Small Businesses Absorb Double-Digit Health Insurance Hikes With Little Insight Into Costs

Small and mid-sized businesses are footing steep health insurance increases with little clarity about what’s driving the cost, according to Ignition Benefits, which surveyed 503 leaders at U.S. companies with 10 to 250 employees.

Among the 357 leaders who could name their health insurance renewal figure, 39% took a double-digit increase, with 9% seeing hikes of 20% or more. The overall average increase was 7%. Covering that increase forced 64% of companies to make a business tradeoff, most often shrinking the budget for raises and bonuses, cited by 26% of respondents.

Nearly half of SMBs (48%) ended up paying at or close to the first number their insurer quoted, and 48% said their default response to rising costs is to shift the burden onto employees through higher premium shares, deductibles or coverage cuts.

A Costly Renewal With Few Answers

The financial pain reached beyond company budgets. Ignition Benefits found that 59% of leaders said benefits costs have taken a personal toll on them, including 23% who reduced contributions to their own retirement or savings and 14% who took a cut or freeze to their own compensation.

Geography played a significant role in the base cost: among leaders who could estimate per-employee spending, Northeast companies paid $9,014 per covered employee annually, compared with $6,362 in the West, a $2,652 gap, against a national average of $7,553. Traditional fully insured health plans cost about $2,100 more per employee than level-funded or self-funded plans, $8,005 vs. $5,914, the report said.

Transparency was in short supply. Only 31% of companies received a clear breakdown of what drove their cost increase, and C-level executives were the least likely of any role to get one, at 24%. Nearly half of leaders overall (49%) believe they have been overcharged for health coverage, but only 17% felt confident enough to say so outright, and 11% said they had no way to tell either way.

Shopping around did little to close the gap: among those who could recall their number of quotes reviewed, 38% compared two or fewer insurer quotes, and the average SMB compared just three. Almost half of leaders (47%) said they were not confident their company is paying the right price.

GLP-1s Add An Invisible Cost, And A Breaking Point

GLP-1 medications such as Ozempic and Wegovy have become a renewal question few companies can answer, according to Ignition Benefits. Among SMBs whose plans cover GLP-1s, 58% could not say what the drugs added to their renewal, and only 11% knew the specific amount. That blind spot has a limit: 63% of covering employers said they would restrict or drop GLP-1 coverage if it pushed their next renewal up another 6% to 14%, while just 26% would keep covering the drugs as they do now. Manufacturing, construction and trades companies were most likely to pull back, at 80%, Ignition Benefits’ survey found.

Employee demand is already building pressure on that decision. More than a third of companies (35%) said employees have asked for GLP-1 coverage, and 18% of SMBs said they have either worried about losing talent over their coverage decision or already lost an employee or recruit because of it.

More broadly, 53% of SMBs said rising health care costs have made it harder to compete for talent, a strain felt most acutely in the health care sector, where 20% said it has hurt significantly, and among companies on professional employer organizations, at 66%, compared with 52% of companies working directly with a carrier or broker.

Assumptions, Not Time, Keep Companies From Checking

Misplaced trust, rather than a lack of time, appears to be the biggest barrier to finding health insurance savings, according to Ignition Benefits. While 41% of business leaders assumed their broker already finds them savings, only 6% had ever actually run a review to check. Lack of time was cited by just 16% of leaders as a reason for not checking.

Awareness of alternatives to traditional fully insured plans remains limited: 19% of leaders were unfamiliar with ICHRA, level-funded or self-funded models, and 30% said they had never considered switching. Only 15% of leaders described themselves as very satisfied with their current benefits partner.

Obtain the full report here. &