After being battered for two and a half years with abysmal health news, many small businesses are likely in for yet another gut punch.

Inflation's next target seems to be premiums: insurers in the Affordable Care Act marketplace are proposing to raise health premiums at higher mark-ups compared with years past, analysis from the Kaiser Family Foundation shows. Some states are even seeing double-digit rate spikes for premiums in their 2023 health plans. 

The San Francisco-based KFF, a non-profit focusing on national health issues, reviewed proposals in the individual market from 72 insurers across 13 states. The analysis reveals that the median monthly premium increase clocked in at 10 percent, with most increases falling between 5 and 14 percent. A comparable analysis of small business health plans is not currently available.

Two large drivers behind those increases are inflation and increased health care utilization, says Cynthia Cox, a KFF vice president who also focuses on the ACA. Subsidies from the government will soften the pinch that consumers feel from pricier premiums, but that's a different story for small businesses that don't see the same support from federal subsidies.

"Both small-business owners and their employees are likely to experience the full brunt of these premium increases," Cox says. While it's not yet known how high premium increases will climb in the small group market, the fact that inflation and utilization is pushing up premiums in the individual market suggests a similar pattern will follow in the small group market.

How employers respond will largely depend on their ability to withstand yet another price increase. While some businesses may pass on those costs to their employees, health experts say that the tight labor market will incentivize employers to absorb those rising costs. But rising premiums could lead small businesses to drop health care coverage altogether. More than 2.1 million small businesses received health coverage from the ACA in 2021, according to data compiled by the U.S. Treasury.

The expected backlash over rising costs is entirely avoidable--though the fix would seem to be a job for the legislative branch. Exhibit A: Maine governor Janet Mills, a Democrat, announced at the start of the month that businesses in the Pine Tree State would see their average health care premiums drop for the first time in more than 20 years.

Governor Mills attributes the drop to a law she signed in March 2020 that merges the state's individual and small group health markets into one market. That merger was approved by the government in July of this year, and was done so through the state's innovation waiver that it received under the ACA so that it can provide reinsurance for both small businesses and individuals. The state of Idaho also anticipates lower health insurance costs thanks to the approval of its state innovation waiver.

KFF's Cox describes reinsurance as "insurance for insurance companies." A provider may enter into agreements with other insurers to mitigate their overall risk to hedge against insolvency. One reason insurers may opt into a private reinsurance agreement is if they perceive a market as too risky. Other states, besides Idaho and Maine, can apply for state innovation waivers for state-based reinsurance programs as well should they legislate in support of the opportunity. The state of Wisconsin is currently in the process of doing just that. 

At the same time, states can't seek these waivers overnight so rate hikes are likely coming for you. It's expected that the federal government will certify ACA plans in early October, so now is the time to start accounting for these cost increases.