The health insurance industry increased its direct written premiums by $92 billion in 20251. If your health plan premiums have gone up since your last policy period, you’re not alone. Every year, individuals, families, and employers across the U.S. experience premium rate hikes. But many often don’t know why.
If you’re shopping for a new health plan for you or your family or refreshing your company’s benefits package, your first step is understanding what factors cause insurance rates to rise. The article below will comprehensively break down the key reasons for premium increases so you can plan before renewing or changing your health coverage.
In this blog post, you’ll learn:
- What causes health insurance premiums to increase for employers and individual consumers.
- The cost drivers behind group and individual health insurance coverage.
- How adding health reimbursement arrangements (HRAs) to your benefits package can help offset premiums and other healthcare costs.
First, let’s start with a quick overview of how health insurance premiums work. A premium is the recurring payment you make to your insurance carrier to keep your coverage active. Like other types of insurance, your premium payments continue even if you don’t need medical care during the plan year.
Here’s how it works:
The reasons for rising premiums depend on the type of coverage that you have. We’ll explain the three main health insurance types in the sections below.
Traditional group health insurance is a type of coverage employers buy from an insurance company or broker for their employees and eligible dependents. Most states consider employers with 51 or more workers a large group.
Employers and enrolled employees typically share the cost of group plan premiums, with the employee’s portion deducted from their paycheck on a pre-tax basis. In 2025, the average group plan premium was $777.08 per month (or $9,325 annually) for self-only coverage and $2,249.41 per month (or $26,993 annually) for family plans2.
Key factors that can determine premium costs for large group plans are:
Based on these factors, your group rates may rise during renewal for a few reasons. For example, the older the average age of your entire group, the higher your premiums. Similarly, premiums can rise for every enrollee if more high-claim members join your group.
If even one employee has a bad year with very high medical claims, it can cause premiums to increase for the entire company the following year. This is because large group plans are experience-rated.
Having a growing business is a good thing. Generally, having more employees lowers your monthly premiums. But, more employees enrolling in your plan can also raise premiums. This occurs if you have a higher sum insured amount. To support your growing workforce, you may add supplemental or ancillary benefits to your plan. But, if your carrier allows you to do so, it will be an added cost.
Small group plans work like large group plans with restrictions on medical underwriting. However, they’re typically for companies with between two and 50 workers. Insurers offering small group plans must follow ACA guidelines. This means different factors can impact their premiums.
Health insurers offering small group plans can only vary their premiums based on:
The ACA doesn’t allow insurers to factor your group’s combined claims history, an employee’s medical history, or your industry into your premium amount. But like large group plans, the average age of your group and how many active employees participate in your plan can raise health insurance prices.
Additionally, tobacco users can pay up to 50% more in premiums than non-tobacco users. So, if you have employees who start smoking, they’ll likely see a raised premium price the following plan year.
An individual health plan is coverage that consumers buy on their own or through a government program, like Medicare. Individuals can buy health coverage from a public or private exchange during the Open Enrollment Period. If they have a qualifying life event, they’ll open a special enrollment period to choose a health insurance plan mid-year.
For 2026, the national average benchmark plan for individual health insurance has an average monthly premium of $625 for self-only coverage ($7,500 per year)3.
The only factors that can affect premium rates for ACA-qualified individual coverage are:
Like small group plans, insurers who sell ACA-compliant healthcare plans can’t use medical underwriting, sex, or pre-existing health conditions in their premium calculations. But your age and tobacco use status are still factors that can impact health insurance rates.
Additionally, if you’re starting a family, switching from a self-only policy to a family plan will cause your prices to rise. Lastly, all ACA-compliant plans must cover ten essential health benefits. But any extra benefits or medical services on your plan may result in higher premiums.
The factors insurers consider when calculating health plan premiums are just one reason why your insurance costs may spike during renewal time. Other health-related factors can affect how much you may pay.
Here are several other reasons why your premiums may rise from year to year:
If you want to help your employees control rising medical costs, there’s a personalized health benefit that may be the solution. A health reimbursement arrangement (HRA) is an employer-owned and -funded benefit that allows you to reimburse employees tax-free for qualified out-of-pocket costs.
With an HRA, you give your employees a defined monthly allowance that they can use to buy healthcare services and items. Then, you reimburse your employees up to that allowance once they prove they bought an eligible medical expense. Unlike group health insurance plans, HRAs have no annual rate hikes, so you and your employees have more control over your budgets.
Below are the two types of HRAs that can cover your employees’ health plan premiums:
With a stand-alone HRA, such as a QSEHRA or ICHRA, employers can escape from double-digit group health insurance rate increases by setting predictable allowances. Plus, individual health plans aren’t experience-rated, so one employee’s high claims won’t impact your premium costs.
A group coverage HRA (GCHRA) can only pair with a traditional group health plan and can’t reimburse employees for premiums. But if you already have group health coverage, a GCHRA is a great way to help your employees who participate in your plan pay for other out-of-pocket costs. Plus, you can switch to a high deductible health plan (HDHP) to save money on premiums. You can then use a GCHRA to reimburse employees for their deductible costs.
It may seem like health insurance premiums rise randomly. But once you understand why they increase, you can take control of your healthcare and finances. Whether you’re running a business or reviewing your individual coverage, knowing the key drivers can help you make better choices.
Many factors that influence premium increases are outside your control. Luckily, benefits like HRAs are a flexible, tax-advantaged solution that can help you manage health costs. If you think an HRA is right for your company, contact us, and we’ll help you design your benefit.
This article was originally published on June 4, 2025. It was last updated on April 10, 2026.