Week 14: Why Are Small Group Health Insurance Rates Going Up So Much?

Employers and brokers across the country are seeing unusually steep increases on fully insured small group renewals — particularly for January 2026 groups that are currently in the middle of open enrollment.

Much of the national media has focused on the spike in ACA individual-market premiums. But the small group market is facing a very different set of pressures. The drivers behind 2026 rates involve structural issues in how the fully insured block is priced, who is still in that block, and how carriers are adjusting benefits to keep the market viable.

This article unpacks the forces behind these increases so brokers can explain the trend clearly, set expectations with employers, and frame renewal conversations around what’s changing — and why. We’ll also look at how carriers are responding with plan redesigns and network adjustments, and why shopping the market doesn’t always fix the underlying problem.

Fully insured small group pricing follows a rigid formula. Once you understand that formula, the 2026 increases make a lot more sense.

There are only three rating factors for small group plans:

Age.

Every member is rated at their 2026 age, and age bands get progressively steeper at older ages. With the fully insured block aging, this factor hits harder each year.

Geography.

Rates reflect the cost of doing business in each region — primarily provider contracts, hospital reimbursement, and local competition. The 2026 contract cycle came with particularly large increases from hospitals and major systems.

Medical trend.

This combines the cost of care (unit cost) and utilization patterns. For 2026, carriers are projecting higher trend due to rising hospital costs, new specialty drugs, inflation in outpatient services, and continued normalization of post-COVID utilization.

Equally important is what doesn’t affect pricing: claims history, underwriting, gender, or group health status. Because small group is community-rated, what happens to the overall block matters far more than what happens inside an individual employer group.

Equally important is what doesn’t affect pricing: claims history, underwriting, gender, or group health status. Because small group is community-rated, what happens to the overall block matters far more than what happens inside an individual employer group.

So why are renewals so much higher now than in recent years?

That’s what we’ll talk about next.

Three forces are making 2026 renewals feel more dramatic than in past cycles. The first is that health care is getting more expenses. This is known as medical “trend”.

Higher medical inflation.

Carriers are absorbing two years’ worth of major hospital contract renewals, a wave of new specialty drugs, inflation across outpatient and physician services, and a return to pre-pandemic care patterns. These factors combine into some of the highest trend projections we’ve seen since the ACA launched.

People get older every single year. And when they do, their prices go up, because small group plans have one-year age bands. We all know that. But not everyone knows this:

Not all age-rated renewal increases are created equal.

In both the individual and small group markets, carriers use the federal standard age curve from HHS to determine how premiums increase as people get older. And it really is a curve (sort of), not a straight line. But, as you can see below, it’s actually quite choppy, with some ages moving only a fraction of a percent and others jumping several percentage points. For example, going from age 37 to 38 increases the factor by only about 0.6%, while moving from 51 to 52 increases it by roughly 4.7%. Because of this uneven pattern, groups with several older employees (or small groups with just one or two) can see a meaningful portion of their renewal driven solely by the built-in age curve, even before medical trend or block performance is applied.

A major — and often overlooked — driver of 2026 premiums is the continued contraction of the fully insured small group market. Every year, a disproportionate share of the healthiest groups migrate out of fully insured plans and into level-funded arrangements, captives, PEOs, and ICHRAs feeding the individual market. These groups leave because they can better capitalize on their favorable risk profile elsewhere.

As a result, the employers who remain in the fully insured block skew older, higher cost, and less predictable. Even groups with stable claims can feel the impact because premiums must be high enough to keep the overall block solvent and maintain MLR compliance.

The result: carriers are pricing into a pool that is getting smaller, older, and more expensive at the same time. Combined with medical trend and age-curve effects, this shrinking risk pool is a major reason 2026 increases feel sharper than in prior years.

Carriers aren’t just increasing premiums; they’re redesigning products to maintain viability in a tougher risk environment.

Plan design adjustments.
Many 2026 plans include higher deductibles and OOP maximums, fewer office-visit copays, more coinsurance-based structures, higher specialty drug tiers, and more “deductible-first” benefits. Carriers are pushing plan designs toward the upper limits of each metal tier’s actuarial value.

Network tightening.
Expect more narrow-network PPOs and EPOs, more HMO-like structures, and in some cases the removal of out-of-network benefits altogether. Other carriers retain OON coverage but eliminate the OON OOP maximum, effectively making out-of-network care unlimited liability. Narrower networks help carriers negotiate better rates and slow trend growth.

Actuarial constraints.
Metal tiers create hard boundaries. Carriers can’t degrade benefits indefinitely, but they can adjust within those ranges — and many 2026 plans are sitting right at the edge of allowed AV limits.

These changes show that carriers are trying to balance affordability, actuarial requirements, and market competitiveness in a challenging environment.

The most important message for employers is this: the increase isn’t usually about them.

Fully insured groups are rated based on the overall block, not their own claims. A clean year doesn’t guarantee a favorable renewal if the risk pool is deteriorating.

This also explains why two nearly identical groups can see very different outcomes. Small differences in age mix, location, or the timing of healthier groups exiting the market can produce meaningful differences in renewal results.

In effect, the fully insured small group market is becoming a shrinking risk pool (the portion of the market where employers who cannot qualify for or access alternative funding arrangements must remain — still guaranteed issue, but often more expensive). Groups that have the demographics or stability to leave often do so. Groups that can’t leave remain. This creates a persistent cycle of adverse selection that raises costs for everyone who stays.

For many employers, fully insured coverage is increasingly a default option, not a strategic one.

This is the uncomfortable part: nobody — not carriers, not policymakers, not economists — has a complete solution to the fully insured market’s deteriorating risk pool.

Washington has no consensus plan, and most policy proposals fail to confront the math: when healthier groups leave, premiums must rise for those who remain.

Some policymakers have suggested shifting certain high-cost conditions into federal programs, similar to how ESRD and ALS are already carved out today. While this could relieve pressure on employer risk pools, expanding the model raises thorny questions: reimbursement levels, provider participation, unintended incentives, and long-term political feasibility.

Others argue for expanding public coverage more broadly, but federal programs have struggled with operational reliability — a concern highlighted during recent government shutdowns.

The truth is, the industry may not need a compromise between the current ideas so much as it needs entirely new ones: alternative approaches to risk pooling, redesigned catastrophic protection, and non-traditional financing models that rethink how high-cost claims are shared.

For now, employers and brokers are left navigating a system where the underlying math keeps getting harder — and where the search for durable solutions is still very much underway.

The forces driving 2026 small group premiums are structural and long-running: rising medical trend, an aging population, ongoing migration of healthier groups into alternative funding, tighter networks, and the mathematical limits of ACA community rating.

Brokers can help employers by shifting the conversation from just “what is my renewal?” to “why is this happening?” Why trend is accelerating, why the risk pool is deteriorating, why carriers are modifying plan designs, and which funding alternatives may be appropriate for the group.

The fully insured market isn’t collapsing — but it is changing, and faster than many employers realize. Understanding these dynamics positions employers to make better decisions and prepares them for the volatility ahead.

Feel free to share this article with clients as a resource, and stay tuned for our upcoming video walkthrough of the 2026 renewal landscape.