The Rising Cost of Health Insurance

A client of mine — call him Dave, runs a 7-person engineering shop — opened his health insurance renewal in late January and had to put the letter down.

The number was about $43,000 higher than last year. Not the total bill. The increase.

He sat at his kitchen table doing math out loud to his wife. “That’s a person. That’s literally a person I was going to hire this spring.”

If you’ve opened a renewal letter or a marketplace quote this year and felt the same air leave the room, you are not alone, and this is not in your head. This is the single most common conversation I am having with small business owners and solopreneurs right now, and the numbers say it’s about to get louder.

What Just Happened

Let me give you the short version, because the long version is depressing and full of acronyms.

If you’re a solopreneur buying your own coverage on the marketplace: the enhanced ACA subsidies that quietly held premiums down for the last few years expired at the end of 2025. Congress did not renew them. As of this year, marketplace premiums are running about 26% higher on average, and the typical enrollee is paying roughly $1,016 more per year. If your household income lands above 400% of the federal poverty line — about $60,000 for a single person, $124,000 for a family of four — you fell off what’s now being called the “subsidy cliff.” You went from getting help to getting the full sticker price overnight. A self-employed consultant in their mid-40s making $85,000 is now staring at something like $820 a month for a mid-tier plan.

If you have a few employees and buy a group plan: the median small-group premium increase for 2026 is 11%, and roughly one in ten insurers is asking for 20% or more. Some are asking for 32%. Healthcare is now officially the largest cost most small businesses face after payroll. Most surveys show that three out of four small business owners say healthcare costs are limiting their hiring, and 85% say it’s reshaping their long-term growth plans.

In other words: this isn’t a line-item problem anymore. It’s a strategy problem.

Why It Hurts Worse for Smaller Companies

The headline that doesn’t get enough attention: the smaller your business, the harder you get hit.

For companies with two to five employees, premiums have climbed 18% faster than inflation since 2022. You have no negotiating power with insurers. You have fewer plan options every year as carriers exit small-group markets entirely. In Connecticut, the small-group market is now down to two carriers. Two. For an entire state.

So you do the only thing you can do as the owner: you absorb it. You scrap a bonus. You delay a raise. You push that new hire to next year, then to the year after. You eat the increase out of your own paycheck, because you’re the last person standing in line.

That’s the version of this story Reddit threads are full of right now, and it’s the one Dave was living at his kitchen table.

What Actually Works (In Plain English)

Here’s the good news. There are real moves to make. None of them require you to become a benefits expert. They just require you to make a few decisions on purpose instead of letting the renewal letter make them for you.

The high-deductible plan + HSA combo. I know “high-deductible” sounds scary. Hear me out. If you’re reasonably healthy and you pair a high-deductible plan with a Health Savings Account, three things happen at once: your monthly premium drops a lot, the money you put in the HSA comes off your taxable income, and any money you don’t spend stays yours and grows tax-free forever. For solopreneurs in higher tax brackets, this combo is often the single biggest move available.

The 100% deduction most solopreneurs forget. If you’re self-employed, you can deduct 100% of the health insurance premiums you pay for you and your family directly off your taxable income. Most accountants catch this. Some don’t. Worth checking your last return.

Reimbursing employees instead of buying a group plan. This one is a quiet revolution. Through a setup called an ICHRA (or for smaller shops, a QSEHRA), you give each employee a tax-free monthly stipend they use to buy their own plan on the marketplace. You get predictable costs. They get to pick a plan that actually fits their family. Nobody negotiates with United Healthcare. For a lot of the 3–10 person businesses I work with, this single change has been the difference between offering coverage and not.

Direct primary care, for the healthy and uncomplicated. A flat monthly fee — usually $75 to $150 — gets you unlimited primary care visits. Paired with a cheap catastrophic plan for the truly bad stuff, this can cut total spending dramatically for healthy solopreneurs.

California-specific: if you’re a Covered California shopper, the state added its own subsidies that partially soften the federal cliff. Most people don’t know they exist, and the marketplace doesn’t go out of its way to explain them.

