Group health insurers absorbed a margin squeeze in 2025 that the renewal numbers for 2026 and 2027 are now starting to show. The average medical expense ratio (MER) for the employer-group risk segment rose to 89.7 percent in 2025 from 88 percent in 2024, according to analysis of aggregated statutory financial data by Mark Farrah Associates (MFA). Medical expenses grew 8.6 percent per member per month while premiums earned grew just 6.6 percent, a gap insurers cannot absorb indefinitely without passing it through.
The MFA analysis draws on 2024 and 2025 National Association of Insurance Commissioners (NAIC) statutory filings covering approximately 80 percent of the US health insurance market. It is a claims-based measure, rather than a projection, and the employer-group data covers fully insured risk business only.
The cost drivers behind the 2025 MER deterioration are not new, but their combined weight intensified. Employer-sponsored healthcare costs rose 7.9 percent per person in 2026 to $8,460, the highest annual increase in more than a decade outside of pandemic fluctuations, based on the 2026 Milliman Medical Index. Pharmacy costs were the fastest-growing component, up 14.8 percent, with GLP-1 medications and high-cost specialty drugs accounting for the bulk of the increase. Outpatient facility costs rose 7.5 percent, and those two categories together accounted for 69 percent of the total year-over-year rise.
The Business Group on Health's 2026 Employer Health Care Strategy Survey, meanwhile, found that 79 percent of employers saw an increase in GLP-1 utilization for obesity treatment in 2025, figures that feed directly into pharmacy spend for fully insured group plans. Behavioral health utilization was also higher, with nearly three-quarters of employers reporting increased mental health and substance use disorder treatment among their workforces.
Not all carriers, however, managed 2025 equally, according to the MFA report. BCBS Michigan posted the largest MER improvement among segment leaders in the employer-group book. It cut its ratio to 88.1 percent by growing premiums per member per month 7.3 percent, outpacing its medical cost growth. HCSC recorded the largest increase in medical expenses per member per month among leading group carriers.
A rising MER in the group segment is the upstream mechanism for what brokers see at renewal. When medical costs outpace premiums in a given year, carriers build that gap into the following year's rate filings. The 2025 employer-group MER of 89.7 percent leaves carriers roughly 10 cents on every premium dollar to cover administrative costs, taxes, and profit. That margin is thin, and the direction it moved in 2025 explains the rate increases now being proposed for 2026 and 2027 group plans.
Milliman principal and consulting actuary Deana Bell put the structural issue plainly in the 2026 Medical Index: "The 7.9% increase we are seeing this year is not the result of a single acute shock - it reflects structural forces that are not going away." Pharmacy costs and outpatient facility costs have compounded for years, and the 2025 statutory data confirms those forces reached group insurers before premiums could catch up.
The MFA data gives brokers a structural explanation for rate increases that goes beyond carrier-specific pricing decisions. Group carriers posted a segment-wide MER above the level where most plans can cover their cost structure without premium adjustments. That is the arithmetic of the claims data.
The 8.6 percent PMPM medical cost growth figure is the starting point for clients on fully insured plans facing double-digit renewal proposals. The practical question that follows is whether their plan's cost exposure can be managed differently. Self-funded structures, reference-based pricing, narrower network options, and pharmacy carve-outs all change how medical cost growth affects the employer's budget.
The group segment's 2025 MER is not a one-year anomaly, and the trajectory running into 2027 supports that. The Business Group on Health projects a median employer health cost trend of 9 percent for 2026 before plan design changes, meaning the 2027 renewal cycle will arrive with the same structural pressure already visible in the 2025 data.
