Rising Financial Hurdles for Group Health Insurers and Their Impact

Group health insurers faced significant financial hurdles in 2025, leading to anticipated premium increases for the 2026 and 2027 renewal periods.

According to Mark Farrah Associates' analysis of National Association of Insurance Commissioners data, the average Medical Expense Ratio (MER) in the employer-group risk segment climbed to 89.7 percent in 2025, up from 88 percent in 2024. This means medical expenses rose by 8.6 percent per member per month, surpassing the 6.6 percent increase in premiums earned. Such figures underscore the financial strains on insurers and hint at the broader implications for policyholders and industry professionals.

Drivers of Rising Medical Costs

Several factors contributed notably to these financial challenges. Pharmacy costs spiked by 14.8 percent, heavily influenced by the rising utilization of GLP-1 medications and high-cost specialty drugs. Simultaneously, outpatient facility expenses increased by 7.5 percent. Together, these categories accounted for a substantial 69 percent of the total annual cost increase. The 2026 Milliman Medical Index reports that employer-sponsored healthcare costs rose by an unprecedented 7.9 percent, reaching $8,460 per person.

Employer Concerns and Strategic Responses

The Business Group on Health's 2026 Employer Health Care Strategy Survey revealed that 79 percent of employers observed increased usage of GLP-1 medications for obesity treatment in 2025, significantly inflating pharmacy expenses. Moreover, 75 percent of employers noticed a rising demand for mental health and substance use disorder treatments. These trends exert additional pressure on healthcare costs, necessitating strategic adjustments from employers and brokers alike.

Insurance Carrier Performance and Strategic Adjustments

Not all insurers experienced uniform outcomes in 2025. Blue Cross Blue Shield of Michigan improved its MER to 88.1 percent by strategically raising premiums by 7.3 percent per member per month, exceeding medical cost growth. Conversely, Health Care Service Corporation witnessed the most substantial increase in medical expenses among major group carriers, reflecting widespread industry challenges.

Implications for Brokers and Policyholders

The increasing MERs have critical implications for brokers as they review renewals. Given the gap between medical costs and premiums in 2025, insurers are likely to incorporate this shortfall into their rate filings for 2026 and 2027. An MER of 89.7 percent leaves insurers with only 10 cents per premium dollar to cover administrative expenses, taxes, and profit, leading to anticipated rate hikes. Deana Bell, a principal at Milliman, emphasized that the 7.9 percent cost increase in 2025 reflects ongoing structural forces rather than a singular shock, hinting at persistent pressures for the upcoming years.

The continued challenges for group health insurers underscore the urgent need for innovative solutions, as structural issues driving these rate increases persist. As the industry navigates these complex trends, professionals must remain vigilant in adapting to the evolving landscape to manage costs effectively while maintaining comprehensive coverage options for policyholders.