Rising Healthcare Costs: Implications for Employers and Employees
Healthcare inflation is shaping up to potentially mark the largest increase in healthcare expenses for major employers in 15 years, which in turn is affecting compensation costs. As per the Labor Bureau’s Consumer Price Index, healthcare expenses rose by 4.2% annually in August, while the overall inflation rate was pegged at 2.9%. Specifically, costs for doctor visits increased by 3.5%, and hospital and outpatient services saw a jump of 5.3%.
This uptick in prices has led to a forecast of rising health insurance costs in 2026. Early reports from insurance providers indicate that consumers not eligible for health insurance through Affordable Care Act exchanges might experience double-digit premium hikes next year. Additionally, workers with employer-sponsored health insurance could also face higher premiums and out-of-pocket expenses.
According to a survey of various business groups, large employers are anticipating an average health insurance cost increase of 9% in 2026—marking the highest inflation rate since 2010. Over half of the companies queried by benefits consulting firms, like Mercer, mentioned they are considering communicating these changes to employees, although many large employers have stated they are exploring alternative methods to mitigate costs.
“Employers have, in general, sought to minimize direct costs to employees, but this year we’re starting to see preliminary signs of passing some expenses onto them,” a representative from a health business group noted, highlighting the cautious approach.
Driving Costs: Cancer Treatment and Weight Loss Medications
The Consumer Price Index reported a 0.9% rise in prescription drug prices for August, considering a mix of popular generic and branded medications. However, large employers cite high drug prices as a significant contributor to escalating health expenditures.
Surveyed companies predict a drug cost increase of 12% next year. Notably, drugs such as Novo Nordisk’s Wegovy and Eli Lilly’s Zepbound have become increasingly prevalent. “Cancer has been a continuous driver of escalating healthcare costs for the fourth consecutive year, especially among younger patients and those at later stages of diagnosis,” one expert explained.
As for obesity treatments, this area has been notably dynamic over the past few years, spurring considerable pharmaceutical spending. Mercer reports that nearly two-thirds of employers with over 20,000 staff members are offering access to GLP-1 weight loss medications, whereas less than half of smaller employers plan to do so in 2026.
With the growing demand for these medications, companies are beginning to explore alternative avenues to control eligibility whilst making medications more accessible, often through cash-payment models.
Cash Payments for GLP-1 Medications
A telehealth executive revealed that some large employers are discreetly notifying employees they can utilize health savings accounts for purchasing medications at lower costs through cash markets. There seems to be a concern over drug prices, but employees are still seeking options for accessibility, although the discussions around this are often kept private due to their sensitive nature.
Data indicates that a rising number of workers, especially from companies like Eli Lilly, are turning to direct consumer avenues such as Lily Direct and Novo Nordisk’s NOVOCARE, which provide weight loss medications at significantly lower prices than the retail rate, sometimes halving costs that exceed $1,000.
GLP-1 purchases have surged within flexible spending and health savings accounts, largely due to uncovered expenses. The CEO of a health payment processor noted that usage has tripled this year with providers focused on GLP-1 solutions.
However, there are concerns that low-income employees might be sidelined as they struggle with out-of-pocket costs linked to cash payments. This issue has catalyzed discussions around how businesses can negotiate better cash prices and ensure fairer access for all employees.
While self-insured employers often have direct contracts with centers of excellence for specialized care—like cancer treatment and joint surgeries—they struggle to apply the same model to many pharmaceuticals. Current contracts with Pharmacy Benefit Management Companies (PBMs) create complications, as both employers and drug manufacturers maneuver around cash transactions.
Nonetheless, there’s a trend among employers to push PBMs for enhanced options, exploring new types of benefits managers that propose innovative payment models for developing drugs. “Several new entities are emerging to negotiate with manufacturers on behalf of pooled employer groups, focusing on specialized treatments like cell and gene therapies,” one expert observed.
Paytient’s Whorley remarked that affordability for GLP-1s has become a touchstone challenge for employers and PBMs alike. “These drugs are incredibly effective and can significantly alter lives, which will inevitably force choices to be made,” she noted. “If we approach this correctly, we can establish a model for how to manage costs across a wide array of drugs, similar to GLP-1.”
