After a tumultuous launch to open enrollment, all eyes are on Affordable Care Act (ACA) Marketplaces. The end of enhanced premium tax credits caused premiums to soar. The issue is whether consumers will drop coverage or absorb the increased costs, which could include shifting to lower-tier coverage. As of mid-January, enrollment was down by about 830,000 people, or roughly 3.5%, from the same time last year, although not all enrollees have paid their first bill yet.
Insurers and small- and mid-sized employers alike are paying close attention to how ACA enrollment shakes out, especially as they start planning for the 2027 benefits season, which generally begins in the late spring and early summer. The stakes are high for employers facing relentless rises in healthcare costs, particularly small- and mid-sized businesses considering alternatives to traditional fully insured coverage as a way to lower costs. With Individual Coverage Health Reimbursement Arrangements (ICHRA) as an option for these employers, insurers need to monitor ACA Marketplace trends and be ready to adjust product offerings as local markets shift.
Cost increases put pressure on small- and mid-sized businesses
Employers expect a 9% medical cost trend in 2026, exceeding the 7% and 8% trends seen in 2024 and 2025 respectively, according to the Business Group on Health. Pharmacy remains a leading driver, particularly specialty and obesity treatments, alongside rising costs in cancer care, chronic disease management, and mental health services. These pressures are compounded by structural headwinds, including provider revenue optimization, policy changes, and growing resistance to utilization management.
While all employers feel these pressures, small and mid-sized businesses are especially vulnerable. Small employers —under 50 or 100 employees, depending on state insurance rules — are rated as a single statewide risk pool under the ACA community rating, which has deteriorated in many states as healthier employers move into alternative models. Mid-sized employers not part of the small group pool are subject to magnified cost pressure: Mercer’s National Survey of Employer-Sponsored Health Plans shows mid-sized firms experienced rate increases roughly 1.5 times higher than larger employers. With smaller membership, one or two high-cost claimants can materially affect year-over-year performance. Combined with tighter budgets and workforce volatility, this unpredictability has tangible consequences: 10% of employers with 10 to 199 employees stopped offering health benefits between 2023 and 2025, according to KFF.
Alternatives to fully insured small-group coverage
As cost pressure mounts, small and mid-sized businesses are exploring alternatives to fully insured coverage. Nationally, fully insured small-group enrollment declined 26% from 2016 to 2023 — a 6% compound annual decline, according to an Oliver Wyman analysis of National Association of Insurance Commissioners data.
This decline is uneven. State-level variation is driven by differences in pricing, demographics, policy, availability of alternatives, and competitive dynamics. In some markets, the shift away from fully insured coverage is happening quickly; in others, it remains limited. This creates a mix of opportunities and risks for insurers, underscoring the importance of developing local market strategies versus a one-size-fits-all national approach.
Employers are adopting self-funded and level-funded arrangements. Defined contribution and account-based approaches are also gaining momentum, according to the Employee Benefit Research Institute. Within this category, Individual Coverage Health Reimbursement Arrangements (ICHRA) have captured a lot of attention. Introduced in 2020, ICHRA allows employers to move to a defined contribution model while employees purchase coverage in the individual market. By moving to a defined contribution and putting employees into the Marketplace risk pool, ICHRA offers employers predictability and the benefits of community rating, particularly for those with sicker populations.
While still small relative to the overall employer market, ICHRA enrollment has doubled each year since launch, with limited churn once adopted. From 2024 to 2025, ICHRA membership grew 124% year-over-year, and fewer than 10% of employers who adopted ICHRA or a Qualified Small Employer HRA exited the model, according to an Oliver Wyman analysis of HRA Council data. At this pace, ICHRA has the potential to become a meaningful force faster than many anticipate.
Understanding the impact of Marketplace rate increases
The expiration of enhanced ACA subsidies has driven Marketplace premiums up an estimated 17% to 30% for 2026, depending on plan type and exchange. Yet ICHRA adoption continues to accelerate. The gap between individual and group rates is likely a factor. Individual-market premiums have historically been significantly lower than group rates. An Urban Institute analysis found that average silver Marketplace premiums were 23% below small-group premiums and 15% below large-group premiums through 2022.
While that analysis predates the most recent premium increases, early indicators suggest the value proposition remains intact. HealthSherpa, an online marketplace that helps people compare, enroll in, and manage ACA plans, reports that ICHRA enrollment is running at nearly three times year-over-year growth. Rather than pulling back, employers and employees are adjusting purchasing behavior — enrolling fewer dependents and shifting toward lower metal levels. In an analysis of its own transaction data after the first week of enrollment, HealthSherpa found that the percentage of ICHRA users selecting a gold plan fell from 38% in 2025 to 28%. Silver plan enrollment inched up from 27% to 28%, while enrollment in bronze plans rose from 35% to 42%.
“This all points to the same truth: employers and employees are adapting in real time,” said Michael Levin, ICHRA lead at HealthSherpa and co-founder of the HRA Council. “ICHRA provides the flexibility to absorb premium shocks without stalling growth. That’s exactly what we’re seeing play out. The market is adjusting, consumers are optimizing, and the underlying momentum behind ICHRA continues to build.”
Three critical actions for health insurers
Insurers need to act now to respond to changes in the small and mid-sized employer market. Here are three strategic priorities:
Redesign their product portfolio: Payers need a deliberate mix of fully insured, level-funded, self-funded, and defined-contribution-aligned offerings, targeted at local market dynamics and employer risk profiles.
Compete where growth is moving: As employers migrate toward individual-market-based solutions, success will depend on competitive individual products, strong broker engagement, and seamless integration across funding models.
Move from reactive to proactive strategy: Waiting for market stabilization is no longer sufficient. Insurers that proactively adjust their strategies will be best positioned to defend share and unlock growth.