Smaller businesses could drop traditional coverage
My September 7 blog on being priced out of healthcare ( https://www.healthcarelabyrinth.com/we-are-being-priced-out-of-healthcare-and-it-is-not-just-an-exchange-problem/ ) made the case that the affordability crisis went far beyond the Exchange subsidy debate. The bigger crisis we have is with employer coverage, where most Americans get their insurance. We also have a growing underinsured crisis as huge annual spending trends hit employers. Employers can only absorb so much. Eventually, the math catches up with everyone.
Two recent developments make me even more concerned that we are approaching a genuine crisis. The first involves something most Americans have probably never heard of: the No Surprises Act’s federal arbitration process. The second is much easier to understand. Small and midsize employers are increasingly saying they may simply stop offering traditional health insurance.
Those two developments may seem unrelated. They aren’t. They are two different manifestations of the same problem: Healthcare costs are becoming too expensive for the people and organizations paying the bills.
The No Surprises Act has created a new cost problem
Let’s start with the No Surprises Act (NSA). The law was enacted for a very good reason. Patients who receive emergency care or certain other services from an out-of-network provider shouldn’t be hit with enormous surprise bills that they have no ability to anticipate, control, or avoid. I strongly support protecting patients from surprise medical bills.
But protecting patients from surprise bills and creating a system that encourages providers to seek extraordinarily high payments are two very different things. And the federal NSA Independent Dispute Resolution (IDR arbitration process increasingly appears to have a serious design problem.
The latest warning comes from the ERISA Industry Committee (ERIC), which represents large employers and recently released a report examining the impact of the arbitration system on self-funded employer plans.
The findings are startling. One large self-funded employer interviewed by ERIC saw payments associated with the IDR process increase from approximately $3.5 million in 2025 to more than $6 million in just the first half of 2026. That employer is on pace to spend more than $12 million for the full year.
Another employer estimated that IDR awards are adding 1% to 3% to its annual healthcare trend. And another estimated that IDR payouts alone could represent 5% to 6% of its total healthcare spending in 2026.
Think about that. We spend enormous amounts of time in healthcare arguing about whether a particular medical intervention costs too much. Meanwhile, we have created a federal process that can itself become a significant driver of healthcare spending. According to ERIC, self-funded employers, not insurance companies, are ultimately paying these costs. That’s because employers are at risk and not insurance companies in most cases.
The incentives are becoming distorted
There is an even bigger issue here. ERIC reports that the arbitration process has experienced rapid growth in dispute volume, high provider win rates, and awards that can exceed market-based payment benchmarks. The organization argues that this can create a perverse incentive for providers to remain out of network rather than negotiate reasonable in-network rates.
Other reporting on the ERIC analysis puts the provider win rate at approximately 88%, while self-insured employer plans are absorbing about 90% of IDR award costs.
That should get everyone’s attention. The purpose of the No Surprises Act was to protect patients. But if the arbitration mechanism causes providers to receive substantially higher payments — and those payments ultimately become part of the cost of employer-sponsored coverage — the cost doesn’t disappear.
The bottom line: the federal government badly estimated the costs to the system (it expected savings). The process favors providers to an extreme level. Arbitrators, who make their money through more and more disputes, are more than happy to award to providers who file the cases. Awards are manyfold above pre-arbitration levels. All of this contributes to rising annual healthcare costs, premium hikes, and cost-sharing increases in employer coverage. This, too, leads to employers dropping coverage or reducing benefits.
Smaller employers wave the white flag
If the No Surprises Act arbitration issue is one warning sign, the latest survey of small and midsize employers is another. And this one is even more consequential.
A September survey by eHealth of more than 500 owners and managers of businesses with 500 or fewer employees found that 54% of employers offering traditional group health insurance are facing double-digit premium increases for 2027. More than one in five reported increases of 15% or more. And 73% said they are considering dropping traditional health insurance benefits for 2027.
The overwhelming reason? Cost. Among those considering dropping coverage, 85% cited the high cost of coverage as the primary motivator. And the survey contains another disturbing number. Eighty-five percent of employers offering group coverage said they are worried they will not be able to afford it within three years.
Employer-sponsored insurance has been one of the central pillars of the American healthcare system for decades. The eHealth survey doesn’t mean that 73% of small and midsize employers will actually drop coverage. It means they are considering it.
Fifty-eight percent of respondents said they are considering alternative arrangements such as level-funded or self-funded plans. And awareness of CHOICE Arrangements — formerly known as ICHRAs — has increased significantly. Fifty-seven percent of respondents said they were familiar with CHOICE arrangements, compared with 46% the previous year.
I actually like the idea of such alternatives as it means some coverage will be available when none might be the only other option. But if employers increasingly conclude that traditional health insurance is simply too expensive, the crisis will grow.
#employercoverage #affordability #nsa #nosurprisesact #healthplans #providers
— Marc S. Ryan
