How market forces and federal policy will shape 2026 health plan premiums

Public policy as well as market forces shape the individual and small-group health insurance marketplace and drive the cost of premiums.

Cori Uccello, senior health fellow with the American Academy of Actuaries, looked at the key drivers of premium changes in the individual and small group market for 2026. She particularly focused on policy decisions that could either support or undermine market stability.

A stable market can support access to affordable insurance, consumer choice and insurer competition, she said. The key components of a stable market include adequate enrollment to produce stable and predictable claims, a balanced risk pool that includes both healthy individuals and those who experience high claims, and a reliable and predictable regulatory framework to support fair competition among financially viable insurers.

“Premium tax credits, risk adjustment and uniform market rules work together to foster enrollment, to spread risk and to ensure a level playing field for insurers,” she said.

Uccello said two policy changes that could increase market stability are expanding the use of individual coverage health reimbursement arrangements and establishing reinsurance or invisible high-risk pools.

“ICHRAs have the potential to bring people into the individual market, including those who are healthier,” she said. “But for that to happen, the individual market must be stable and affordable. Otherwise, employers may be reluctant to rely on the individual market as an option for their workers.

Reinsurance or invisible high-risk pools can help offset the cost of high claims, Uccello said. “That can lower premiums, especially for people who don’t qualify for tax subsidies. By making coverage more affordable, they can bring more of these individuals into the market, strengthening the overall risk pool.”

Policies could undermine stability

Uccello listed some public policies that could undermine market stability. They include allowing enhanced premium tax credits to expire at the end of this year, imposing stricter eligibility requirements, encouraging the use of plans that are not compliant with the Affordable Care Act, and incentivizing cross-state insurance sales.

“Each of these changes could reduce enrollment and shift the risk pool to high-cost individuals, driving up premiums and potentially leading insurers to scale back their participation,” she said.

“That, in turn, could limit plan options, especially for people with chronic health conditions who rely on comprehensive regulated coverage. When people lose coverage, they may delay or forego needed care altogether, leading to worse health outcomes and more costly care down the road.”

She also cautioned that providers – especially hospitals and emergency departments - may face higher levels of uncompensated care.

Insurers who want to sell in the individual and small-group marketplace must file premium rates no later than mid-September, Uccello said. If Congress decides to extend the enhanced premium tax credits, it must do so by the end of August to give insurers enough time to file rates and have state regulators review them.

What goes into setting premiums?

Several components go into setting premiums, including:

• Risk pool composition.
• Projected medical costs.
• Administrative costs, taxes and profit/surplus.
• Laws and regulations.

But premium changes – how much rates go up or down from one year to the next – are what people tend to focus on, Uccello said. Those changes reflect how the underlying cost drivers evolve from one year to the next. Those drivers include:

• Inflation, which continues to push up costs for health care services.
• Increased spending on prescription drugs, driven by new and expensive gene and biologic therapist and increased demand for weight-loss drugs.
• Increased demand for and use of behavioral health services.
• Projected health care cost per enrollee, which includes not only rising prices but how often people use care and how intensive or complex that care is.

The expiration of enhanced premium tax credits and stricter enrollment verification requirements are expected to reduce enrollment in the individual market, especially among healthier adults, Uccello said. That shift would worsen the risk pool and put upward pressure on premiums.

The effects of the Medicaid unwinding on the individual market may vary across states, she said. In some, individuals moving from Medicaid to the individual market may be relatively healthy, putting modest downward pressure on premiums. In others, however, this population may have greater health needs, which could increase costs and contribute to higher premiums.

Many small employers are shifting to self-funding or level funding of their workers’ health care, which would worsen the small group risk pool and leave higher cost groups behind in the fully insured market, Uccello said.

ICHRAs also may shift workers and their dependents from group coverage to the individual market. Uccello said the impact of ICHRAs on both the small group and individual market risk pools depends on the relative health of the groups making that transition.

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Susan Rupe is managing editor for InsuranceNewsNet. She formerly served as communications director for an insurance agents' association and was an award-winning newspaper reporter and editor. Contact her at [email protected].