Impact of Rising Healthcare Costs on Employers

The largest purchaser of healthcare in America isn't Medicare. It isn't Medicaid. It's employers — and they are more motivated than ever to join the fight for more affordable healthcare. In the New England Journal of Medicine (NEJM Group), Zirui Song and I discuss the evolving role of employers in US healthcare. America's companies provide healthcare coverage for well over half of Americans. (Howard Schultz famously said that Starbucks pays more for healthcare than it does for coffee beans.) Over the last 20 years, employer-sponsored health insurance costs grew by more than 300% — driven by price inflation, service use, and most recently, prescription drugs. How have employers traditionally handled these rising costs? 💲By shifting these costs onto workers in the form of higher premiums, higher cost sharing, and slower wage growth. ❗Data shows that suppressed wage growth from higher healthcare costs disproportionately hurts low-income and minority workers. But employers are increasingly taking a more active stance. We highlight several strategies that start with taking control of their own claims data (h/t Stacey Richter), ranging from collective bargaining to demanding transparent contracts that prohibit arbitrage, esp with PBMs (h/t Mark Cuban), where ERISA & fiduciary concerns are mounting. We call employers the sleeping giant of healthcare affordability. This was true in the past. Now, they're waking up.

18-20% annual increase - that's the rate at which healthcare costs are rising. It's a number that should make every business leader pause and think. This surge in healthcare expenses isn't making headlines, yet it's a critical issue that's slowly eroding the value of our employee health insurance plans. If we're not increasing our Group Health Insurance (GHI) coverage every three years, we're effectively reducing our employees' health protection. Here's why: ➤ Technological Leap: The medical field is transforming. We've moved from X-rays to MRIs in what feels like a blink, and each leap brings better care but at a premium. ➤ Facility Upgrades: Even smaller hospitals now feature cutting-edge equipment, driving up expenses. ➤ Pharmaceutical Costs: New, life-saving drugs enter the market at high prices due to extensive R&D investments. ➤ Operational Expenses: Rising real estate costs for medical facilities and competitive salaries for healthcare professionals contribute to overall cost increases. The math is simple. Over three years, we're looking at a 50-60% increase in healthcare costs. Our GHI plans need to keep pace, or we're shortchanging our teams. I've seen the consequences firsthand: Employees facing crippling medical debts. Delayed treatments due to coverage gaps. Stress that impacts not just health, but productivity and loyalty. The solution isn't complex, but it requires commitment: ➤ Audit your GHI plans annually. ➤ Increase coverage limits every three years, aiming for at least a 50% bump. ➤ Educate your team on their coverage – awareness is half the battle. ➤ Partner with insurers who understand this new landscape. As leaders, we don't just manage businesses – we safeguard our people. In this era of skyrocketing healthcare costs, that means taking a hard look at our GHI plans and making sure they're not just good on paper, but good in practice. It's about that woman in operations who beat cancer without bankrupting her family, or the guy in IT whose child got the specialty care they needed. The companies that act now will set the standard for employee care in the years to come. The question is: Will you be one of them? #PolicybazaarforBusiness #HealthcareCrisis #Employeebenefit #grouphealthinsurance

