For decades, group health insurance has been the default. And for a while, it worked—until it didn’t. Employers who offer group health insurance are now faced with skyrocketing premiums and annual rate hikes. They also bear the brunt of healthcare cost increases and high-risk claims.
As the health insurance landscape shifts, more and more employers are integrating health insurance risk analysis into their strategic planning. They’re questioning the status quo and replacing it with data-driven decisions about health benefits.
In this blog, we cover
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Why smart risk management in health insurance is important
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The impacts of rising health insurance costs for employers, the surge in pharmacy benefits as a financial risk, and high-cost claims hitting record highs
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The big three drivers for high-cost claims
- Who is responsible for high-cost claims in different health benefits models
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How risk adjustment varies with different types of health insurance
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How the ACA Marketplace manages risks
- What to do about health insurance risk management today
Jump to: What to do about health insurance risk management today
Why smart risk management in health insurance is important
Employer costs for health insurance skyrocket
Employers are facing the highest health benefit cost increase in 15 years.¹
Based on Mercer research findings, the total health benefit cost per employee is expected to rise 6.5% on average in 2026. That’s the highest increase since 2010 even after accounting for cost-reduction measures such as plan design changes or switching to a less expensive carrier. Without those cost-cutting measures, employers estimated that plan costs would increase by up to 15% or more.¹
Pharmacy benefits surge as financial risk
Historically, hospitalizations and surgeries were the main source of “shock claims.” When an employee (unexpectedly) went to the hospital or required surgery, it was a high-cost claim that affected the employer’s renewal rates for group insurance.
As of early 2026, pharmacy spend has moved into first place as a health benefits line item, accounting for 24% to 30% of total employer healthcare costs.² This is largely due to the surge in specialty drugs including GLP-1 medications and gene therapies. Specialty medications represent fewer than 5% of total prescriptions but are projected to account for more than 60% of total pharmacy spending this year.²
What makes this shift an even bigger consideration is that a surgery or hospitalization is a one-time cost, but specialty medications can be prescribed for years. That puts the employer at the mercy of annual drug price increases on top of the expensive baseline cost.
High-cost claims hit record highs
High-cost claims, explained
Medical claims can be grouped into two categories: 1) low-cost and high-frequency, such as a regular doctor visit or blood pressure medication and 2) high-cost and low-frequency, such as a premature birth or complex cancer diagnosis.
Here’s where the data comes in.
Low-cost, high-frequency claims apply to everyone and are easily predictable. On the contrary, high-cost, low-frequency claims are statistically rare, which means they don't follow a predictable pattern at the company level. These high-cost claims are considered “black swan” events and create serious challenges in risk management.³
Million-dollar medical claims soar
In the last four years, high-cost health claims jumped 61% with nearly 90% of self-funded employers hit by catastrophic expenses. What used to be anomalous is now the norm.
The big three cost drivers are cancer diagnoses, newborns/NICU stays, and cardiovascular events. Just one or two catastrophic claims can exceed a company's entire annual healthcare budget.5
| The big three drivers for high-cost claims(6) | |
| Condition | Typical claim cost |
| Cancer | $150,000–$1M |
| Newborn/NICU | $100,000–$1.5M |
| Cardiovascular | $100,000–$400,000 |
The responsibility for high-cost claims
So what happens when an employee has a high-cost claim?
Of U.S. employers who offer health insurance, 67% are self-funded and 33% are fully insured.(7) With a self-funded plan, the employer pays claims directly. With a fully funded plan, the employer pays a fixed premium to an insurance company.
When an employee has a high-cost claim, a self-funded employer pays the bill directly, and a fully funded employer submits the bill to their insurance carrier.
The repercussions for a self-funded employer is they’ve just written a million-dollar check (or more), and a fully funded employer is subject to rate hikes when their insurance carrier reviews the prior year’s claims experience and increases their premiums.
Health insurance risk adjustment
What is risk adjustment in health insurance?
Health insurance risk adjustment is a process that shifts funds from health plans with lower-risk members to those with higher-risk members. It is mandated by a series of federal and state requirements and managed by the Centers for Medicare and Medicaid Services and the Department of Health and Human Services.
The purpose of risk adjusting health plans is to rebalance the risk pool. The process was created to remove the incentive for insurers to cherry-pick healthy individuals and ensure stable coverage for people with pre-existing conditions.
How the ACA Marketplace manages risks
The ACA Risk Adjustment Program is the risk adjustment initiative within the Marketplace. It’s a permanent, budget-neutral program that stabilizes individual and small-group insurance markets. This risk adjustment plan includes state health insurance marketplaces regardless of whether a state uses the federal platform (HealthCare.gov) or its own state-run marketplace (like Covered California or Pennie).
ACA risk management works the same as general health plan risk adjusting. Insurers with low-risk (healthy) members pay a risk adjustment fee into a central fund, and insurers with high-risk (sicker) members receive a risk adjustment payment from that fund to help cover their higher medical claims.
Key update for ACA risk management
To protect insurers from black swan claims, the ACA Risk Adjustment Program removes 60% of the individual claims that are more than $1M from the standard calculation and handles them through a separate high-cost pool.(8)
Group insurance (both fully funded and self-funded) have no high-risk cost protection, making the ACA the only option with that safety net.
