The Hidden Healthcare Costs of Tariffs: How Trade Policy is Raising Premiums for Small Businesses
Small businesses are bracing for price increases on imported goods thanks to recent tariffs, but a less obvious impact is quietly rippling through employee health benefits. A growing number of insurers are now factoring potential tariff-related costs – particularly on pharmaceutical imports – into their premium calculations, potentially adding hundreds or even thousands of dollars to the annual cost of coverage for small firms. This isn’t a future threat; it’s happening now, as insurers grapple with unprecedented uncertainty in drug pricing.
The Tariff-Premium Connection: A Chain Reaction
The link between tariffs and health insurance premiums isn’t immediately apparent. However, tariffs on imported medical goods, especially prescription drugs, directly increase costs for pharmaceutical companies. These companies, in turn, may pass those costs onto insurers. Health plans operate on projections, estimating medical expenses months in advance. In the absence of clear policy direction, insurers often adopt a conservative approach, building potential tariff increases into their proposed rates to avoid underpricing and potential financial losses. This preemptive action means premiums can rise even before the full impact of tariffs is felt in the drug supply chain.
This is particularly true for brand-name and specialty medications, often sourced internationally and lacking readily available generic alternatives. The stakes are high: pharmaceuticals typically account for 16-20% of total health claims, with a slightly higher share – nearly 19.2% – in the small group market, according to recent data.
Insurers Sound the Alarm: Rate Filings Reveal Tariff Concerns
The concern isn’t theoretical. In the spring and summer, health insurance companies submit proposed premium changes to state regulators. A recent review of 88 small group market rate filings revealed that a full 25% (22 insurers) explicitly cited tariffs as a justification for higher-than-expected increases.
Here’s what some insurers are saying:
“IHBC is seeking an overall rate change of 18.9% in 2026, primarily due to increased costs due to inflation and tariffs.” – Independent Health Benefits Corporation (New York)
“To account for uncertainty regarding tariffs and/or the onshoring of manufacturing and their impact on total medical costs, most notably pharmaceuticals, a total claims impact of 2.9% is built into the initially submitted rate filings. This has increased our premium by roughly 2.7%.” – United Healthcare Insurance Company (Oregon)
Even insurers who aren’t directly factoring tariffs into their rates acknowledge the risk. Neighborhood Health Plan of Rhode Island, for example, stated they didn’t consider the impact due to “too much uncertainty.”
The ACA’s MLR Complication: A Double-Edged Sword
The Affordable Care Act’s (ACA) Medical Loss Ratio (MLR) requirements add another layer of complexity. The MLR limits the percentage of premium dollars insurers can spend on administrative costs and profit, requiring them to issue rebates if they overcollect. However, if tariffs drive up drug costs beyond initial projections, insurers could face financial shortfalls despite adhering to MLR rules. This creates a precarious situation where insurers are incentivized to overestimate costs to protect themselves, potentially leading to higher upfront premiums for small businesses.
The Impact on Small Business: A Tightrope Walk
For small businesses already operating on tight margins, even a small premium increase can be significant. Employers may be forced to reduce employer contributions, increase cost-sharing for employees, or even drop coverage altogether. While the ACA’s MLR rules offer some protection through potential rebates, they don’t shield businesses from the immediate burden of higher premiums. This is especially concerning given the lack of historical precedent for predicting the full impact of sweeping import tariffs on prescription drug pricing.
Looking Ahead: Onshoring, Negotiation, and the Future of Drug Costs
The current situation isn’t simply about tariffs; it’s about a broader reshaping of the pharmaceutical supply chain. The stated goal of the tariffs is to incentivize domestic drug manufacturing – a move the FDA is actively supporting – but the transition won’t be seamless. Even if onshoring efforts succeed, it will take time to build new manufacturing capacity and potentially lead to short-term supply disruptions and price volatility.
Furthermore, the potential for increased negotiation power for Medicare – a key policy debate – could offset some tariff-related increases. However, the timing and extent of any such changes remain uncertain. Small businesses need to proactively monitor these developments and explore all available options, including benefit plan design adjustments and employee wellness programs, to mitigate the impact of rising healthcare costs.
What are your predictions for the future of pharmaceutical tariffs and their impact on small business healthcare costs? Share your thoughts in the comments below!
