What to do if high claims are driving up your group health insurance costs

By Elizabeth Walker on September 9, 2026 at 2:00 PM

Rising group health plan costs can be a challenge for employers when employee medical claims begin to strain the budget. If your company is facing steep renewal rates or unpredictable expenses because of costly claims, you're not alone.

It’s true that high medical claims can drive up traditional group health insurance costs. However, it depends on the type of plan. Claims can contribute to higher costs for fully-insured non-SHOP large-group plans and self-funded group plans. However, insurers can’t use an employer’s claims history to set premiums for ACA-compliant individual and small group plans, including Small Business Health Options Program (SHOP) Marketplace coverage.

If employee claims do impact your fully-insured group plan, you’ll see them reflected in your renewal rates prior to renewal. Depending on your proposed premium hike, you may want to change plans to manage risk, control healthcare spending, and still provide competitive benefits that attract and retain talented workers.

In this blog post, you’ll learn:

Why high medical claims cause group health plan premiums to rise, and how insurers make rate changes based on your staff’s claim history.

Which types of health plan coverage are most affected by high medical claims.

Cost-saving alternatives to self-funded and fully-insured group health plans that can help you offer robust employee benefits while keeping your budget in check.

Why do high medical claims raise fully-insured group health insurance costs?

According to KFF, nearly 300 health insurance companies offering small group coverage reported a median proposed premium increase of 14% for 2027 plans¹. While these higher proposed rates reflect rising medical costs and increased healthcare utilization and not claims for small group plans, claims do affect pricing for large group health insurance.

High medical claims increase the cost of large group health insurance because insurers calculate premiums based on the enrolled employees’ risk and claims history. Costly medical claims make a “group” of employees more expensive to insure. Therefore, the greater the risk of coverage, the higher your premiums and those of your staff.

Below are more detailed reasons why claims affect provider-insurer rates:

When employees enrolled in a group plan frequently seek costly healthcare services — such as inpatient hospital stays, surgeries, GLP-1 drugs, or medical treatment for a chronic condition — the insurance company must pay more to cover the claims. They offset these higher claims by raising your premium costs the following plan year.
Insurers often raise premium rates for groups that submit many or more expensive health claims on average. This helps insurance companies manage risk, remain profitable, and have enough premium revenue to cover future claims and administrative costs.
Typically, employers and employees enrolled in a group plan share the cost of premiums. Even if only a few employees in the group submit high medical claims, the average cost per person increases. This can lead to higher renewal insurance rates for the entire group.
In many states, if you have more than 50 employees in your group plan, insurers will use an “experience rating” to calculate your premium. This method compares your group's past claims history to expected claims for similar groups within the same industry. If an insurer determines your group’s claims history is higher than that of other groups, you can expect premium increases in the future.

During renewal, a group with a history of high-cost claims may receive a higher renewal rate as the insurer reassesses the expected cost of covering the group in the following plan year. But remember, this claims process applies only to large-group, non-SHOP coverage, not to ACA-compliant individual or small group coverage.

Which types of health plans are affected by high medical claims?

As mentioned above, under the Affordable Care Act (ACA), insurance carriers can’t consider your company’s medical claims history when issuing individual or SHOP ACA-compliant plans. While there are other factors insurance carriers use to determine the premium rates of these plans, your employees’ claims aren’t one of them.

However, high health claims can impact insurance rates for two types of group health plans. We’ll walk you through them in the sections below.

Non-SHOP fully-insured group health plans

Non-SHOP fully-insured group health insurance is the first type of coverage that can experience higher rates due to costly medical claims. Fully-insured traditional group health coverage is a type of policy that employers choose and offer to a group of employees and their eligible family members. Businesses with 51 or more employees are typically a “large group.” However, smaller groups can also get non-SHOP coverage directly from a carrier.

These plans can sometimes be more affordable for employees because the insurer spreads risk across all participating members. But the downside is that insurance providers can determine non-SHOP group health plan premiums using your group’s overall health and claims history.

For example, suppose your workforce includes older individuals with chronic illnesses, or you employ new staff members who frequently file costly claims. In these cases, the group’s insurance rate may increase at renewal.

