NORTHAMPTON — Cities and towns in Hampshire County are facing spikes in health insurance costs between 10% and 20% for fiscal year 2026, an increase in a normally stable cost that promises to eat into bottom lines during an already tight budget season.

Most municipalities had budgeted for a 7% to 9% increase in health care costs, only to see numbers much higher. Health insurance through Hampshire County Group Insurance Trust, which provides insurance for South Hadley and Belchertown municipal employees, will increase 18% for PPOs and 20% for HMOs next year. Northampton’s most popular plan with the Group Insurance Commission (GIC) will rise 10.5%, and Amherst’s plan with Massachusetts Interlocal Insurance Association, the Massachussetts Municipal Association’s (MMA) insurance branch, will increase 14.5%.

“It’s basically what I call the budget buster. It’s taken up all of our new revenue,” said South Hadley Town Administrator Lisa Wong, who discussed a $861,500 increase in town insurance costs during a March 1 meeting. “There’s not a lot of room for investment in those (other) areas because we’re tackling these big fixed costs.”

The increase in health care plan rates is being driven by a skyrocketing number of insurance claims since the coronavirus pandemic, particularly in mental health services, according to the MMA. The organization also points to lower Medicare and Medicaid reimbursements, increased numbers of elective surgeries and prescriptions, and the unexpected increase in the use of weight loss drugs.

“For 2023, we are seeing unsustainable cost growth trends persist, putting increasing pressure on residents, employers, and the system as a whole, emphasizing the urgent need for bold and systemic solutions,” said Lauren Peters, executive director of the state’s Center for Health Information and Analysis (CHIA), at a recent State House hearing.

For municipalities, the result means less money for services, programs and staff.

“When we talk about those spending categories, those are what we call fixed costs,” Belchertown Town Manager Steve Williams said. “We take our available revenue over the previous year, and those costs come right off the top, so that reduces the amount of revenue to fund department budgets and keep up with other expenses. That limits the amount of work we can do in growing programs and offering additional services.”

Insurance companies point to skyrocketing health care costs as the culprit for the hikes. Total health care expenditures per capita grew to $11,153 from 2022 to 2023, an 8.6% leap that was the second-largest increase since officials began tracking the annual change a decade earlier, the CHIA reported.

Matthew Veno, executive director of GIC, the quasi-private state agency that the city of Northampton uses to provide insurance for its employees, said the agency has seen “pretty significant increases” in premiums in recent years.

“So when we are facing rising pressures on affordability, rising underlying costs of health care, that has a significant burden on the state budget,” he said during a series of hearings on Beacon Hill about health care costs earlier this year.

“And whenever we talk about health care, we should always talk in terms of trade-offs,” Veno said. “The dollars that we spend to provide essentially the same benefit going forward inhibits our ability to make progress in other areas, most notably health equity, behavioral health, but also to relieve the pressure as much as we can on our members who pay a significant portion of their premium, but also on the state budget.”

Health insurance makes up the second-largest budget category for Northampton and South Hadley. Over 80% of South Hadley’s new revenue for fiscal 2026 will fund an $861,500 increase in health insurance and other fixed costs, leaving little to level-fund the school and other town departments. Belchertown will see a $238,500 cost increase for its town departments alone, and a $611,828 increase for the school department.

“There’s a lot of movement happening in health insurance and there’s a lot of different factors impacting that,” Wong told constituents on March 1. “That hurts both the town and the school budget and employees because it’s a fairly large expense. It eats up any new revenue we get.”

Northampton Finance Director Charlene Nardi knows the increases in health insurance for Northampton aren’t as large as they are for other municipalities, but it’s enough to impact the city budget. The city will spend $15.5 million on GIC insurance next fiscal year. Nardi said she will need to change the health insurance projections in the city’s Fiscal Stability Plan from 9% to 11%, as increases of this magnitude are expected to continue until 2032.

“I don’t think people realize that when you get grants to fund certain positions, municipalities need to pay for the employee benefits anyway,” Nardi said. “It’s not just the cost of their salary. The more that goes to employee benefits, the less that can go to departments and employees.”

While Veno was quick to point to providers and drug companies as the culprits behind rising health care costs, state Rep. Lindsay Sabadosa, D-Northampton, is reluctant to point to any one arm of the health care industry as the driving force.

During a hearing on Beacon Hill with primary care doctors, Sabadosa said, providers told legislators that low insurance reimbursement and high burnout rates in primary care are detrimental to basic health care. Hospitals are also blaming lower profit margins on insurance reimbursements, not only from private insurance but public insurance like Medicare and Medicaid as well.

While prescriptions for GLP-1 weight loss drugs such as Ozempic and Wegovy flood insurance claims offices, Sabadosa said the impact of these weight loss drugs on health care costs is too early to measure, although they have the potential to reduce hospitalizations for health issues associated with obesity, like cardiac events.

“The entire system has to be something we seriously consider,” Sabadosa said. “There’s a lot of bills this session supporting primary care, and trying to get more through to help look at solutions for our state.”

Since the effects of legislative efforts to bring down health care costs won’t be seen next fiscal year, municipalities are coping by absorbing the costs into their budgets or seeking insurance op-out programs. Wong is in the process of negotiating with unions to accept the program, which will offer $1,000 to individuals, $2,000 to couples and $4,000 to families who decide to either use a spouse’s insurance or fund their own plan.

Meanwhile, Amherst managed to negotiate its health insurance increase down from almost 20% to roughly 15%. Williams watches the market for insurers offering less expensive plans.

“We would love to see changes in the health insurance industry that could provide some savings as well,” Wong said. “We try to provide the best plans, but we also would like health insurance to not cost so much.”

Material from the State House News Service was used in this report. Emilee Klein can be reached at eklein@gazettenet.com.