How Rising Prescription Drug Costs Are Reshaping Small Business Health Plans

Key Takeaways

• Prescription drugs are one of the biggest reasons small-group premiums are climbing. Insurers have proposed a median 14% increase for 2027, and specialty drugs and GLP-1s show up again and again in their filings.
• A small slice of members drives most of the drug spend. In a small plan, one or two high-cost prescriptions can move the whole number.
• How hard a single claim hits your renewal depends on how your plan is funded. Level-funded plans feel it directly. Fully insured plans feel it through the broader pool.
• You have more options than eating the increase or cutting benefits. Cheaper drug channels, smarter plan design, and a harder look at your PBM contract all belong in the conversation.

Why Drug Costs Are Pushing Small Business Premiums Up

I’ve been talking with a lot of business owners heading into 2027 renewals, and the number on the page is hard to swallow. KFF looked at rate filings from 295 small-group insurers and found a median proposed increase of 14%. Most of them (59%) asked for something between 10% and 20%. Keep in mind that’s the median of what insurers asked for, not what every employer will end up paying. Your renewal could land above or below it.

Hospital and physician prices explain part of the jump. Prescription drugs explain a lot of the rest. When KFF dug into the detailed filings, insurers kept pointing to the same culprits: new high-cost specialty drugs and more people using GLP-1s. For the other cost drivers, see our 2027 small business healthcare cost guide.

The claims data tells the same story. In Benefitfocus’s 2026 State of Employee Benefits report, pharmacy made up 29.5% of total claim spend in 2025, up from 27.2% the year before. Most of that money goes to a small share of prescriptions. Brand drugs with no generic option and specialty drugs were only 14% of prescriptions filled, but they accounted for 87.6% of prescription spend.

What’s Behind the Rise in Prescription Drug Costs?

Specialty drugs and biologics

Specialty drugs treat complex conditions like cancer, rheumatoid arthritis, multiple sclerosis, and Crohn’s disease. Many are biologics, which are made from living cells and are expensive to develop and produce. One New York insurer put it plainly in its 2027 filing: specialty medications are used by about 2% of its members but make up more than half of its total drug spend.

Launch prices are a big part of the problem. A new report from ICER and West Health puts the median net launch price of a drug introduced in 2025 at about $257,000 a year, after discounts and adjusted for inflation. That’s 35% higher than the $190,000 median in 2022. About one in four drugs launched last year carried a net price above $500,000. Prices dipped slightly from 2024 to 2025, but they’re still at historically high levels. And many of these drugs have no generic or cheaper alternative yet, so plans pay full price until competition shows up.

It isn’t only price. More people are on these drugs. Pharmaceutical Strategies Group (PSG) found that 5.5% of plan members used a specialty drug in 2025, up from 4.4% in 2023. PSG expects specialty costs per member to climb another 32% by 2028.

GLP-1 medications

GLP-1 drugs treat type 2 diabetes (Ozempic, Mounjaro) and obesity (Wegovy, Zepbound), and they’ve quickly become one of the biggest line items in employer plans. In the Benefitfocus data, the share of members taking a GLP-1 went from 5.1% to 6% in a single year. Each of those members cost their plan close to $7,400 a year for these drugs, and GLP-1s now account for 20.3% of all prescription spend.

Dropping weight-loss coverage doesn’t make the cost go away. Several insurers that stopped covering GLP-1s for weight loss told regulators they still expect costs to rise, because more members with diabetes are using them.

Why One Prescription Hits a Small Plan Harder

In any health plan, a handful of people drive most of the spend. In the Benefitfocus population, 1% of members accounted for 33.4% of all medical and pharmacy costs in 2025. A large employer can absorb that. One percent of a 5,000-person plan is 50 people, and their costs get spread across everyone else. A 20-person plan doesn’t have that cushion. One employee or dependent starting a specialty therapy can account for a big share of the year’s claims.

How much that one claim affects your premium comes down to how your plan is funded.

Fully insured plans. Under ACA rules, small-group plans are community rated. Your rate is based on the insurer’s entire small-group pool in your state, adjusted for factors like age and location, so one employee’s diagnosis can’t drive your renewal on its own. You still feel the drug trend across the whole pool, though, and that’s a big reason insurers are asking for double-digit increases.

Level-funded plans. A level-funded plan is a form of self-funding built for smaller employers. You pay a fixed monthly amount that covers expected claims, administration, and stop-loss insurance, which kicks in when claims run high. These plans are now mainstream. KFF’s 2026 Employer Health Benefits Survey found that 38% of covered workers at firms with 10 to 199 employees are in one.

Because level-funded pricing is based on your own group’s health and claims history, healthier groups often pay less than they would on a fully insured plan. The tradeoff is that a high-cost prescription shows up directly at renewal. It can wipe out a year-end surplus and push up your stop-loss cost. And because these plans aren’t guaranteed renewable the way ACA small-group coverage is, a bad claims year can make it harder to renew on the same terms.

How Do Rising Health Costs Affect Hiring and Growth?

When premiums jump, the pressure spreads well past the benefits budget. In a May 2026 survey by the Small Business Association of Michigan, nearly 8 in 10 owners reported double-digit premium increases, and more than 75% said healthcare costs limit their ability to hire. Forty-two percent said that if costs keep going this way, they might consider dropping coverage within one to three years.

Employees feel it too. KFF’s 2026 survey found that workers at small firms pay 37% of the family premium on average, compared with 25% at large firms. That works out to $9,687 a year versus $6,840. When your people are paying nearly $3,000 more than their friends at bigger companies, it shows up in recruiting.

Cutting coverage might ease the budget, but it carries its own cost. Our Benefits Matter white paper found that employees with benefits stay about twice as long as those without. On a small team, where every departure is felt, that retention edge is worth weighing against any premium savings.