There's a growing force that's impacting the growth of the workforce this year, and it isn't AI or interest rates. It's the cost of small group healthcare premiums, and it's hitting businesses with less than 50 employees extra hard right now. In 2025, the average premium per employee was ~$18,000/year, with employers covering ~$12,000 and employees covering ~$6,000 through payroll deductions. Now it's getting worse. The median proposed premium increase for small group health insurance in 2026 is 11% across 318 insurers in all 50 states and the District of Columbia. But that’s just the median. About 10% of insurers are requesting premium increases of 20% or more. For a 20-person company contributing ~$12,000 per employee annually that's $240,000 spent on providing health insurance. An 11% increase means an additional $26,400 in health insurance costs. A 20% increase? That’s $48,000 more per year, money that could have helped to fund an additional hire. On the employee side, their ~$6,000/year contribution would jump $660-$1,200/year in the same circumstances. Welcome to the 2026 small group health insurance renewal crisis. If you find yourself sweating these costs as a leader, there's a couple of common options to consider if you haven't already. Option 1: Use a PEO (Professional Employer Organizations) PEOs aggregate multiple small businesses into large pools, giving you access to enterprise-level rates and plan options. How PEOs handle renewals differently: PEOs spread risk over a large number of employees among many clients and can offer better health insurance plans at lower costs compared to options available in the open market. They also provide higher levels of predictability and flatten the renewal curve. Option 2: Individual Coverage Health Reimbursement Arrangements (ICHRA) Instead of offering traditional group coverage, you provide employees with a tax-advantaged stipend to purchase individual marketplace plans. Why this is gaining traction in 2026: ACA premiums in some regions now closely mirror employer-sponsored plan costs. While the overall coverage is typically stronger with a PEO, the ICHRA model is useful for businesses who want a fixed costs that won't fluctuate with the market, and for employees who want more flexibility to suit their individual situation. How it works: - The employer sets a monthly allowance per employee (e.g., $500/month) - Employees shop for individual marketplace plans - You reimburse employees tax-free for their premiums - The employee can choose to put any underutilization of the monthly allowance towards other health and wellness costs. Through a bunch of conversations with leaders on this topic lately, I've found that there's a significant disparity in knowledge in this area, and it's not surprising. For a lot of leaders focused on growth, these details have been an afterthought beyond the traditional "we need to offer good benefits" conversation. I think that's starting to change.

The most under-reported healthcare cost story of 2026 came from the New York Fed, not the benefits industry. Their February regional business surveys found something CFOs need to see: absent the health insurance cost increases of the past year, businesses say they would have raised wages by roughly an additional percentage point on average. Read that again. Health insurance cost increases are actively suppressing wage growth. Which means the way most companies review compensation — cash comp on one spreadsheet, benefits on another, reviewed by different people at different times — is fundamentally broken. These are not two decisions. They are one decision, made across two silos, badly. One number to anchor it: the average annual premium for employer-sponsored family coverage hit about $27,000 in 2025. That’s roughly the annual wage of a full-time worker paid $15 an hour. A worker’s family premium is another worker’s full salary. The 2026 projections are worse. Aon has employers expecting 9.5%. Business Group on Health has median trend at 9%, 7.6% after plan changes. Brown & Brown’s employer survey came in at 10%. The NY Fed’s own regional business survey put actual renewal increases north of 13%. For NY companies between 100 and 1,000 employees, the current playbook is running out of runway: – Setting the merit budget without modeling the medical trend means you’ve already made a decision you didn’t know you were making – Raising deductibles hits your total rewards story the same way a wage freeze does — employees just experience it differently – Shifting more premium share to employees deepens the exact wage problem the Fed just documented – Reviewing cash and non-cash comp in separate rooms guarantees you optimize neither Total rewards isn’t a slide in the annual planning deck. It’s the framework. Every dollar spent on medical trend is a dollar not spent on comp, and every comp decision is being quietly shaped by benefits assumptions nobody at the table can see. Nothing about this is going to fix itself. And nothing about the existing broker/carrier/renewal playbook was built to inform a total rewards decision this integrated. Something different has to enter the toolkit. More on that in the coming weeks. CHROs and CFOs in the NY market — when’s the last time your cash comp planning and your benefits planning sat in the same room, with the same model? At the same time?

