Sounding the alarm: Louisiana business owners search for answers as rapidly rising health care costs dig into profits

A sharp increase in health care costs felt more like a slap than a wake-up call for many Louisiana business owners in 2026. The sizable but necessary expense began cutting dangerously deep into their profit margins.

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The current insurance year, beginning Jan. 1, saw the highest single rate increase since the Louisiana Department of Insurance began tracking the data in 2016.

“A small group policy (companies with less than 50 employees) typically sees about a 6.5% increase in a given year,” says Frank Opelka, deputy commissioner of the Office of Health, Life & Annuity at LDI. “This year, our filings averaged 10.2% higher in that market.”

It comes on the heels of a decade of rising premiums. In its annual employer survey on commercial coverage, the Kaiser Family Foundation found that the average annual premium for family coverage in the last 10 years has gone from $17,000 to $27,000. That’s bad news for

 Louisiana employees, who often carry a disproportionate share of the burden.

In the U.S., employees in group plans paid 30% of the premium, on average, in 2024; in Louisiana, it was 37%. And while premiums are slightly lower in Louisiana, the typical employee still pays more due to the higher pay ratio.

“It has a lot to do with the smaller size of the businesses here,” says Lara Gardner, a health care economics professor in the College of Business at Southeastern Louisiana University in Hammond. “They’re not able to afford the larger costs, so they pass on a larger share of it.”

Much of the problem can be linked to the supply side of the equation. Over the last two decades, a series of consolidations and hospital closures across the nation has reduced the playing field, and by consolidating into larger systems hospitals have gained more negotiating power with insurance providers.

“They’re asking for higher reimbursement rates and that’s contributed, to some extent, to the costs going up in the long term,” Gardner says.

Some regions are feeling the pain worse than others. The Dartmouth Atlas of Health Care, published by the Dartmouth Institute, found that hospital and physician fees were twice as high in some municipalities, based on Medicare data.

“In places where medical providers have more market power, they’re negotiating higher prices that lead to higher rates for the insured,” she adds.

Relaxed Federal Trade Commission oversight, it seems, has paved the way for the rash of mergers and consolidations, says Kevin Callison, an associate professor in the Department of Health Policy and Management at Tulane University.

“In the past, the FTC would place a heavier burden on the hospital to prove that the merger would be for the public good and wouldn’t result in higher prices, but that’s no longer the case,” Callison says. “And once that competition is gone, it never comes back.”

Pharmaceuticals: The Latest Catalyst

There’s a more concerning trend responsible for the recent rise in costs: an exponential increase in pharmaceutical spending. “The cost growth factor this year for pharmacy alone was 12%, which is astronomical … about triple what it normally is,” Callison says.

Pharmaceuticals are by far the fastest growing expenditure for health insurance providers, says Jeff Drozda, CEO of the Louisiana Association of Health Plans, the state’s trade group for the health benefits industry.

Much of the increase comes from the growing prevalence of patented gene therapy and cancer drugs, which can hit six figures, as well as GOP1 (aka GLP-1) weight loss drugs. “Every year, the prices go up,” Drozda says. “In 2024, pharmaceutical companies raised prices on more than 500 drugs. In 2025, they raised prices on 250, and in 2026 we’re looking at over 350 drugs being increased in price. These are all branded drugs and costly.”

Like the hospital market, a lack of competition is the reason. “These companies have 10-year patents on their drugs; at the end of that period, they’ll divest of the patent and a subsidiary will buy it back for them,” he adds. “As a result, pharmaceuticals have become a larger portion of the health care spend. In 2016, 26 cents of a health care dollar went to pharmaceuticals. In 2024, it was 32 cents of every dollar. A lot of that burden is falling on individual and group plans.”

There are other variables contributing to the increase. Opelka says a sizable shift among business owners to self-funded plans—which are not regulated by the state—limits the ability of LDI to stabilize the market.

“There are a host of requirements in the Affordable Care Act that are well intentioned but cost a lot of money,” Opelka says. “That’s persuaded many employers to go the self-funded route, because they’re largely exempt from the ACA.”

Over time, that’s made the ACA-compliant portions of the market more expensive and less competitive with the noncompliant sections. “The rise in self-funded plans reduces the state’s ability to regulate and ‘right-size’ the market,” he adds. “As such, the state has been squeezed out of their ability to make the market work, and when one side of the market has to be regulated and the other side doesn’t, it creates an uneven playing field that leads to some bad outcomes and illogical choices.”

An expected decline in the number of Medicaid recipients in Louisiana could exacerbate the problem, says Tulane’s Callison. In summer 2016, Louisiana expanded Medicaid in conjunction with the ACA, along with about 40 other states, which resulted in a dramatic increase in enrollment.

“That’s about to change,” he says. “There are a lot of changes to Medicaid in the ‘One Big Beautiful Bill,’ and the result will be lower Medicaid enrollment.”

That, in turn, will impact conventional health care programs. “It will create a larger pool of uninsured residents, which translates into less revenue for hospitals and providers,” he says. “They’ll try to recapture some of that by raising prices for commercially insured patients, flowing into higher premiums.”