Self-funded health plans

The next type of health plan affected by high medical claims is the self-funded plan. With this type of coverage, employers assume responsibility for employees' medical claims and administrative fees directly, rather than paying fixed premiums to an insurance provider.

Companies that self-fund have greater flexibility in plan design and cost control. But they also assume more financial risk. Claim costs can vary significantly from one month to the next, and a few major claims can blow your budget.

Many employers buy optional stop-loss insurance to protect against unexpectedly high claim payments. But stop-loss protection comes with its own monthly premium. Plus, if your claims frequently exceed the predetermined limit, your stop-loss rates can rise the following year. Or, the stop-loss policy could laser your high-claim employees, meaning they won’t cover the excess.

Alternatives to group health insurance that can keep your healthcare costs low

If rising group health insurance costs and your employees' medical claims are straining your budget, there are other ways to provide health coverage to your employees. We’ll go over two coverage options available to you in the sections below: level-funded health plans and health reimbursement arrangements (HRAs).

Level-funded insurance plans

A level-funded health plan blends aspects of fully-insured and self-funded insurance policies. With this type of coverage, the employer pays an insurance company a fixed, or “level,” monthly amount of money. In turn, the insurer covers employees’ medical claims, stop-loss insurance, and administrative costs on the employer’s behalf.

Here’s how it works:

Employers contribute to a claims fund, which the health insurer uses to pay for eligible employee medical expenses throughout the plan year.

Policies typically have a maximum claims limit per employee, ranging from $10,000 to $100,000, depending on the employer's risk tolerance and budget.

If an employee’s medical costs exceed the amount in the claims fund, stop-loss insurance covers the additional expenses. Unlike self-funded insurance, employers must have stop-loss protection with a level-funded plan.
The rest of the employer’s monthly payment goes toward administrative support for the insurer or a third-party administrator (TPA). The insurance carrier or TPA helps the employer manage the benefit and fulfill regulatory compliance requirements.

Level funding can offer cost predictability and potential savings while still giving employers some control over their healthcare spending. Since you pay a flat monthly rate, planning your benefits budget is easier.

But these plans may not be an option in every state due to regulations on stop-loss insurance. And while they can be cost-effective, if your fund runs low and your employees exceed claim limits, your stop-loss protection premiums may rise when it’s time to renew. You can also only receive unused funds in the claims account if your original claims projections were accurate.

CHOICE Arrangement

Before we discuss the CHOICE arrangement, formerly known as an individual coverage HRA (ICHRA), let’s review the basics of how HRAs work². An HRA is an employer-owned health benefit that reimburses employees tax-free for their individual health plan premiums and qualified medical expenses. Eligible out-of-pocket medical costs include inpatient and outpatient care, doctor visits, prescription drugs, and deductibles.

An HRA is a defined contribution benefit plan that allows employers to set a monthly allowance that employees can use on out-of-pocket healthcare costs and individual insurance policies. After they show proof of a qualified purchase, you reimburse employees up to their allowance amount. Any unused funds remain with you at the end of the plan year or if the employee leaves your company.

Now, let’s get to the CHOICE Arrangement. This type of flexible benefit is a stand-alone HRA. This means that instead of buying fully-insured group health insurance, you give your staff an allowance, and they can choose the individual health plan and other medical expenses that best meet their needs.

Because you don’t buy a fully-insured health plan or work with an insurer, your employees’ medical history or past claims won’t affect your healthcare budget. Your employees’ individual plans handle the risk of coverage. Plus, medical claims don’t influence the cost of their premium payments. Individual market plans use the cost to insure the general population instead. This is known as a community-rated model.

You also don’t have to buy stop-loss policies with an HRA, which saves you money and hassle.

Here’s a quick breakdown of the CHOICE Arrangement’s features:

CHOICE Arrangements, previously known as ICHRAs, are available to employers of any size and don’t have minimum or maximum limits on how much you can contribute.
You can customize eligibility and allowance amounts by employee classes for better personalization and cost savings.
To participate in the benefit, employees must have qualified individual health insurance coverage.
Applicable large employers (ALEs) can use a CHOICE Arrangement to satisfy the ACA’s employer mandate instead of buying expensive group coverage. To do so, they must offer an affordable CHOICE Arrangement allowance to at least 95% of full-time employees and their dependents.
Premium tax credits and CHOICE Arrangements can coordinate depending on whether the benefit is affordable. If it’s affordable, employees must waive their credits to opt into the CHOICE Arrangement. They can opt out and keep receiving their subsidy if it's unaffordable.

