If you're managing a business in 2026, there's no sugarcoating it: health insurance costs are climbing faster than they have in over a decade. Small businesses are facing a median premium increase of 11%, and even after cost-reduction strategies, large employers are looking at a 6.5% jump—the steepest increase since 2010. But here's what you need to know: rising costs don't mean you're out of options. In fact, 2026 might be the perfect year to rethink your entire approach to employee health benefits.
Whether you're running a startup with five employees or managing a mid-sized company with hundreds, understanding the difference between small group and large group markets, exploring level-funded options, and considering alternatives like ICHRA can save you thousands while still providing quality coverage for your team. Let's break down what's changing, what you need to plan for, and how to make smarter decisions about your group health insurance strategy.
Small Group vs. Large Group: What's the Difference?
The line between small and large group health insurance is drawn at 50 employees in most states. Small group plans cover businesses with 1-50 employees, while large group plans kick in at 51 or more. A few states—California, New York, and Vermont—use a 1-100 employee threshold for small groups, but that's the exception rather than the rule.
Why does this matter? Because the rules are completely different. Small group plans must follow strict ACA requirements—they're classified by metallic tiers (bronze, silver, gold, platinum) and must cover essential health benefits. They also can't exclude anyone based on pre-existing conditions or charge different premiums based on health status. Large group plans have more flexibility in what they cover and how they structure benefits, but they come with a big responsibility: the ACA employer mandate.
If you have 50 or more full-time equivalent employees, you're legally required to offer affordable health coverage to at least 95% of your full-time workforce. For 2026, "affordable" means employee premiums can't exceed 9.96% of their household income, up from 9.02% in 2025. If you don't comply, you could face substantial IRS penalties. Small employers under 50 employees? You're off the hook—there's no mandate requiring you to offer coverage at all, though most do to stay competitive in the job market.
The 2026 Cost Crunch: What's Driving Premium Increases
Here's what's really happening behind those double-digit premium increases. Insurers point to three main culprits: healthcare cost inflation (estimated at 9%), prescription drug expenses, and provider consolidation. Let's talk about the elephant in the room—GLP-1 medications like Ozempic and Wegovy. Twenty-seven insurers specifically cited these drugs as a factor in 2026 rate increases, and some carriers have started excluding coverage for GLP-1s used solely for weight loss.
Add in labor shortages driving up provider reimbursement rates, hospital consolidation reducing competition, and general inflation, and you've got a perfect storm. The result? Total health benefit costs per employee are expected to surpass $18,500 in 2026. For a family plan, the average annual premium hit $26,993 in 2025, with employers covering about 75% of that cost and employees paying around $6,850. For 2026, employers are budgeting for costs that could exceed $17,000 per employee—a 9.5% jump from the previous year.
Level-Funded Plans: The Middle Ground That's Gaining Traction
If you've never heard of level-funded health plans, pay attention—they're one of the fastest-growing options in the small business world. In 2018, only 6% of small business employees were enrolled in level-funded plans. By 2023, that number jumped to 38%. Why? Because they offer something traditional fully-insured plans can't: predictable costs with the potential for year-end refunds.
Here's how they work. You make consistent monthly payments that cover three things: funding for expected claims, stop-loss insurance to protect against catastrophic expenses, and administrative fees. If your employees file fewer claims than expected, you could get money back at the end of the year. Gusto reports that businesses switching to level-funded plans save an average of 20% on premiums. These plans work especially well if your workforce tends to be younger or healthier—the fewer claims filed, the bigger your potential savings.
But there's a catch. If your team's health needs change—say someone gets diagnosed with a chronic condition—your stop-loss premiums can increase sharply at renewal. Some businesses have had to revert back to fully-insured plans when their risk profile shifted. Level-funded plans aren't right for every employer, but if you're looking for cost control and transparency, they're worth exploring.
ICHRA and QSEHRA: Alternatives to Traditional Group Plans
What if instead of choosing a group health plan for your entire team, you gave employees a fixed amount of money to buy their own individual insurance? That's exactly what Health Reimbursement Arrangements (HRAs) allow you to do. Two popular options—ICHRA and QSEHRA—have seen explosive growth, with enrollments surging 171% for ICHRA and 97% for QSEHRA in recent years.
ICHRA (Individual Coverage Health Reimbursement Arrangement) is available to employers of any size. You set a monthly reimbursement amount, employees purchase their own individual health insurance, and you reimburse them tax-free. There's no cap on how much you can contribute, and you can offer different reimbursement levels to different employee classes—full-time versus part-time, or salaried versus hourly. This flexibility is huge if you have a remote workforce spread across multiple states, since employees can choose plans available in their local markets.
QSEHRA (Qualified Small Employer HRA) is designed specifically for small businesses with fewer than 50 employees who don't offer a group health plan. For 2025, you can contribute up to $6,350 for individual coverage and $12,800 for family coverage. The trade-off? Less flexibility than ICHRA, and employees forfeit any premium tax credits if they accept QSEHRA reimbursements. With ICHRA, employees can keep their tax credits if your reimbursement doesn't meet the affordability threshold.
Both options give you predictable budgeting—you decide exactly how much to contribute each month—and they tend to be more economical than traditional group plans. The downside? You're handing over plan selection to your employees, which means you need to provide solid guidance so they don't choose skimpy coverage or get overwhelmed by choices.
Smart Employer Contribution Strategies for 2026
As costs climb, you're probably wondering how much you should contribute to keep employees happy without blowing your budget. Industry data from 2025 shows employers cover about 84% of single coverage premiums and 75% of family coverage costs. For single coverage averaging $9,325 annually, that means employees pay around $1,368. For family plans at $26,993, employees contribute about $6,296.
But there's no one-size-fits-all answer. If you're a large employer subject to the ACA mandate, you need to ensure employee contributions for the lowest-cost plan don't exceed 9.96% of household income in 2026. That works out to a maximum monthly employee contribution of $129.90 based on the federal poverty level safe harbor. Staying within these limits keeps you compliant and avoids penalties.
For small employers without a mandate, it's more about balancing competitiveness with financial reality. Consider tiered contribution strategies where you cover a higher percentage for lower-wage employees, or explore wellness incentives that reward healthy behaviors with premium discounts. Some employers are also shifting more family coverage costs to employees while maintaining strong single coverage contributions—not ideal, but it's a way to manage expenses while still offering meaningful benefits.
How to Get Started: Choosing the Right Path Forward
The worst thing you can do in 2026 is stick with the status quo without exploring alternatives. Start by getting quotes from multiple carriers for traditional fully-insured plans, but also ask about level-funded options. Run the numbers on what an ICHRA or QSEHRA might look like for your specific workforce. Compare total costs, but also consider factors like administrative burden, employee satisfaction, and how much control you want over plan design.
Work with a benefits broker who understands the full range of options—not just someone who defaults to the same carriers they've always used. Ask tough questions: What happens if we have a bad claims year? Can we switch mid-year if a plan isn't working? What kind of employee education and support comes with each option? The answers will help you make a decision that balances cost, coverage quality, and peace of mind.
Group health insurance in 2026 isn't getting any cheaper, but you have more options than ever before. Whether you stick with a traditional plan, explore level-funding, or switch to a reimbursement arrangement, the key is making an informed decision that works for both your bottom line and your employees' health. Take the time to understand what's available, run the numbers, and choose a strategy that positions your business for success—not just this year, but for the long haul.