This morning, I wrote about the rising cost of health coverage for employers -- surveys and benefits consultants are predicting increases of 9% or more for next year, the largest jumps in at least 15 years. And that would come on top of rapid growth over the last two years. The spike is driven by rising healthcare costs, with factors including higher prices for hospital services, more use of care by a population with rising incidence of conditions including cancer, and pricey drugs including the GLP-1s. One thing that struck me in the benefits consultant surveys, and in my interviews with employers, was their increased willingness to look at more-radical changes. That could include new types of plan designs that could incorporate restrictions on access to some healthcare providers, eyeing smaller vendors that compete with the big insurer/PBM companies, or, in the case of one company I interviewed, the possibility of moving to another country where healthcare is backed by the government, not private employers. As one source said, there seemed to be a mix of emotions from employers, from freaked-out, to resigned, to deeply frustrated that the cost of health coverage was rising so much faster than the prices they could charge for their own goods and services. However, I've been covering this beat for many years, and I've always found that employers tend to be pretty cautious and reluctant to make huge changes -- for good reason, since healthcare is so important to many workers, and disrupting access often draws enormous backlash. So when employers do make changes, it's often a slightly different flavor of what they were already doing. What do you think? Are significant numbers of employers ready to try something different? And, if so, what would that be?

New PBGH data sends a clear message from America’s largest employers: the healthcare affordability crisis is accelerating and the status quo isn’t working. According to the Purchaser Business Group on Health (PBGH), jumbo employers cite affordability as their top healthcare challenge, followed closely by data analytics & transparency and growing interest in advanced primary care. These findings reflect feedback from more than two dozen of the nation’s largest employers and the urgency is unmistakable. As PBGH President & CEO Elizabeth Mitchell notes, employers are taking a far more proactive stance because escalating costs, opaque pricing, and misaligned incentives are not being addressed by the industry. Employers simply can’t keep writing blank checks in a system where prices rise faster than value, outcomes don’t improve, and accountability is elusive. What’s driving this shift? 🟢 Runaway cost increases that hit both the employer’s bottom line and employees’ paychecks. 🟢 Heightened fiduciary responsibilities, requiring employers to better understand what they’re spending and what they’re getting in return. 🟢 Persistent lack of data access and transparency, especially in pharmacy and PBM relationships. It’s no surprise employers are increasingly open to new PBM and TPA models, seeking partners that deliver clarity, value, and alignment. Mental and behavioral health, metabolic conditions, cancer, weight management, and high‑cost claims continue to be major cost drivers often more due to rising prices than changes in population health. With recent federal PBM reforms and regulatory scrutiny, momentum is building. Employers are engaging regulators, challenging consolidation, and pushing for real transparency and accountability because fiduciary duty demands it. Bottom line: Employers are done being passive purchasers. Transparency, data, and value are no longer “nice to have” they are mission‑critical. #HealthcareAffordability #EmployerSponsoredHealth #Transparency #FiduciaryDuty #PBMReform #AdvancedPrimaryCare #HealthPolicy #ValueBasedCare

Health insurance costs are about to spike Employers are bracing for increases of 9%+ next year, the steepest jump in 15 years. That’s on top of two years of rapid growth. What’s driving it? • Higher hospital prices • Rising rates of cancer and chronic conditions • Expensive new drugs like GLP-1s In interviews, some employers admitted they’re so frustrated they’re even considering radical changes: narrowing provider access, turning to smaller vendors outside the big insurer/PBM players, or moving operations to a country where healthcare is government-backed. I’ve seen firsthand how rising costs don’t just strain company budgets they ripple down to patients. When employers cut back, access narrows, delays increase, and real people end up caught between spreadsheets and sickness. I believe this is a perfect time to re-examine our priorities in healthcare. We need to focus on prevention of chronic disease and cancer, rather than dealing with the aftermath. What do you think? Please comment below 👇👇 #HealthcareCosts #Employers #PatientCare #Healthcare