Employers Go Price Shopping

Prior to ACA, only the larger multistate employers participated in the self-funded market (whereby the employer assumes the risk). Since then, however, a proliferation of new programs has allowed a more diverse range of employers to take the plunge—some as small as five employees.

Given the recent ramp-up in premiums, the shift to self-funding will likely accelerate. That’s problematic, says LDI’s Opelka, as many of the smaller companies eventually fail in the attempt due to an unexpected expensive illness or medication, then return to the regulated commercial space as a high risk.

“That turns the fully insured market into a de-facto high-risk pool,” Opelka says. “It’s certainly something that needs to be rectified if the market is going to stay viable.”

Nevertheless, the attractiveness of lower premiums is hard to resist. Today, two-thirds of U.S. workers are operating under self-funded plans, and the number is closer to 100% for larger companies (above 400 employees).

Even among the self-funded group, however, companies are grappling with rising costs these days, forcing some of them to look for other ways to minimize the impact.  “Value-based pricing” has been gaining traction among a handful of Baton Rouge employers, whereby they use data to identify low-cost providers and negotiate direct contracts with health care providers.

Brown & Root, a Baton Rouge-based industrial contractor, has been self-funded for years but began researching the value-based approach six years ago when premiums began to rise. With the help of a third-party administrator, or TPA, it’s now negotiating directly with hospitals and medical facilities for better rates and making agreements with top-tier medical providers in the locations in which they work, including Baton Rouge General, Memorial Hermann Health System (Texas) and Hannibal Regional Healthcare (Missouri), among others.

Under the program, employees can choose between different plans based upon their financial situation, some with lower deductibles and higher premiums, and vice versa. The less costly facilities are considered “in-network” and the more costly ones are “out of network,” thereby incentivizing the employee to use the facilities under the negotiated plan.

To assist in coordinating the process, Brown & Root uses Healthcare Highways, a Frisco, Texas-based company that develops high-performance, curated medical provider networks and customizes health plan solutions to reduce costs and improve care quality for employers. Another company, Lantern, provides the contractor with concierge surgical benefits, offering access to a curated network of surgeons for more than 1,500 planned, high-cost procedures, often reducing surgical costs by up to 50%.

Brown & Root has also been aggressive with its pharmacy spending, conducting frequent audits of its longtime pharmaceutical provider CVS Caremark every one to three years and examining formulas and claims to see whether changes need to be made.

In the first three years after moving to the value-based approach, employee premiums didn’t increase, and rose by only 3.2% in 2026. “That’s phenomenal when you consider some companies are experiencing 13% to 15% increases in medical,” says Katie Richardson, vice president of human resources at Brown & Root.

Having the right insurance broker (Brown & Root uses Lockton in Baton Rouge) has been critical to the process. “Being self-insured comes with a lot of additional risk, so having the right broker is a critical component,” says Fred McManus, COO of Brown & Root. “Before we do anything, our broker is engaged in getting together with these groups and helping us negotiate the best price.”

The company also emphasizes wellness and even requires annual physicals of its insured employees. As a result, Brown & Root is healthier as a group, which further lowers risk and cost in the long term.

“When the premiums aren’t going up, that means our costs are being managed well,” McManus says, “then we can take on more of the premium rather than push it down to our employees.”

Baton Rouge-based Rouses Supermarkets is seeing similar benefits from the self-insured approach. Despite rising health care costs across the industry, it has been able to maintain a competitive health care program that offers strong benefits at affordable rates, supporting its ability to attract and retain team members across the Gulf Coast.

About 3,000 of Rouses’ 8,000 employees participate in the plan. “Three years ago, we introduced a third, lower-cost HSA (health savings account) option that provides the same coverage as our base and buy-up plans,” says Lee Veillon, vice president of human resources at Rouses. “This option allows team members to take advantage of tax-free contributions, tax-free growth and tax-free withdrawals for qualified medical expenses, while also offering the ability to invest HSA funds over time.”

Wellness initiatives are also covered 100%, and health plans cover a variety of preventive services—such as screening tests—at no cost to team members. “This focus on prevention supports early detection and long-term health,” he adds.

Left Holding the Bag

Given the larger companies’ proclivity for self-funded programs, small and midsize companies are left carrying much of the burden in their conventional group plans. Fortunately, there are various funding mechanisms that employers can use to minimize the impact of rising rates, both for themselves and their employees.

Gallagher, a national insurance broker, uses a data-based approach to negotiating a rate that provides the right level of care, while striving to minimize the impacts to an employer’s and employee’s pocketbook.

“I would challenge employers to lean on their brokers for expertise,” says Mike Yoder, area president of Gallagher in Baton Rouge. “Each employer is unique, so cookie-cutter solutions don’t work. We’re fortunate that we live in a world where there’s a lot of available data. If companies aren’t using data to drive their decisions, they’re missing out.”