How does risk adjustment vary with different types of health insurance?
| Health plan type | Funding method | Employer budget risk level | How the plan is affected by high-cost claims |
| Self-funded | Employer pays claims out-of-pocket | High | Payment for the claim comes directly out of the company’s cash flow. Employers must buy stop-loss insurance to cap this risk at a certain dollar amount. |
| Fully funded | Employer pays fixed premiums to a carrier | Low | The insurance carrier pays all claims. The employer is protected in the current year, but "experience rating" will lead to higher premiums next year so the carrier can recoup losses. |
| ICHRA | Employers reimburse employees for plans from the ACA or state health insurance marketplace | Zero | Risk is transferred to the ACA or state marketplace. If an employee gets a high-cost illness, the employer's cost stays the same (the fixed monthly allowance) and the claim is part of the statewide or nationwide risk pool. |
What to do about health insurance risk management today
Whether you’re an employer or a broker, smart health insurance risk management centers on a mindset shift. Offering group insurance has been the default for decades, but the risk and the cost are driving more and more employers to seek alternative health plans.
Our recommendation is to move from reactive renewals to proactive evaluation. Start researching your options early in the year and explore what would truly work well for your business and your staff.
A Take Command ICHRA is a zero-risk budget option
You could say ICHRA was born out of risk mitigation. Premium hikes and unpredictable renewals were a driving force behind the creation of HRAs as an alternative funding model for health insurance.
The structure of an ICHRA is simple. Employers determine a monthly allowance for employee health benefits, employees buy their plan from the ACA or state health marketplace, and employers reimburse them for their plan.
Because employers are in charge of the budget, it only changes if and when they want it to. So, in addition to being a zero-risk option for your budget, you also get 100% accuracy in forecasting.
Why a Take Command ICHRA is a strategic move
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Transfer of health insurance risk: The employer is no longer responsible for the medical risk of their staff because that risk is transferred to the ACA or state marketplace.
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Predictable budget and cost controls: With ICHRA, the employer sets a fixed monthly health benefits allowance. They define the budget, and there is no impact to the company’s finances from high-cost claims.
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Tax savings: Reimbursements made through an ICHRA are tax-free for employees and tax-deductible for the employer.
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Unprecedented plan choice: Instead of being forced into a "one-size-fits-all" plan, employees can choose any plan available on the individual market.
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Coverage portability: Because the employee owns the underlying insurance policy, they can take the plan with them if they leave the company.
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In-house enrollment support: Take Command provides specialized support to help employees "window shop" and select the best plan for their needs.
Keep reading
What to know about ACA changes
At the end of 2025, there was mass speculation about the impact of changes to the Affordable Care Act. Find out what happened and how it impacted ICHRA growth.
ACA changes, medical inflation, and ICHRA growth
Switching from your group health insurance plan
If you’re unhappy with your group plan or just curious about other options, here are some considerations for moving on and why an HRA might be better for your business.
Switching from a group health insurance plan
HRA Hub: A simple way to offer health benefits
See how Take Command's HRA Hub handles HRA setup, enrollment, compliance, and ongoing support — so you don’t have to manage a group health plan.
How our HRA administration works
Why risk management is particularly important for PE
The private equity industry has never been more competitive. Risk mitigation is a must for a value creation play that nails your exit strategy.
HRAs for private equity
Contact Take Command to learn about HRAs
While group premiums face record hikes in 2026, the ACA’s built-in risk adjustment and the rise of ICHRAs offer a zero-risk alternative for employers to control their health benefit budgets. Contact an HRA expert to answer questions and help you plan your next steps.
References
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https://www.mercer.com/en-us/insights/us-health-news/employers-prepare-for-the-highest-health-benefit-cost-increase-in-15-years/
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https://insurica.com/blog/2026-specialty-drug-surge
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https://www.forex.com/en-us/trading-guides/black-swan-events-explained
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https://riskandinsurance.com/million-dollar-medical-claims-soar-putting-employers-under-pressure
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https://www.mercer.com/en-us/insights/us-health-news/would-a-5-million-dollar-claim-wreck-your-health-benefits-budget/; https://www.sunlife.com/us/en/about/insights-and-events/2025-high-cost-claims-report/
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https://www.sunlife.com/us/en/about/insights-and-events/2025-high-cost-claims-report/
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https://www.kff.org/health-costs/2025-employer-health-benefits-survey/
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https://www.cms.gov/newsroom/fact-sheets/hhs-notice-benefit-and-payment-parameters-2026-final-rule
Let's talk through your HRA questions
I wrote this blog to help people make smart health insurance decisions. I am a small business owner, a husband, and a dad to three boys, so I've seen firsthand how important understanding insurance decisions can be. As a co-founder of Take Command Health and a licensed health professional, I've been recognized as a leading expert on healthcare transparency and defined contribution arrangements (QSEHRA). I've been featured in the New York Times, Wall Street Journal, Dallas Morning News, Forbes and others. Learn more about me and connect with me on our about us page. Thanks!