How I Can Help

Here’s the honest pitch. The reason most small business owners feel stuck on this is that the people selling them health insurance only sell health insurance, and the people doing their taxes only do taxes. Nobody is sitting at the same table looking at your premium, your tax return, your retirement plan, and your business cash flow at the same time.

That’s the seat I sit in.

I’m a fiduciary financial advisor based in Hermosa Beach, California, working specifically with solopreneurs and small business owners. I charge a flat fee, not a percentage of your money. I’ll look at what you’re currently paying for health coverage, what your tax return looks like, and which of the four or five moves above would actually put real dollars back in your pocket this year.

If your renewal letter just hit — or you’re bracing for the one that’s coming — let’s talk before you write the next premium check.

If you would like to discuss healthcare costs further, click Book A Meeting.

FAQ: Rising Health Insurance Costs for Small Business Owners

1. Why did my ACA marketplace health insurance premium go up so much this year?

The enhanced ACA subsidies that had been holding marketplace premiums down expired at the end of 2025, and Congress did not renew them. As a result, marketplace premiums are running roughly 26% higher on average this year, with the typical enrollee paying about $1,016 more annually. If your household income is above 400% of the federal poverty line — roughly $60,000 for a single person or $124,000 for a family of four — you likely fell off what's now called the "subsidy cliff," moving from partial assistance to paying full price overnight.

2. How much are small business group health insurance premiums increasing in 2026?

The median small-group premium increase for 2026 is 11%, though the range varies significantly by carrier and region — roughly one in ten insurers requested increases of 20% or more, and some requested as much as 32%. For many small businesses, health insurance has become the largest cost after payroll.

3. Why do smaller businesses get hit harder by rising health insurance costs?

Smaller employers have less negotiating leverage with insurers and fewer plan options each year as carriers exit small-group markets. Businesses with two to five employees have seen premiums climb roughly 18% faster than inflation since 2022. In some states, the small-group market has narrowed to just a couple of carriers, leaving very few competitive options for the smallest employers.

4. What is an ICHRA and how does it help small businesses control health insurance costs?

An ICHRA (Individual Coverage Health Reimbursement Arrangement) allows an employer to give each employee a fixed, tax-free monthly stipend to purchase their own individual health plan on the marketplace, rather than the employer buying and managing a single group plan. This gives the business predictable, capped costs and gives employees the flexibility to choose a plan that actually fits their family — without the employer having to negotiate directly with an insurance carrier. A QSEHRA works similarly and is designed specifically for smaller employers.

5. Can self-employed business owners deduct their health insurance premiums?

Yes. Self-employed individuals can generally deduct 100% of the health insurance premiums they pay for themselves and their family directly against their taxable income. This is a commonly overlooked deduction — it's worth confirming with your tax preparer that it's being claimed correctly on your return.

6. Is a high-deductible health plan with an HSA a good strategy for rising premiums?

For reasonably healthy individuals, pairing a high-deductible health plan with a Health Savings Account (HSA) can meaningfully lower costs in three ways at once: monthly premiums are typically lower than a traditional plan, HSA contributions reduce your taxable income, and unused HSA funds roll over and grow tax-free indefinitely. It's one of the most effective tax-advantaged tools available for offsetting rising premium costs, particularly for solopreneurs in higher tax brackets.

7. What is direct primary care, and can it lower my health costs?

Direct primary care is a membership-style arrangement — typically $75 to $150 a month — that covers unlimited primary care visits without going through insurance. When paired with a lower-cost catastrophic health plan for major medical events, this combination can significantly reduce total healthcare spending for generally healthy individuals, though it's not a substitute for comprehensive coverage for those with ongoing medical needs.

8. Are there California-specific subsidies for health insurance beyond the federal ACA subsidies?

Yes. Covered California offers its own state-level subsidies that partially offset the loss of the expired federal enhanced subsidies. These state subsidies aren't always well publicized on the marketplace itself, so many eligible Californians don't realize they qualify for additional help beyond what the federal marketplace shows.