Twenty years ago, Gallagher foresaw the looming impacts of rising pharmacy costs so it built a robust team of pharmacists, contract experts and pharmacy benefit managers to specifically serve that market.

“That team has grown to more than 100 people across the country,” Yoder says. Other Gallagher teams specialize in various company sizes, from a two-person shop to a municipality with 100,000-plus employees.

Technology is integral to its approach. The broker’s benchmarking tool shows employer clients how various factors such as employer contributions, deductibles, co-insurance, out-of-pocket maximums, etc. compare with industry standards. “We are able to give them an idea of what’s competitive … then, if they want to be at benchmark, or be above or below it, it’s up to them,” Yoder says.

Some midsize companies, shocked by the recent rate hikes, are considering a self-funded plan for the first time—despite the risk.

The 140-employee Guarantee Restoration Services in Baton Rouge currently negotiates a conventional group plan each year, but when the company’s health care premiums went up a whopping 13% in 2026 it began looking at other options.

“We’ve had a couple of good years of claims volume, so why not?” says Marcie Richardson, the company’s COO. “It’s always a risky proposition … but if we were self-funded we’d get that money back after a good claims year. Currently, we pay our premiums to an insurance provider, and we never see that money again.”

In the meantime, Guarantee has sought to minimize the burden on its employees by offering four plans that can be selected based upon their financial situation. The company also educates employees about less costly options for health care and encourages them to get annual physicals. “If you want to attract talent these days, companies have to offer competitive health insurance,” she says. “It’s an automatic thing. As a company, we’ve been strategic in what our offerings are, yet make it affordable to the employees that we have.”

For senior employees, Guarantee Restoration will pay a larger portion of their premium. “We take on 50 percent in the beginning, but once they hit a certain year, we’ll bump it up to 75%; then eventually 100%.”

It also offers free flu and COVID-19 shots. “Then, if they come down with COVID or flu, we’ll cover their prescription costs and won’t dock them sick time,” Richardson says. ‘We’ll pay for a $20 flu shot but could be saving thousands of dollars because they won’t have to go to the doctor or have breathing treatments when the get sick.”

“A good wellness program on the front end can help us save money on the back end.”

Advocates Seek Local Remedies

While the various problems in the health care market are largely systemic and beyond the control of business leaders and insurance providers, local advocacy groups point to some state-specific problems that, if rectified, could help lighten the load.

The Louisiana Association of Health Plans, which advocates for the state’s health care insurers, is currently seeking to minimize the number of health insurance mandates coming out of the Legislature each session. In many cases, legislators will mandate that certain drugs be covered commercially and/or through group benefits at the prompting of advocacy groups.

That can turn into an expensive problem for employers. “It takes 18 months to establish premiums for the next year, then those rates must be approved by LDI,” says LAHP’s Drozda. “That means … an unfunded mandate can throw a wrench into the premiums at the last minute, and that’s often passed directly to the policyholders.”

The Louisiana Association of Business and Industry has been equally vocal about the mandates. “There are lots of drivers behind rising premiums, but the number of insurance mandates proposed each session are a concern,” said Patrick Robinson, vice president of government relations and director of LABI’s Health Care Council, in a written statement. “It’s important to note that we don’t oppose any single coverage mandate and sympathize with patients who need the care.

“However, each mandate potentially increases premiums for employers, including small businesses that are less able to absorb the costs.”

As such, LABI opposes new or expanded benefits mandates under employer sponsored health care plans in the absence of objective, actuarial studies showing the proposed care is cost-effective.

LABI recently proposed and supported Rep. Gabe Firment’s House Resolution 337 in the 2025 regular session, requesting that LDI study and issue a report concerning the impact of health insurance coverage mandates on the cost of health insurance. The report was due to the House Committee on Insurance on Feb. 1.

While not originally founded as an advocacy group, the 30-member Employer Coalition of Louisiana is preparing to expand into that space as well. The group was founded by the not-for-profit Health Care Quality Forum in 2022 to connect the various players in the market, while also seeking to educate its member companies about health care.

The employer-led coalition currently comprises health plan providers, hospitals, employers, benefits consultants and associations. “While we’ll continue to have the educational component, we plan to expand our reach to include legislators and others so that they have a good understanding of the affordability crisis and what’s driving it,” says Cindy Munn, CEO of the coalition.

As a first step in its new advocacy role, the coalition plans to target bills that could further raise health care costs. “For example, we support having more guardrails around PBMs (pharmacy benefit managers),” Munn says. PBMs face intense scrutiny for contributing to higher drug costs, opaque rebate practices, and reduced pharmacy competition through vertical integration. These actions can result in higher insurance premiums, limited patient access to drugs and the closure of independent pharmacies.

Munn expects that The Picard Group in Lafayette will provide advocacy assistance to the coalition once it transitions. “We’ve never done this type of thing before,” Munn says, “so we’re educating our members on what that will look like.

“Nevertheless, the rate at which premiums are increasing is alarming,” she adds, “and we don’t see an end in sight. It’s going to implode if we don’t do something.”