Pharmaceutical Import Tariffs Impact Small Group Health Insurance Premiums

Recent tariff policies on pharmaceutical imports are affecting health insurance premium rates, particularly in the small group market, as insurers anticipate higher drug costs. President Trump's administration plans to phase in tariffs starting from a small rate to as high as 250%, aiming to incentivize domestic drug manufacturing. These tariffs are expected to increase the cost of imported medical goods, especially specialty and brand-name drugs without generic alternatives, which comprise a significant portion of health care claims.

Health insurers often must project future medical costs well in advance when setting premium rates, leading some to preemptively incorporate potential tariff-induced price increases to avoid underpricing. In the Affordable Care Act (ACA) compliant small group market, around a quarter of insurers explicitly cited tariffs as a factor for higher-than-expected premium filings, with estimated impacts ranging between 1.7% to 3.0% on premiums. Others acknowledge the risk but have not included it in rate calculations due to policy uncertainties.

Insurers face challenges pricing these risks given the unprecedented nature of import tariffs affecting pharmaceuticals and limited historical data. This uncertainty intersects with ACA requirements like the Medical Loss Ratio (MLR) that restrict how much of premiums can be allocated to administrative costs and profits, mandating rebates if premiums exceed actual claims.

The tariff-related cost pressures could lead to higher health benefit expenses for small businesses, potentially impacting employer contributions and coverage decisions. While MLR rules provide some protection by requiring insurers to rebate excess premiums, employers and employees experience the immediate impact of increased premiums.

This evolving regulatory and market environment introduces an additional complexity for small group insurers as they navigate rate-setting amid tariff-driven cost uncertainties, influencing the affordability and stability of employer-sponsored health coverage.