Small and midsize employers are heading into another difficult health insurance renewal season. A recent analysis from the Peterson-KFF Health System Tracker found that insurers requested a median 14% premium increase for 2027 fully insured small-group plans. These are proposed rates, not final increases, and they do not include self-funded plans. Insurers cited rising medical costs and utilization, specialty drugs, and increased use of GLP-1 medications. The median estimated increase in underlying medical costs was 10.8%.

Absorbing increases of that size is difficult, but eliminating health coverage can affect recruiting, retention, and overall competitiveness. For employers facing continued increases, the issue is whether the current approach to providing health coverage remains appropriate.

Many employers have already begun to answer that question. The small-group market has been moving toward a broader range of funding arrangements. The Congressional Budget Office found that self-insured plans and other alternatives accounted for 46% of small-group enrollment in 2024, compared with 18% in 2014. ASE's 2026 Health, Welfare and Retirement Plans Survey also shows a mix of approaches. Among 192 respondents, 55% reported fully insured plans, 44% self-funded plans, 2% level-funded plans, and 2% group captives.

Funding is only one of the choices. For employers reviewing their options, the alternatives generally fall into three areas: changing how the benefit is funded, changing how coverage is provided, or changing the design of the benefit to manage costs.

Changing How the Benefit Is Funded

Self-funding shifts the financial risk for employee claims from the insurer to the employer. Employers commonly purchase stop-loss insurance to limit that exposure. The CBO describes level-funded plans as self-insured coverage bundled with stop-loss insurance, a reserve account and administrative services, paid for through fixed monthly payments. Group captives, reported by 2% of ASE respondents, allow participating employers to share risk with one another.

The CBO notes that self-insured plans are experience-rated, meaning costs are influenced by the group's own claims experience and not set through community rating.

Changing How Coverage Is Provided

An Individual Coverage Health Reimbursement Arrangement, or ICHRA, provides another alternative to a traditional group health plan. According to the CBO, an ICHRA allows an employer of any size to make tax-excluded contributions toward employees' purchase of individual coverage. This allows the employer to establish a defined contribution while employees select individual plans.

Changing Plan Design and Cost Sharing

Changes to plan design, such as adjustments to deductibles and other cost sharing, can also affect employer and employee costs.

ASE's 2026 survey indicates that plan design and cost sharing are already a significant focus. Fifty-three percent of respondents identified plan design and cost sharing as their primary strategic emphasis for managing health care benefits. Increasing the employee share of premiums was the most common action already taken, cited by 75% of respondents.

GLP-1 medications provide another example. In ASE's survey, 34% of respondents reported fully covering GLP-1 medications for type 2 diabetes, while 39% reported coverage with restrictions such as prior authorization. For weight management, 4% reported full coverage and 19% partial coverage, while 58% reported no coverage.

The appropriate approach will vary based on employer size, workforce characteristics, claims experience, financial capacity and risk tolerance. Employers should consider total cost, risk, predictability, administration and recruiting and retention.

For some employers, a traditional fully insured plan with adjustments to plan design and cost sharing may remain appropriate. Others may have the scale or financial capacity to consider self-funding, level funding or other alternatives.

The continued increase in health care costs makes the structure of the health benefit an increasingly important part of the overall compensation strategy.

ASE Connect

The ASE 2026 Health, Welfare and Retirement Plans Survey is available to all ASE members via the survey library. Non-members can request to purchase. The survey report is available in a new, interactive format.

Sources: healthsystemtracker.org; cbo.gov; ASE 2026 Health, Welfare and Retirement Plans Survey