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Small group renewals are hitting harder than they have in 15 years. Early 2026 filings show median ACA premium hikes around 12 percent, with some cases landing between 20 and 25 percent. Across all 50 states, about 10 percent of small group insurers are proposing increases of 20 percent or more. Some employers are staring at renewals as high as 30 percent.
This isn't a single bad year. It's the fourth consecutive year of elevated cost growth, following a decade of moderate increases that averaged about 3 percent annually. The drivers are compounding: rising hospital and physician costs, specialty drug spend (especially GLP-1s), shrinking small group enrollment pools, and the worsening risk mix that comes with them.
For brokers and consultants working in the small group and PEO space, this isn't background noise — it's the environment reshaping every client conversation.
When small group renewals spike, the PEO conversation heats up. And for good reason.
PEOs move small businesses into large-group risk pools, which spreads cost volatility across a much bigger base. That risk pooling is the core value proposition — it's why a 15-person company inside a well-managed PEO can see materially more stable renewals than the same company shopping the open market. Add in administrative relief, compliance support, and the negotiating leverage that comes with scale, and PEOs solve a real set of problems that small employers can't solve on their own.
That value is genuine. ADP, Insperity, TriNet, and others have built large, sustainable businesses precisely because this model works for a significant segment of the market. Nothing in this piece should suggest otherwise.
But the pressure that's squeezing the small group market doesn't stop at the PEO's door. It's reaching inside.
PEO master health plans work on the same fundamental underwriting math as any other risk pool — and right now, that math is getting harder.
The challenge is straightforward: when healthcare costs rise across the board, even large, well-diversified pools feel it. And PEOs face some specific pressures that amplify the effect. Carriers have grown more selective about which groups they'll accept into master plans, and PEOs are declining more groups than they used to — particularly those with high prior-year claims or too few enrolled participants. Carriers are also increasingly reluctant to offer new medical master plans to PEOs that don't already have one, narrowing the options for PEOs looking to expand or diversify their carrier relationships.
Inside existing master plans, the dynamics are shifting too. High-claims groups can trigger renewal shocks of 20 to 50 percent, even within the PEO pool — and when they do, the PEO faces a choice between absorbing the impact across the broader pool or passing it through to the individual client. Neither option is painless. The fully insured market more broadly is yielding what the Amwins State of the Market 2026 Outlook called "unprecedented and above-average increases," with major carriers citing significant losses, worsening risk pools, and higher-than-expected utilization.
None of this means PEOs are failing. It means the structural forces pushing costs up are industry-wide, and PEOs — despite their scale advantages — are not immune.
The small group market has a GLP-1 problem that's less visible than what large employers face, but no less real.
In KFF's detailed review of 96 small group insurer filings for 2026, 27 specifically cited the impact of GLP-1s on premiums. Some insurers went further: a subset have responded to mounting prescription drug costs by excluding GLP-1 coverage for weight loss entirely in 2026. Mass General Brigham Health Plan, for example, dropped GLP-1 coverage for weight loss on fully insured commercial plans starting January 2026, while maintaining coverage for diabetes.
For PEOs, this creates a particularly tricky dynamic. Master plan formularies may cover GLP-1s broadly, but utilization from even a small number of employees on these medications can disproportionately impact the pool — especially in smaller PEO client segments. The math is the same as what EBRI modeled for large employers: premium increases of 5 to 14 percent depending on eligibility and adherence, but amplified by smaller risk pools with less room to absorb volatility.
If you read our analysis of the GLP-1 coverage landscape for 2026 renewals, the strategic frameworks apply here too — arguably with more urgency, because small employers have fewer levers to pull.
Against this backdrop, ICHRAs are getting more attention than ever — and for understandable reasons.
ICHRA adoption has grown more than 1,000 percent since 2020, with 34 percent year-over-year growth among employers with 50+ employees and 52 percent growth among small employers in 2025 alone. Some carriers — particularly those focused on the individual and Medicaid markets — see ICHRA as an opportunity to recoup enrollment they might otherwise lose. A June 2025 McKinsey survey found that 38 percent of employee benefits brokers already offer ICHRAs to clients, with another 23 percent considering it.
The appeal for small employers is clear: predictable cost exposure (you set the contribution), no renewal surprises, and employees get to pick a plan that actually fits their needs. For PEO clients who are hitting renewal walls or getting declined from master plans, ICHRA offers a structured off-ramp that keeps employees covered.
But it's not a silver bullet. Individual market premiums rose sharply in 2026 — averaging 23 percent in some markets — partly driven by the expiration of enhanced ACA premium tax credits. ICHRA also shifts the plan selection burden to employees, which means decision support and communication become critical. And for employers used to the administrative simplicity of a PEO, the transition adds complexity.
The right framing isn't "ICHRA vs. PEO." It's about having the full set of options visible — and knowing which one fits a given client's workforce, budget, and risk tolerance.
The small group market isn't collapsing. But it is tightening in ways that demand more strategic thinking from everyone involved — brokers, PEO leaders, and the employers they serve.
Know the pressure points. Small group enrollment is declining and risk pools are worsening. That dynamic feeds on itself: as healthier groups leave for alternatives (self-insurance, ICHRAs, PEOs), the remaining pool gets more expensive. Understanding where your client sits in that cycle matters.
Model the options side by side. The days of defaulting to one path are over. For a given client, the right answer might be staying in a PEO master plan with tighter utilization management. Or it might be an ICHRA. Or a level-funded arrangement. Or some combination. The broker who can model these scenarios with real data — not just gut feel — wins the conversation.
Watch the GLP-1 exposure. Whether your client is inside a PEO or on the open market, GLP-1 cost is a variable that can swing renewals meaningfully. Know what's in the formulary, understand the utilization, and help clients think through management strategies before they show up in the renewal number.
Invest in decision support. As coverage models fragment — group plans, PEO master plans, ICHRAs, DTC drug channels — employees need more help navigating their options, not less. The employers and PEOs that pair coverage with real decision support and personalized guidance will retain employees and manage costs more effectively than those that just hand over a plan document.
The market is volatile. The playbook is evolving. The brokers and PEO leaders who treat this as a strategy conversation — not just a renewal transaction — are the ones who'll come out ahead.
Sources: ADP; Amwins State of the Market 2026 Outlook; KFF/Peterson-KFF Health System Tracker; Mercer 2025 National Survey; Foothold America; HRA Council 2025 Growth Trends Report; Leader's Edge/McKinsey; Zorro 2026 ICHRA Open Enrollment Data.
