Health Insurance Market Faces 2026 Premium Increases as ARPA Credits Expire

The expiration of enhanced premium tax credits established under the American Rescue Plan Act (ARPA) and extended by the Inflation Reduction Act poses significant challenges for the U.S. health insurance market starting in 2026. Without further legislative action, these credits will expire at the end of 2025, leading to increased premiums for individuals purchasing insurance on both the individual exchange and through employer allowances such as HRAs. This change is expected to result in a contraction of the risk pool as healthier employees may opt out, causing higher costs for remaining insured individuals and potentially elevating group health insurance rates as well.

Large employers are anticipating substantial rate increases, with surveys indicating that many may respond by redesigning plans to shift more costs to employees via higher deductibles and out-of-pocket maximums. Industry data, including Mercer and Business Group on Health surveys, forecast health cost increases around 9% in 2026. Companies are therefore facing challenging renewal negotiations and cost management decisions for upcoming open enrollment periods.

An alternative healthcare coverage path gaining attention is off-exchange plans, which are purchased directly from insurers or brokers without going through government-run exchanges. Off-exchange plans are ineligible for subsidies but have shown smaller proposed premium increases compared to on-exchange counterparts, especially because they are not impacted by the expiration of premium tax credits. Analysis from Take Command across the ten largest U.S. states reveals that off-exchange plans generally exhibit less volatile rate hikes, offering potential cost savings or improved coverage for individuals and employees.

For employers offering coverage through Individual Coverage Health Reimbursement Arrangements (ICHRA), supporting access to off-exchange plans could enhance employee choice and affordability. However, some ICHRA administrators restrict coverage options to on-exchange plans, potentially limiting employee access to more competitive pricing in the evolving market. Expiring tax credits combined with rising premiums require employers and HR leaders to prioritize plan variety and optionality to maintain benefit competitiveness without excess financial strain.

In this environment, benefit advisers and employers are encouraged to engage in collaborative conversations to tailor benefit offerings that align with employee needs and financial realities. Emphasizing a broad selection of plans, including off-exchange options, may help retain healthy employees and stabilize risk pools in a shrinking individual market. These strategic considerations are crucial as companies navigate heightened health benefit costs and workforce retention challenges in 2026.