Healthcare costs for U.S. companies aren’t just rising rapidly; they’re also becoming harder to predict, which complicates efforts to control spending, according to recent research.
Employers are forecasting a median increase of 9.2% in health costs by 2027, driven by rising hospital charges, more expensive medications, and a general decline in workers’ health, the Business Group on Health, a nonprofit that advocates for employers on health benefits issues, revealed in its latest survey.
While health cost growth is projected to settle down to around 8% after accounting for plan benefits changes, this would still represent a substantial year-over-year increase, should the predictions hold true. Notably, employers have consistently underestimated actual medical spending over the last three years, with each miscalculation being larger than the last, experts from BGH noted.
This suggests that the surge in healthcare costs that employers will face in 2027 might be even more severe than anticipated.
Ellen Kelsay, the president and CEO of BGH, mentioned during a recent call with reporters that 2025 not only saw the steepest annual cost increase but also the largest disparity between projected and actual costs, barring 2020, the onset of the COVID-19 pandemic.
“Current forecasts for 2026 and 2027 may indeed be too optimistic,” she added.
The BGH examined responses from 127 employers covering roughly 8.7 million Americans for its findings.
The noted 9.2% median increase aligns closely with other recent surveys from consulting firms like Aon, which has employers predicting a 9.5% jump in healthcare costs next year.
A separate survey by WTW anticipates an even larger, 11.1% increase, marking the highest surge in nearly 20 years.
The survey results highlight a growing concern among benefits professionals and HR departments. Experts fear that employers and the U.S. as a whole might be facing a new unsettling normal, as healthcare expenditures continue to outpace national economic growth, suggesting that existing forecasting and budgeting methods may no longer suffice against escalating medical expenses.
Despite these challenges, employers remain committed to offering health benefits to their employees. However, with another year of rising healthcare costs approaching, many are reconsidering their benefit offerings, potentially cutting programs and terminating contracts with vendors who fail to provide cost savings.
This persistent cost inflation is prompting a reevaluation of employers’ roles in the U.S. insurance landscape, according to Kelsay.
“Employers are increasingly confronting the reality of their role in healthcare,” she stated. “The challenge for them lies in determining how they can continue this role sustainably.”
“However, they are feeling pressure due to affordability issues,” she noted. “Tough decisions are on the horizon.”
‘An inflection point’
Considering the anticipated trends for 2026 and 2027, cumulative healthcare costs are projected to have increased by 76% over the past decade—outpacing general inflation by more than double, according to BGH.
Employers attribute this rapid growth to soaring hospital fees, as consolidation diminishes competition within the industry. Particularly, hospital systems are eager to purchase independent physician practices, which allows them to implement additional facility fees that inflate claim costs.
Rising drug costs are also a factor, with growing demand for expensive GLP-1 medications aimed at weight loss, new costly specialty drugs entering the market, and a general decline in health among the population.
Pharmacy expenses currently account for a quarter of total healthcare costs, and this category is expected to grow by 12% in both 2026 and again in 2027—this is a faster increase than the overall trend, according to BGH.
For the fifth consecutive year, cancer remains the leading condition driving up health spending, with 70% of surveyed employers citing it as their top cost driver in 2026, an increase from 58% in 2025.
However, other conditions like musculoskeletal and cardiovascular issues also contribute significantly to rising expenses. Employers are becoming increasingly concerned about categories requiring complex care, such as maternity care, gastroenterology, and autoimmune diseases like rheumatoid arthritis and lupus.
This uptick in spending on such conditions—alongside the costly treatments associated with them—signals a decline in the health of America’s workforce. Experts link this troubling trend to missed preventive care and screenings during the COVID-19 pandemic, which resulted in healthcare professionals not detecting critical health issues early, compounded by the aging U.S. population.
Employers’ actual healthcare spending has exceeded predictions since 2023
Employers’ predicted and actual healthcare cost trends from 2018 to 2027 indicate a stark divergence.
“Employers are really at a turning point,” stated Brenna Shebel, BGH’s vice president, during the briefing.
Additionally, employers are expressing concerns over factors driving up spending, such as the increasing use of artificial intelligence. Many providers are employing algorithms in billing, which seems to be leading to inflated charges. Approximately 64% of employers reported a financial impact from this AI-driven revenue optimization.
Costs related to infusions, particularly in oncology, are also under scrutiny. Employers anticipate increased expenses due to cuts in Medicaid funding and the reduction of more generous Affordable Care Act subsidies, which are likely to raise the number of uninsured Americans.
This could lead to more people, potentially with serious health issues, seeking coverage through their jobs, while hospitals and doctors might attempt to compensate for losses from treating the uninsured by increasing prices for those who are commercially insured.
Additionally, issues surrounding the No Surprises Act, designed to protect consumers from unexpected out-of-network medical bills, are troubling employers. The law requires insurers and providers to negotiate payments for such services, with an independent arbitrator stepping in if needed.
While the intent was to encourage more providers to contract with insurers, the opposite has occurred; many providers have inundated arbitrators with disputes, disproportionately benefiting from those payouts. This situation is contributing significantly to the increase in healthcare spending in the U.S., inflating medical costs for employers by around 2%, according to estimates cited by Kelsay from vendors collaborating with BGH.
Many employers have already faced a high volume of No Surprises claims or expect a notable increase in the near future.
“This is a very significant concern,” Kelsay remarked.
Making tough decisions
With costs on the rise, employers are getting inventive, increasingly re-evaluating their benefit strategies and the vendors they engage with, BGH found.
Many employers are adopting value-driven arrangements designed to enhance care quality while maintaining control over costs. About 92% of employers plan to implement one or more strategies, such as centers of excellence, high-performance networks, or accountable care organizations by 2027.
There’s also a growing interest in alternatives to traditional benefits arrangements, including partnerships with transparent pharmacy benefit managers. Approximately a third of employers anticipate having a transparent or “new generation” PBM by 2027, with nearly half contemplating a shift to these models within the next two years.
This demonstrates a clear dissatisfaction with the current pharmacy benefits structure. Alongside worries about rebates, leading PBMs have faced criticism for hidden fees and complex contracts that leave health insurers and employers in the dark.
Employers are also reassessing existing partnerships, terminating relationships with vendors unable to demonstrate better outcomes or cost savings. Around 95% of employers have issued requests for proposals for at least one vendor category, with many companies increasing performance guarantees (83%) or linking vendor reimbursement to outcomes (71%).
A further 58% of employers have already replaced, or are planning to replace vendors that are not meeting performance expectations in the upcoming year.
“One of the most apparent signs of employer disruption is the willingness to reassess these long-standing vendor partnerships to evaluate their value,” Shebel said.
In response to escalating pharmacy costs, employers are also reevaluating their coverage for GLP-1 medications.
While these drugs are effective clinically, they come with a hefty price, sometimes exceeding $1,000 monthly, prompting employers to grapple with the decision of whether to cover them for weight loss. The trend suggests that more businesses are opting out of coverage, as BGH data shows.
The proportion of employers covering GLP-1s for this purpose dropped from 72% last year to 60% this year, and none indicated plans to add coverage.
Employers maintaining GLP-1 coverage are tightening eligibility criteria, often requiring validation of a patient’s clinical necessity through biometric checks or mandating participation in weight management programs, per BGH findings.
“Overall, healthcare affordability is becoming increasingly difficult for employers. The cost associated with GLP-1s features prominently in this equation. For many employers, tough decisions are becoming inevitable,” Kelsay noted.
