Rising Healthcare Costs Challenge Employers

This summer, like clockwork, Baton Rouge’s insurance broker, Kelly Lake, is meeting with local businesses to discuss updates on employee health plans. However, this year’s conversations are proving to be especially challenging.

“The upcoming 2026 rates are expected to increase at double-digit percentages,” noted Drake, an employee benefits consultant at Gallagher. “It’s shaping up to be a really tough year.”

While the rise in medical expenses isn’t new, various factors, particularly inflation and high-priced prescription medications, have escalated considerably in recent years.

Industry forecasts indicate healthcare costs rose around 8% in 2025, continuing from a similar increase in 2024. For employers, this translates into year-over-year premium hikes, further straining already tight business budgets. Company-sponsored health plans provide coverage for over 60% of full-time workers in the U.S.

“We’re dedicated to supporting healthcare providers with a broad range of services,” said Shawn Gremmiger, president and CEO of the Health Purchaser Coalitions in Washington, D.C. He mentioned that these increases could average about 15%.

Further complicating the situation is the potential impact of recent legislation led by President Trump, which proposes significant Medicaid cuts exceeding $1 trillion by 2028, alongside new eligibility criteria.

Some estimates suggest that approximately 11.8 million individuals could lose government-supported health insurance over the next decade due to these changes.

“This will put immense pressure on hospitals,” Drake remarked. “They’re clearly trying to communicate that to employers. Ultimately, employers have to pass this down to employees.”

Costly Medications

Since the year 2000, healthcare costs in the U.S. have surged by 250%, significantly outpacing wage growth and inflation rates. According to Gremmiger, this increase has become especially notable since 2023.

He points to several contributing factors, including inflation, labor shortages, and hospital consolidations, all of which seem to reduce competition and drive prices higher. There’s also the trend of vertical integration, where major insurance companies acquire pharmacies, clinics, and specialized hospitals, adding another layer to the problem.

On a local level, employers note that the skyrocketing costs of highly effective prescription drugs, like GLP-1 medications such as Ozempic and Wegovy, are leading the charge. These treatments can run over $1,200 monthly, especially when managing obesity and type II diabetes.

Moreover, certain cancer treatments and gene therapies can cost significantly more—up to ten times as much. Given these steep prices, having even a few employees fall ill can drastically inflate corporate costs and utilization, which is bound to affect premiums in the following year.

“Cancer treatment has really impacted the care employers have provided over the past three to four years,” said Dunbark, the Vice President of Benefits at Turner Industries, a founding member of the Louisiana Coalition of Employers. “There has been innovation, but man, it’s pricey.”

Future Implications

Looking ahead, uncertainty surrounding recent national policy changes is set to pressure premiums next year. An analysis by KFF, a nonprofit health policy organization, suggests that insurers are anticipating an additional 4% premium increase due to Congress choosing not to renew extended tax credits for those insured under the Affordable Care Act.

These credits make health insurance more affordable for millions. Without them, insurers are fearing a loss of healthier enrollees, leading to riskier pools, as indicated by KFF’s findings. Some insurers are also bracing for the potential consequences of tariffs on prescription drug prices, which could further raise costs next year.

If recent Medicaid changes aren’t reversed, a larger share of the financial burden will fall on doctors, hospitals, insurance companies, and both employers and employees alike.

“Honestly, we really don’t know how it’ll all play out,” Drake stated. “But if these changes go through, the entire system will bear the weight.”

Adapting Strategies

To manage rising costs, more companies are opting to self-insure. This allows them to contract directly with healthcare providers, giving them greater control over expenses. Previously, only large firms like Turner Industries, with their nearly 20,000 employees, could afford to self-insure. Lately, though, medium-sized businesses with around 500 to 1,000 employees are considering this route, Burke mentioned.

Additionally, firms are collaborating through coalitions of self-insured employers to form a “narrow network”—a select group of doctors and hospitals willing to offer discounted care.

Cindy Munn, CEO of the Louisiana Employers Coalition, which has expanded from six to 33 members in three years, noted that they are still in the early stages of developing this network.

Smaller employers, who might not have the option to self-insure, are looking for ways to minimize costs, for instance, by partnering with insurance companies to form networks of more affordable providers.

Employers are becoming more strategic and assertive in negotiations, encouraging tough conversations with employees. Perhaps it’s time to consider narrowing down to just one or two hospitals in their network instead of three.

They can also collaborate with their insurance providers to structure specific strategies around specialty medications, which might include limiting availability or sourcing from a specialist pharmacy in Canada.

“We’re always probing into drug pricing,” Burke added. “It’s essential for employers to negotiate.”