small employers face surging healthcare costs

• Key insight: Find out how small and medium-sized business owners are reacting to the sudden double-digit increase in healthcare costs.
• What’s at stake: Benefit brokers face a major threat as employers reexamine how they manage health care risks.
• Looking ahead: Expect employers to seek out consultants who can educate them on alternative financing and cost containment strategies.

Most small and medium-sized employers saw double-digit increases in health care costs over the past year, prompting many to consider new financing arrangements for health plans to control costs.

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According to Pareto’s State of Healthcare Expenditure 2026 report, 79% of small and medium-sized enterprises (SMEs) reported. double-digit health care spending increases in the past year, including one in five, whose costs rose by 30% or more.

This is prompting many employers to move beyond the annual renewal discussions and rethink how they do it pay medical expenses, manage risks and control long-term costs, said Pareto clinical consultant Dena Bravata.

“Many of these employers are now — for the first time — exploring the transition from fully insured to self-insured, and with that, employers need to have benefit brokers who can guide them through that transition,” Bravata said.

77 percent of SMEs are exploring new health plan financing arrangements, according to the survey, and 50% likely or very likely to change through mediation.

Read more: Health benefit spending rises, but workforce confusion persists

Bravata said small and medium-sized employers face different challenges in managing health care costs and benefits that larger employers generally don’t. “They may lack visibility into their claims and not really understand what’s driving healthcare spending,” he said. “Second, unlike big employers, these little people don’t have the same leverage. They may lack the scale and infrastructure to really implement key cost-saving interventions.”

On the other hand, being light also brings some advantages, added Bravata. “If you have 50 or 100 employees and you’re the CEO or director, you can talk to your friends and implement something new by asking what’s important to the employees and their families,” he said.

Pareto’s analysis is based on an independent survey of nearly 1,600 CEOs, CFOs and HR leaders in SMBs conducted between January and February.

What causes the increase in health care costs?

As America’s population ages, more people are living with chronic and costly illnesses that can be expensive to manage and treat. Adults over 65 made up 16.8% of the US population in 2020, after growing nearly five times faster than the general population over the previous century, according to the US Census Bureau.

A small number of conditions are disproportionately involved employers’ health expenditure. Cancer remains one of the leading drivers of healthcare costs, and many employers see firsthand the impact it can have on their employees’ ability to work, quality of life and mental health.

Cardiovascular disease, high blood pressure and high cholesterol rank among the top cost drivers for 75 percent of benefit leaders, according to the survey. Musculoskeletal (MSK) conditions affect almost half of the workforce, and their prevalence makes them a significant expense: MSK care is the second largest area of ​​healthcare spending after cancer.

Read more: Chronic disease drives healthcare spending among millennials

Increasing and wider use of specialty medications Taking GLP-1 therapies they are also helping rising health care costs. GLP-1 drugs have become one of the fastest growing areas in pharmaceutical spending, with roughly one in eight Americans using GLP-1 therapy for weight loss or a chronic disease, according to the survey.

“Many employers would like to cover GLP-1s, but do it in a limited situation,” Bravata said. “Having a partner that can work with (pharmacy benefits manager) and provide branded GLP-1 or compounds is a great alternative.”

Read more: As GLP-1 costs rise, more employers are weighing dropping coverage in 2027

Amid these cost pressures, Bravata stressed the importance of benefit leaders working with brokers who can educate them on funding options and cost containment strategies.

“If they’re not getting a very rich and personalized set of recommendations, they should be looking for a consultant who can educate them more broadly,” he said.