How Small Employers Can Manage Prescription Drug Costs

On a fully insured plan, your insurer decides which drugs are covered and which pharmacy benefit manager runs the benefit. You still have more control than you might think.

Get the data before renewal. The earlier you know what’s driving your costs, the more options you have. On a fully insured plan, ask what’s changing on the drug list next year and whether any drugs your employees use are moving to a higher cost tier. On a level-funded plan, ask for your pharmacy claims by category and a look at your largest claims. Starting 90 to 120 days out gives you time to compare options instead of taking the first quote. These 12 questions to ask before you accept your health insurance renewal are a good place to start.

Help employees fill prescriptions for less. Small changes add up across a plan. Encourage generics where they exist and 90-day mail-order supplies for drugs people take every day. Employees on brand or specialty drugs may qualify for manufacturer copay assistance or patient assistance programs, which can lower what they pay at the pharmacy. Open enrollment is a natural time to share all of this.

Offer cheaper generic drug channels. KFF found that 33% of employers with 50 or more workers now give enrollees access to lower-cost mail-order generics through vendors like Mark Cuban Cost Plus, SingleCare, or GoodRx. These programs work best for common generics, where the cash price is often lower than what the plan pays through its usual pharmacy network.

Make the GLP-1 call on purpose. Covering GLP-1s for weight loss is one of the bigger cost decisions on the table. According to KFF, 18% of firms with 200 or more workers cover them for weight loss, and 40% of those require employees to work with a dietitian, case manager, or lifestyle program to qualify. On a fully insured plan, weight-loss coverage may only be available if your insurer offers it as an option. Whatever you decide, budget for continued GLP-1 use among employees with diabetes. That coverage stays in place either way.

How Level-Funded and Self-Funded Plans Can Control Specialty Drug Costs

With a level-funded or self-funded plan, you have more say over how the pharmacy benefit works. That opens up a few more ways to manage cost.

Manage specialty drugs through plan design. These are standard tools for controlling specialty spend without taking coverage away.

• Prior authorization requires a clinician to confirm a drug is medically necessary before the plan pays for it.
• Step therapy asks members to try a proven, less expensive drug first and move to a costlier one only if it doesn’t work.
• Biosimilar substitution steers members toward biosimilars, which are FDA-approved, lower-priced versions of biologic drugs. Adoption has been fast. PSG found Humira biosimilars went from 0.3% market share in 2023 to 82.4% in 2025.
• Site-of-care programs move infusions out of hospital outpatient departments and into lower-cost infusion centers or the patient’s home when it’s clinically appropriate.

Look at a specialty pharmacy vendor. Some plans route specialty prescriptions through a separate vendor that negotiates its own pricing on high-cost drugs and helps patients stay on therapy. Before you switch, compare the vendor’s fees and pricing guarantees against what your current PBM delivers.

Ask more of your PBM. Your pharmacy benefit manager (PBM) negotiates drug prices, decides which drugs are covered, and processes prescription claims. Under many traditional contracts, the PBM keeps part of the manufacturer rebates, or the spread between what it charges your plan and what it pays the pharmacy. A transparent PBM passes those savings through to the plan and charges a disclosed fee instead. Federal law is moving the same direction. The Consolidated Appropriations Act, 2026 requires full rebate pass-through for ERISA plans starting January 1, 2029, for calendar-year plans. You don’t have to wait for the law, though. You can ask for those terms at your next renewal.

Review your stop-loss coverage. Stop-loss is what protects a level-funded plan from a large claim, so its terms matter as much as its price. Start with the specific deductible, which is how much the plan pays for one person before stop-loss takes over. Then ask whether the carrier can set a higher deductible for a known high-cost member at renewal (a practice called lasering) and whether it offers caps on renewal increases.

Ask about a level-funded plan built for this problem. Specialty drugs are the claims most likely to swing a level-funded renewal, so we built a level-funded option, available only through Decisely, that limits specialty Rx exposure. It’s designed to keep specialty drug costs from driving your renewal, which makes your rates more predictable from one year to the next.

When Does a Different Coverage Model Make Sense?

For some businesses, the better answer is a different way of offering coverage altogether. With a CHOICE Arrangement (formerly known as ICHRA), short for Custom Health Option and Individual Care Expense, you set a fixed monthly amount and employees use it to buy their own individual health plans. CMS and the SBA adopted the new name in September, and the underlying rules didn’t change. Your costs stay predictable, and one employee’s prescriptions don’t affect what you pay at renewal. Individual market premiums are rising too, though, and for many stable, single-location teams, group coverage is still the stronger fit. This comparison of group plans and CHOICE Arrangements walks through when each one works best.

CoreChoice is another option. It’s a membership program with coverage on the Anthem BlueCard PPO network and no medical underwriting, so a large claim doesn’t affect whether a group can join. That makes it a good fit for businesses a level-funded carrier won’t accept, or would price too high after a big claim.

Get Ahead of Your Next Renewal With Decisely

Drug costs are one of the hardest parts of a small business health plan to predict, and one prescription can change your renewal. That’s why I’d rather sit down with you 120 days out than hand you a quote 30 days out. We’ll look at your whole plan, figure out where your pharmacy dollars are going, and work through which options make sense for your team.

Decisely works with small businesses, franchises, and associations across fully insured, level-funded, and self-funded group plans, plus CHOICE Arrangements and programs like CoreChoice. Because we work across all of them, our recommendation isn’t tied to a single product. Our licensed, US-based benefits teams handle everything from discovery to renewal, with compliance support and HR tools built in, so you can stay focused on running your business.

Explore Decisely’s healthcare solutions, or reach out and let’s review your renewal together.