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The basics:

• NJ employers face rising health insurance costs, projected up 9.5% in 2026
• More small and mid-sized firms are shifting to self-funded or level-funded plans
• Self-funding can lower premiums and return pharmacy rebates to employers
• Experts urge working with knowledgeable brokers to navigate complex options

When a medical office with 65 employees had to cough up $825,000 a year for health care premiums, the practice decided to look for alternatives. After huddling with Triton HR, a benefits and human resources company, the owners went to a self-funded plan and saw their premiums plummet to about $490,000 a year, according to Triton CEO Steve Rosenthal. “In this case, the savings were derived from changing to self-funding and retaining the manufacturers’ rebates – instead of going into the pockets of PBMs [pharmacy benefit managers] – and strategic plan designs,” he said.

U.S. employer health care costs are projected to rise 9.5% in 2026, exceeding $17,000 per employee, the global professional services firm AON recently reported. This marks the third consecutive year of elevated health care cost trends near double digits, according to AON.

In traditional health care plans, “The deck is stacked against employers,” Rosenthal added. “Insurers own the pharmacy benefit managers, and manufacturers give deep discounts to carriers that employers never see. We’re designing plans that are helping businesses take back control.”

The stakes are high for smaller employers. Companies with fewer than 100 enrolled employees often lack leverage to negotiate favorable rates with major carriers, while businesses with older employee populations, or those where few employees participate in the company insurance plan, often face particularly steep premium hikes.

Self-funded plans

So, it’s not surprising that more firms seem to be coming around to Rosenthal’s way of thinking about self-funding. “Between 2010 and 2023, the percentage of small employers that self-insured at least one plan increased from 13% to 16% [while the share of] medium-sized firms increased from 27% to 32%,” according to a report issued last year by the Employee Benefit Research Institute.

In a self-funded arrangement, employers pay actual claims rather than fixed premiums to insurance carriers. While this might sound risky, stop-loss insurance limits exposure by covering any individual claim exceeding a predetermined threshold — typically around $25,000 to $100,000 (based on the company size), Rosenthal explained. Another layer, aggregate claim insurance, can provide protection for total claim expenses above a specified dollar amount.

“With self-funding, you’re paying based on actual claims experience, instead of being lumped into a risk pool where you subsidize other companies,” Rosenthal said. “The model requires working with a third-party administrator, or TPA, to manage claims, securing a provider network – often leased from major carriers like Aetna or Cigna at competitive pricing – and purchasing stop-loss and aggregate claim coverage. Some carriers such as United Healthcare and Aetna own their TPA’s – UMR and Meritain, respectively – and you can use their proprietary network through them as well.”

Prescription drug coverage

Another cost-control strategy involves carving prescription drug coverage out of the main health plan and using independent pharmacy benefit managers. Major insurers own their PBMs and typically retain manufacturer rebates rather than passing savings to employers, he added.

“When you use an independent PBM with a self-funded plan, you can enjoy rebates of up to 50% from drug manufacturers,” Rosenthal noted. “And those rebates will now go directly back to the employer, not the insurance company.”

Individual Coverage Health Reimbursement Arrangements, which have been available since 2020, offer another path for employers with 50 or more employees. Under ICHRA, employers define a fixed contribution amount, and employees purchase individual marketplace coverage, paying any difference through salary deductions.

“It’s not affected by Affordable Care Act as the ICHRA is in compliance with the ACA, while the subsidies do not apply, and in  many situations – like a cleaning company we worked with – an ICRHA vendor packages up the plan and delivers it like a group medical plan for billing and administrative ease,” Rosenthal detailed.

From 2024 to 2025, the number of large employers offering ICHRAs grew by 34%, and the number of small employers offering ICHRAs grew by 18%, according to some reports.

Wellness programs and preventive care incentives also help, but they won’t immediately reduce premiums, he cautioned. “You usually need at least a year to see results. Perhaps most important, employers need expert guidance. However, keep in. mind that all brokers are not equal. A broker’s license is only as good as the paper it’s written on. You need a consultant who stays on top of every situation and explores all options, not just a salesperson.”

On the rise

Premiums are once again rising and outpacing inflation, acknowledged Staci Grant, vice president, Benefits at Acrisure/ Legacy Agency Henry O. Baker Insurance Group. “But there is not one solution to solve the issue around rising premiums, because there is not only one problem. There are, however, some solutions N.J. employers can research with the help of a trusted insurance advisor, which can be found through the NABIP “Find an Agent” site.