Compared to group health insurance, HRAs are more stable and scalable. There are no annual rate hikes or minimum participation limits. Plus, HRA reimbursements are exempt from payroll taxes for employers and are income tax-free for employees.

Qualified small employer HRA (QSHERA)

A QSEHRA is also a stand-alone HRA, but it’s only for small businesses with fewer than 50 full-time equivalent employees (FTEs). While there is a maximum company size limit, you can offer the QSEHRA as long as you have at least one W-2 employee. This makes it an ideal option for small businesses looking to avoid the complexity and cost of self- or level-funded plans.

Like the CHOICE Arrangement, QSEHRAs pair with individual health insurance. So, you don’t need to buy a group health plan for your staff or worry about the financial impact of large medical claims.

Here’s a quick overview of how the QSEHRA works:

The federal government sets annual maximum contribution limits for QSEHRAs. But within those caps, you can customize monthly allowances based on age and household size.
Small businesses must offer the QSEHRA to all their full-time W-2 workers. You can also include employees with part-time jobs in the benefit. But you must give the same allowance as full-time staff members.
You can design your company’s QSEHRA to reimburse employees for health plan premiums and out-of-pocket costs or limit the benefit to premiums only.
Employees must have a health plan that provides minimum essential coverage (MEC) to use the QSEHRA.
Staff members who qualify for premium tax credits can collect their subsidy if their QSEHRA allowance is unaffordable. But under federal law, they must reduce their credits by their HRA allowance amount.

QSEHRAs provide small businesses with predictable monthly costs and fewer administrative burdens than traditional or self-insured health plans.

Conclusion

High employee medical claims can be unpredictable, but they don’t have to derail your benefits strategy or budget. If you’re offering a large employer health plan or self-funded group coverage, understanding how insurance claims history impacts your premiums is the first step toward regaining control.

As the renewal season approaches, employers facing higher renewal rates should look beyond the new price to determine whether their current health benefits still fit their budgets and their workforces’ needs. Opting for flexible alternatives, such as a personalized HRA, can help you manage risk and rein in your budget while still providing high-quality benefits.

With PeopleKeep by Remodel Health, you don’t have to design and manage your HRA alone. Book a call with our HRA specialists today, and we’ll get you set up with a personalized health benefit for your organization.

This blog article was originally published on July 2, 2025. It was last updated on September 9, 2026.

References

1. KFF - How Much and Why Premiums Are Going Up for Small Businesses in 2027

2. CMS - CHOICE Arrangements: A Guide for Employers

Frequently Asked Questions

Yes, for certain types of group health plans. An insurance company can consider a group’s claims experience when setting rates for some fully-insured large-group plans, while claims directly affect costs for self-funded plans. However, ACA-compliant individual and SHOP plans can’t use employer claims history to determine premiums.

Yes. Group health insurance premiums can change at renewal based on factors such as healthcare costs, utilization, the group’s risk profile, and, for plans subject to experience rating, the group’s claims history. Employers commonly review these changes during their annual renewal period.

Potentially. For a fully-insured group plan subject to experience rating, high-cost claims can result in premium increases for the whole group. In a self-funded plan, high claims can directly increase the employer’s claims expenses and may affect future stop-loss costs. Insurers can’t charge an individual employee a higher premium because of their personal medical history.

Employers can compare alternative plan designs, evaluate level-funded or self-funded options where appropriate, review stop-loss coverage, or consider an HRA such as a QSEHRA or CHOICE Arrangement (formerly ICHRA). An HRA can give employers more predictable costs because the employer sets a defined contribution amount, known as an allowance, rather than assuming the claims risk of a traditional group plan.

A CHOICE Arrangement, formerly known as ICHRA, can be a useful alternative for employers that want more predictable healthcare costs and less exposure to group claims. Instead of sponsoring traditional group coverage, the employer provides their employees with a fixed monthly allowance that they can use to purchase individual health coverage and qualified expenses. This allows employers to control their budget and gives employees the freedom to choose their own health plan.