Before you sign the 2027 health renewal, look at the number the IRS moved in July

Insurers have asked state regulators for a median 14% increase on small group health plans in 2027. If you cover your staff, that is the number heading for your renewal letter this autumn. The more useful number is 10.22%, which the IRS published on 27 July and almost nobody has explained to a small employer, because it quietly changes what your cheapest alternative costs and who it hurts.

What small business health insurance is going to cost in 2027

Insurers filed a median proposed increase of 14% for small group coverage in 2027. That is across 295 small group insurers in all 50 states and DC, taken from the public rate filings on RateReview.HealthCare.gov and the state rate review sites, and published by Peterson-KFF on 6 August 2026.

The spread matters more than the median. A quarter of insurers filed 10% or less. A quarter filed 18% or more. Fifty-nine percent landed somewhere between 10% and 20%. So "14%" is not a forecast for your business, it is the middle of a wide range, and which end you sit at depends on your carrier and your state.

These are proposed rates. They are what the insurer asked for, not what you have been charged. The binding number arrives in your renewal letter.

One reason behind it, in the insurers' own filings: the median assumption for medical trend, meaning the price of care multiplied by how much of it people use, is 10.8% for 2027. Specialty drugs, GLP-1 use and behavioral health spending come up repeatedly.

Do the sum on your own paper, not on the average

Here is the arithmetic, using the only nationally representative small-firm figure that exists.

In 2025 the average annual premium for single coverage at firms with 10 to 199 workers was $9,211. Covered workers pay 16% of a single premium on average, so the employer carries about 84% of it.

Put 14% on that:

• 14% of $9,211 is about $1,290 per covered employee, per year.
• The employer's 84% share of that increase is about $1,084 each.
• Six covered staff, and you are roughly $6,500 worse off before you have sold a single extra coffee, cut or class.

If your net margin is 10%, you need about $65,000 of extra sales to stand still. That is the whole story in one line, and it is why this is a pricing decision and not a benefits decision.

Now do it properly. Take your actual current annual premium bill, not the average, and multiply by 1.14. That is your planning number until the renewal letter lands. Our break-even calculator will turn it into the revenue you need to cover it.

The lever you have probably already pulled

The obvious move is to push more of the premium onto staff. Look at what small employers have already done.

Workers at firms with 10 to 199 employees pay 36% of the family premium out of their own pay. At firms with 200 or more, it is 23%. In dollars: $8,889 a year at small firms against $6,227 at large ones. And 28% of covered workers at small firms are in a plan where family coverage costs them $12,000 or more a year.

That is not a lever with room left in it. That is a lever already bent. Push it again in 2027 and what you will mostly buy is people dropping off the plan, which is a slow way of cancelling the benefit while still paying to administer it.

The number the IRS moved on 27 July

Rev. Proc. 2026-26, published in Internal Revenue Bulletin 2026-31, sets the Required Contribution Percentage for plan years beginning in 2027 at 10.22%. For 2026 it is 9.96%.

That number decides whether a health benefit counts as "affordable" for the employee. It matters most if you use, or are considering, an individual coverage HRA. An ICHRA is where you give each employee a fixed monthly amount of tax free money to buy their own individual plan, instead of running a group plan. Any size of employer can offer one, as long as you have at least one employee who is not the self-employed owner or the owner's spouse. There is no minimum or maximum you have to put in.

The affordability test works like this. Take the lowest cost Silver plan for that employee's area. Subtract your monthly ICHRA contribution. If what is left is under the percentage of their monthly household income, the offer is "affordable".

Because the percentage went up, you can now put in less money and still clear the bar.

On an employee whose household income is $40,000:

• At 9.96%, the affordable ceiling on their remaining cost is $332.00 a month.
• At 10.22%, it is $340.67 a month.
• So you can contribute about $8.67 a month less, roughly $104 a year per person, and the offer still counts as affordable.

For a ten person team that is about a thousand dollars. Small. Keep reading, because the direction of that saving is the problem.

Why "affordable" is the word to be careful with

Affordable does not mean good. It is a legal switch, and flipping it takes something away from your employee.

HealthCare.gov states it plainly. If your offer is considered affordable, the employee and their household cannot get the premium tax credit on Marketplace coverage, and that is true even if they never touch your money. If the offer is not affordable, they get a choice: take your HRA, or decline it and keep the tax credit. Not both. And under the HRA rules they get that opt out once, and only once, per plan year.

Put those two facts next to the 10.22%. The rule change lets you spend less and still switch off your employee's access to a tax credit. For a well paid manager that is fine, because their credit was small or nonexistent anyway. For a part time stylist or a barista on modest hours, the credit they lose can be worth considerably more than the allowance you gave them, and the extra COVID era savings that used to cushion this ended on 31 December 2025.

There is one more thing outside your control. You do not know your employee's household income. Their spouse's earnings count. The Marketplace makes the affordability determination when they apply, using the income they report, not using anything you calculated.