If you are serious about healthcare affordability, you need to recognize where most Americans actually get their insurance: More than 165 million people get coverage through their employer, and employers spend nearly $1 trillion annually to provide it. For three consecutive years, employers’ premiums have risen >6%, the first time that's happened in two decades. Early signs point to an even steeper climb in 2026. The cost curve continues to bend in the wrong direction. Employers absorb these annual increases and share the pain with their workers through lower wages, higher premiums, deductibles, and out-of-pocket costs. Yet, most employers have no way of knowing whether the prices they pay are competitive with other plans in the market. Whether the providers they cover are delivering high-quality care. And whether their vendors are effectively negotiating on their behalf. Last year, the Peterson Center on Healthcare funded a data demonstration project in which the Purchaser Business Group on Health (PBGH) worked with five major employers to combine price transparency data, employer claims data, and independent quality and safety ratings. The results were shocking. They found major price variations across providers and saw inflated rates in their networks. They identified markets in which popular, high-cost providers had the lowest quality and safety ratings. Every employer was able to identify savings opportunities. At Peterson Health Technology Institute (PHTI), we've seen what happens when employers have clear, independent evidence to guide their purchasing decisions: they make smarter decisions. Vendors respond. The market starts delivering better outcomes at lower costs. For years, employers have been asking for that same rigorous analysis to inform their medical benefit purchasing, which drives the bulk of spending.   That’s why I am so excited to share that Peterson Philanthropies has committed $50 million to launch Peterson Health Analytics (PHA), giving employers independent, actionable data they need to take greater control of their healthcare spending and purchase more affordable, higher quality care for millions of employees and their families. PHA’s work is a practical step toward improving affordability in U.S. healthcare. Creating change in employer benefits is hard. I am thrilled that the fearless Cora Opsahl will lead PHA and show all employers that better healthcare at lower costs is possible.   Peterson Health Analytics has been built with employers, for employers—without financial ties to health plans, health systems, or benefits consultants. That independence is exactly what employers have been missing. PHA is proud to partner with leading benefit coalitions PBGH and National Alliance of Healthcare Purchaser Coalitions. When employers have the right data, they can bend the cost curve and deliver better healthcare for all. Learn more at petersonanalytics.com

Encouraging to see this conversation finally showing up in the CFO section of the The Wall Street Journal, even if it feels a little "late to the party." As they point out, employer health costs are projected to rise ~9.5% this year, the biggest increase in at least 15 years. For many companies, healthcare is now one of the fastest-growing lines on the P&L. So what’s the playbook? According to Aon, the usual moves include changing plan design, negotiating with vendors, and pushing more costs to employees which even Aon acknowledges may only “shave 2 or 3 percentage points from the average increase.” That’s not exactly a breakthrough. Look, if an employee handed in a $5,000 dinner bill for a client, finance would demand an itemized receipt. But when a hospital sends a $500,000 bill to BCBS or United, the carrier pays it, demands that the employer pay them back, and then tells the employer they can't see the itemized receipt. If your steel costs or cloud infrastructure costs went up 9.5% in a year, would you throw up your hands and say “that’s just the trend”? Of course not. You’d renegotiate contracts. You’d change vendors. You’d rethink your procurement model. But when healthcare costs jump 9–10% every year, the response is usually to tweak plan design, push more costs to employees, or simply hope against all reality that things are different next year. My general rule is pretty simple: If you want to pay less for healthcare, you have to pay less for healthcare. Which means managing your health plan the way you manage the rest of your business. That means applying the same capital allocation discipline you apply everywhere else - understanding the unit price, the vendor incentives, and the underlying invoice before the capital leaves the company. Glad to see this conversation reaching CFOs. But if finance leaders are going to tackle this problem, it’s time to move beyond tweaking plan design and start treating healthcare purchasing like the major procurement decision it actually is. https://lnkd.in/eq29Ym8t

Healthcare costs are no longer just an HR problem…they’re becoming a business survival problem. A new Mercer survey found only 1 in 4 employers can absorb rising healthcare costs without impacting operations. The effects? Slower wage growth, reduced hiring, benefit cuts, and increased prices passed on to consumers. Respondents said they expect to see health benefits rise by 6.7% in 2026, reaching more than $18,500 per employee on average, up from $17,964 in 2025. Employers cannot continue funding a system where nobody is checking the bill. “Discounts” mean nothing if the charges were inflated to begin with.. https://lnkd.in/gFu4s55U