not reduce the insurer’s premium. It may reduce the taxable income associated with an employee’s premium contribution and may reduce certain employer payroll taxes. The tax result depends on the plan structure and the parties involved.
Business owners should confirm eligibility with a qualified tax professional. Special rules may apply to owners, partners, shareholders, and self-employed individuals.
Build a renewal timeline
Begin the review at least 90 to 120 days before the renewal date.
120 days before renewal
Collect plan documents, claims summaries, enrollment data, and current contribution information. Identify the business’s budget and employee affordability goals.
90 days before renewal
Request the proposed renewal and begin comparing alternatives. Ask whether the carrier has changed its network, formulary, exclusions, or underwriting requirements.
60 days before renewal
Evaluate private medically underwritten plans, level-funded arrangements, self-funded options, and supplemental medical indemnity insurance. Compare total costs and risk exposure.
30 days before renewal
Finalize the plan structure, employee contributions, payroll setup, notices, and enrollment schedule. Provide employees with a clear explanation of changes.
A 14% proposed median increase does not require every business to accept a higher renewal without review. It does require earlier analysis and a complete comparison of coverage, risk, and cost.
Coverage Babe helps small businesses compare group coverage and benefits options across available carriers. Review the small business group health plan services or contact Coverage Babe to request a benefits review.
Plan availability, pricing, underwriting, and eligibility vary by location, carrier, health status, household or team size, and plan design. Review all policy documents before enrolling.