Tariffs and rising Premiums in the Small Group Health Insurance Market
Recent analysis of health insurance filings reveals that import tariffs are beginning to influence premium calculations in the small group health insurance market,adding another layer of complexity to affordability concerns for small businesses and their employees. A review of 88 small group market rate filings showed that approximately 25% (22 insurers) explicitly referenced tariffs as a factor in their pricing. It’s likely that other insurers have considered tariff impacts without directly stating so.
Several states have seen filings noting anticipated increases in the cost of both brand-name and specialty prescription drugs due to new import tariffs, particularly for medications lacking generic alternatives. The impact varies, but insurers are grappling with how to account for this emerging cost driver.
Independent health Benefits Corporation (New York) is seeking an 18.9% overall rate change for 2026, citing increased costs stemming from both inflation and tariffs. United Healthcare Insurance Company (Oregon) has incorporated a 2.9% claims impact into its initial rate filings to address uncertainty surrounding tariffs and potential onshoring of manufacturing,translating to a roughly 2.7% premium increase.
Though, not all insurers are factoring tariffs into their projections.Neighborhood Health Plan of Rhode Island, such as, opted not to include tariff impacts in its rate development, citing the current uncertainty surrounding whether proposed tariffs will be finalized.
This cautious approach is largely due to the timing of premium lock-in. insurers operating in the ACA-compliant small group market are often required to finalize premiums six to nine months before the coverage year begins. This necessitates pricing decisions based on available information, and tariffs represent a relatively unprecedented factor. Unlike established trends like inflation or utilization shifts, there is limited historical data to predict the full effect of sweeping import tariffs on prescription drug pricing.Furthermore, ACA regulations regarding Medical Loss Ratios (MLR) add another layer of complexity. These rules limit the percentage of premiums insurers can retain for administrative costs and profit, requiring rebates if premiums exceed actual spending. Conversely, underpricing premiums in the face of rising drug costs due to tariffs could lead to financial difficulties for insurers.The inclusion of tariff considerations, even at a relatively modest range of 1.7% to 3.0% among those insurers who are factoring them in, could translate to higher benefit costs for small businesses. For companies operating with tight margins, even small premium increases can significantly impact decisions regarding employer contributions, cost-sharing arrangements, and the continuation of health coverage. While MLR rules offer some protection by mandating rebates for excess premiums,they do not shield employers or employees from the initial burden of higher premiums.
Ultimately,tariff-related uncertainty is becoming a new variable in the rate-setting process for some small group insurers,contributing to the ongoing challenge of maintaining affordable job-based health coverage.