Even small- and medium-sized companies may be able to get relief with higher deductibles, and narrower networks. But there are some caveats.

“There are many strategies employers can research with the help of their insurance broker,” said Grant.

“Due to New Jersey laws and regulations, there are limitations on many of the plans that insurance carriers can offer. However, there are also many ideas that can be looked at as possible solutions. These include offering more than one plan design to provide employee choice, higher deductibles, Health Savings Accounts, Health Reimbursement Arrangements, New Jersey-only doctor and hospital networks, and a range of prescription options.”

In 2023, state Senate bill 3480, known as The Small Business Health Insurance Affordability Act, became law, she added.” This law revised some antiquated rules around individual and small employer health plans (under 51 Full Time Equivalent Employees).”

Due to New Jersey laws and regulations, there are limitations on many of the plans that insurance carriers can offer. However, there are also many ideas that can be looked at as possible solutions.
– Staci Grant, vice president, Benefits at Acrisure/ Legacy Agency Henry O. Baker Insurance Group

One of the changes “gives insurance carriers the ability to modify plan designs beyond what was previously allowed,” she explained. “The carriers that have filed for new plans using these new rules have been able to provide rate reductions to those plans that were otherwise not available. These new plans have provided solutions for employers for which without these changes, many businesses would otherwise have to find other solutions or potentially, no longer offer insurance. It is my hope that a similar bill or DOBI [the state Department of Banking and Insurance] intervention occurs in the larger employer segment. Businesses with 51 or more employees are facing similar constraints in plan design flexibility and cost.”

Other possible solutions

Beyond the regulated markets in New Jersey, employers can also find possible solutions in the non-regulated market, usually self-insured plans, often called Level Funded plans, or a MEWA – Multiple Employer Welfare Arrangement, and PEOs – Professional Employer Organizations, she added. “These plans must be fully understood however, as there are coverage and protection differences compared to the regulated insurance plans. These plans typically look at the ‘health’ of the group and rates are offered based on certain factors around the groups potential risk.”

A Hudson County business with 26 eligible employees – and 19 participating in the health plan – was in a Regulated Small Employer Market plan, but in December 2024 got socked with a 15% rate increase,” detailed Grant. “The company wanted to maintain the coverage levels for the three plans they offered, with a contribution strategy where the company would pay 100% for a single base plan and allow employees to enroll in a higher-priced plan at their own expense.”

After reviewing all the carriers in the regulated market, the employer eventually selected a level funded plan in the non-regulated market. “This enabled it to maintain three plans that were similar to the ones previously offered, with a similar contribution structure,” said Grant. “But almost all employees had a reduction in the premium that comes out of their paycheck for similar, and in some cases better, plans, and the employer saved $72,000 a year.”

Many insurance carriers, depending on the product and market, “will also offer financial incentives for exercising, getting your preventive care visits, vaccines and other services,” Grant explained. “While healthy habits may not have an immediate or direct dollar off of the insurance premium charged, a healthier employee will have less absenteeism, be more present and productive, and save the company dollars in other ways.”

Health care costs are expensive, and insurance costs are expensive, she added, “so it is more important than ever for businesses to align with a well-trained and informed advisor who has their best interest in mind to help them decipher all of the possibilities that will meet their goals.”

Business-state partnership

Health insurance costs are a reflection of the underlying health care costs, said Ward Sanders, president of the New Jersey Association of Health Plans, a nonprofit association representing many commercial and Medicaid health care plans in New Jersey. “Key drivers of these cost increases include: increased costs of medical services attributed to medical inflation, greater utilization of services, and a shift toward more complex or higher-cost care settings.”

He noted that in a bid to rein in cost increases, Garden State health insurance providers have partnered with the state in its health care cost growth benchmarking effort — New Jersey’s Health Care Affordability, Responsibility, and Transparency (HART) Program.

“We hope that program, which establishes targets aimed at slowing the rate of health care cost growth within the state, will help with affordability moving forward,” Sanders said. “Further, it is always a good idea for employers to work with good insurance brokers to help them navigate the options available in the marketplace. Brokers can help with analysis of networks and drug need drug formularies and help employers consider various options. And changes in cost sharing and network design can impact premium rates quite a bit.”

Preventive care incentives can also help, Sanders said.

“The Affordable Care Act and state laws help encourage the use of evidence-based preventive services by mandating coverage of these services and eliminating cost sharing.”