Last month, the New York Department of Financial Services claimed to have saved small businesses over $800 million. That’s not exactly true: the $800 million represents a reduction from insurers’ requested rates for 2026, not 2025 actuals. In reality, rates are approved to increase by an average of 13%, and as high as 22% for some insurers.
With budgets already tight, this announcement is a tough pill to swallow. But we have some good news: if you’re serious about keeping costs under control, you don’t have to switch to a subpar plan. You have options.
Key Takeaways:
- 2026 small-group rates are rising sharply. New York small-group health insurance premiums are approved to increase by an average of 13%, creating serious budget pressure for employers.
- Some cost drivers are still under your control. By modeling rate scenarios, reassessing plan design, and exploring pooled alternatives like a Certified PEO, businesses can take proactive steps to manage total cost per employee.
- Early action = more options. The earlier you evaluate your options, the more leverage you’ll have to avoid cuts, preserve coverage quality, and keep your workforce satisfied.
2026 Small-Group Rates Increase: The Need for Urgency
None of us wanted to hear that rates were increasing by double digits in 2026. But there’s a silver lining: at least now we know what to expect. That means now is the time to take action to avoid falling into one (or more) of these traps next year:
- Unmanageable budgetary strain that will hit your cash flow and profitability
- Pressure to pass costs through to employees, which could impact morale and lead to costly turnover
- Risk falling behind in the talent market if your benefits become unaffordable or less competitive
- Increased compounding pressures as inflation and ongoing cost increases in healthcare services make the total cost per employee that much higher
None of these issues will go away by your sitting around and waiting. As open enrollment and budget setting continues in full swing this quarter, now is the time to look for alternatives to your current plans. The sooner you start looking, the more options you’ll have.
How to Adjust Your Budget for Increased 2026 Healthcare Premiums
Before considering your options—whether renegotiating, adjusting your plan, or switching insurers—start by scoping the problem and, ideally, putting some numbers onto it. Here are some steps to gather the information you need to take action to control your costs.
1. Determine 2025’s total cost per employee
Start by aggregating the total amount paid on average per employee last year: employer contributions and employee premiums, deductibles, and out-of-pocket costs. This figure will reflect the actual financial exposure tied to health benefits before any rate changes kick in.
2. Model variable scenarios to see real exposure
Once you have a baseline TCE, create multiple budget forecast models for varying rate-increase scenarios. This will help you understand the full range of financial exposure from the approved increases. We recommend plotting conservative, moderate, and worst-case increases based on the approved increases per carrier.
Although this exercise will produce a set of complex information, it will help highlight potential cash flow strains in different scenarios. That way, no matter what decision your insurer makes, you’ll have an action plan in place.
3. Identify high impact areas
Not all employee groups or plan types will bear the brunt of these increases equally. For example, families and dependents often incur higher costs. Certain coverage tiers or geographic regions may also face steeper increases. It’s important to highlight the segments of your employee base that will be most affected. Then you can target those areas with the highest savings potential.
4. Identify the levers under your control
Although you can’t control Albany’s decisions or your insurer’s updated policies, there are some levers that are definitely under your control. By leveraging them, you can make some progress toward mitigating the impact on 2026 rate hikes.
Contribution strategy
Although rates are outside your control, you still have flexibility in how you split costs and handle dependent coverage tiers. Adjusting employer contributions can help share the burden of increased costs. Additionally, funding options like Health Savings Accounts (HSAs) or Health Reimbursement Arrangements (HRAs) offer tax-advantaged ways to support employees’ out-of-pocket expenses.
However, this approach shifts more of the financial burden for healthcare onto the employee and their family. This may solve the short-term financial issue but could lead to discontent among employees, hurting retention over the long term.
Plan design
Another lever under your control is the ability to adjust your plan design: raising deductibles, adjusting coinsurance rates, or changing prescription drug tiers. However, it’s important to balance these levers against potential employee financial impact.
Another way to adjust your plan design is through a Certified Professional Employer Organization (PEO). Through pooled purchasing, you can access large-group plan options and broader networks at competitive rates while keeping control of your people and culture. You’ll also streamline payroll, benefits administration, and compliance, helping stabilize your total cost per employee without downgrading coverage. (More on this below.)
Communication
Transparent, proactive communication with employees is critical to minimizing resistance and “take-home shock” when they see their healthcare costs rise. Early education on why rates are increasing, what options exist, and how employees can maximize benefits can help to build trust and encourage smarter healthcare use. Well-informed employees are more likely to appreciate efforts to manage costs and partner in controlling expenses.
How a Certified PEO Changes the Equation
One strategy for managing these recent rate hikes is to partner with a Certified PEO. By leveraging comprehensive, pooled coverage, you truly can have the best of both worlds: better plans at better rates.
Pooled buying power
One of the biggest advantages a certified PEO brings is access to large-group-style health insurance plans that most small businesses cannot qualify for on their own. By pooling employees across many businesses, a PEO leverages this collective bargaining power to negotiate much better rates and plan designs than a single small employer could secure. This buying power can translate into meaningful premium savings and benefits options similar to what large corporations enjoy.
Total cost management (not just premiums)
PEOs bundle together a broad suite of related services—payroll processing, compliance support, COBRA and ACA administration, Employment Practices Liability Insurance (EPLI), and more. This means small businesses benefit from reduced non-premium HR costs by outsourcing complex administrative tasks and compliance functions. Managing these often-overlooked expenses alongside insurance premiums leads to a clearer, more predictable total cost picture and fewer surprise expenses.
Compliance and risk management
Navigating healthcare regulations like ACA reporting, COBRA notifications, and audits can be daunting and costly if mistakes are made. Certified PEOs centralize these processes with dedicated expertise, reducing your risk of compliance failures and costly penalties. They provide consistent reporting, audit support, and standardized policies to keep risks in check and provide peace of mind around evolving regulatory requirements.
Enhanced employee experience
By offering access to broader healthcare networks and a wider array of plan options, a PEO helps increase employee satisfaction and retention. Better coverage choices mean employees feel more valued and supported, which is critical for attracting and keeping talent in a competitive labor market. The PEO handles benefits administration and employee inquiries, ensuring a smoother, more transparent experience for staff.
The Benefits of Ethan Allen HR Services
Double-digit increases are already approved for many NY small-group plans. The smartest move now is to compare your current path with a pooled alternative that can flatten the hit without downgrading coverage.
Get an apples-to-apples side-by-side comparison: premiums, contributions, coverage highlights, and admin differences. That way, you can decide on facts, not assumptions.