So the honest guidance is about where you sit, not about the exact math:

• Clearly generous is safe. Contribute enough that the ICHRA plainly beats any credit they could have had.
• Clearly small is safe, if you are open about it. An offer that is not affordable leaves the employee free to decline it and keep their credit.
• The middle is where people get hurt. An allowance sized to just barely clear the affordability line is the one that takes away more than it gives, and you will not find out until they file.

If you have no employees at all and you are buying your own coverage, none of this applies to you and the self-employed subsidy cliff briefing is the page you want. HRAs are for employees. You cannot give one to yourself as a sole proprietor.

Why the increase keeps coming back every single year

This is the part that reframes the decision, and it is buried in the same Peterson-KFF work.

Since 2013, the number of people covered in the fully insured small group market has fallen from about 17 million to about 10 million in 2024. A 41% drop.

Now the twist. Coverage at small businesses did not collapse alongside it. KFF's own employer survey shows the number of workers covered by small employers is statistically similar over that period, an 8% decrease. Small firms did not stop covering people. They stopped buying this particular product, moving instead to self insured and "level funded" arrangements, where the employer carries some of the claims risk in exchange for keeping the money when claims come in low.

Which employers can do that? The ones with a young, healthy team. So every year the healthiest groups leave, and the fully insured pool that remains is a little sicker, and next year's filing reflects it. You are not just being charged for medical inflation. You are being charged for who is left standing beside you.

That changes what "shopping around" means. Getting three quotes from the same shrinking pool is not a strategy, it is a slower version of the same outcome. The real question for 2027 is not which carrier. It is which structure: fully insured group, level funded, ICHRA, or no plan and higher wages. Level funding is genuinely cheaper for a healthy team and genuinely risky for a small one that has a bad year, so that one needs an adviser and a hard look at the stop loss terms, not a page on the internet.

Three things that cost you nothing

Read your insurer's own justification. Any rate increase of 15% or more has to be publicly explained before it can be applied. A quarter of small group insurers filed at 18% or above, so there is a decent chance yours is on the record. HealthCare.gov lets you look up your plan and see both the proposed and the final rate increase. Walking into a broker conversation holding the carrier's own words is worth more than another quote.

Check whether you are owed a rebate. Under the 80/20 rule, a small group insurer has to spend at least 80 cents of every premium dollar on care and quality. Miss it and they owe money back, which can arrive as a check, a card refund, or a reduction in future premiums. Most owners never look.

Check the credit you may be leaving on the table. The Small Business Health Care Tax Credit is worth up to 50% of what you contribute in premiums, for two consecutive tax years. The conditions are real: fewer than 25 full time equivalent employees, average wages below a limit the IRS indexes each year, you pay at least half the cost of employee only coverage, and the plan generally has to come through the SHOP Marketplace. That last condition is where most people fall out. But 50% of your contribution for two years is a large enough number to be worth ten minutes with your accountant.

And the baseline nobody says out loud: if you have fewer than 50 full time equivalent employees, no law requires you to offer health coverage at all. The Employer Shared Responsibility Payment starts at 50. Everything above is a business decision about hiring and keeping people, which means it should be argued on retention numbers, not on obligation.

The date is 3 October 2026

If you want to move to an ICHRA for a plan year starting 1 January 2027, the regulations require written notice to each participant at least 90 calendar days before the plan year begins. Count back from 1 January and you get 3 October 2026.

That is less than four weeks away. Miss it and 1 January is gone, and you are renewing the group plan whether you wanted to or not.

What a buyer sees when they read this line

Everyone models the level of a cost. Fewer people model its shape.

A fully insured group plan is a promise you cannot price two years out. The escalator is set by a pool you do not control, by medical trend, and by which of your neighbors left for level funding last year. An ICHRA allowance is a number you set, in dollars, once a year.

Those two things can cost you exactly the same money in 2027 and still be worth different amounts to a buyer, because one is an open ended obligation and the other is a discretionary line. This is the same distinction that made companies move from pensions to 401(k)s, arriving in a six person salon. A buyer building a forecast will extend an uncapped indexed cost at an uncapped indexed rate and discount the price for the uncertainty. A capped one, they just carry across.

Two caveats so this is not oversold. First, the cost of your staff's coverage is a genuine operating expense, not an owner perk, so it does not come back as an add-back the way your own health premium might. Check what actually sits in your SDE before assuming otherwise, and the SDE calculator is the quick way to do it. Second, cutting benefits to flatter a number is a false economy if it costs you your two best people. Turnover in an owner-operated business does not just cost recruitment money, it drags the work back onto you, and owner dependence is priced far more harshly than a benefits line ever will be.

The version of this that actually raises what your business is worth is the boring one: a predictable, capped, documented benefit that a new owner can read in one page and keep running without you in the room.