Employers Ready Higher Health Premiums as Use of Care Surges

Employer insurance premiums are expected to rise in 2026, driven by macro-economic factors and increasing prices and use of medical services.

Employer groups and benefits consultants predict premiums will grow by around 9% on average next year. A survey of health plan actuaries by PricewaterhouseCoopers International attributed the growth to high inflation, compounded by the increasing use of specialty drugs and mental health services.

It’s a continuation of a decades-long trend in escalating health-care costs, which have long outpaced the rate of inflation. But the lingering effects of the Covid-19 pandemic and the looming threat of tariffs are driving costs higher as employers simultaneously contend with the popularity of blockbuster GLP-1 drugs, surging mental health needs, and increasing cancer rates.

“We’ve got the macroeconomic environment that creates a lot of uncertainty and consternation for anybody,” said Ellen Kelsay, president and CEO of Business Group on Health, which represents large employers. “And then you overlay that with tariffs, with health-care costs and affordability. It just heightens that pressure.”

Contracts between insurers and medical providers often run three to five years, said Derek Skoog, a principal at PwC, meaning Covid costs are still working their way through the system. Tariffs seem to be having a “modest” impact so far since it has been hard to separate political bluster from reality, he said.

President Donald Trump continues to impose more tariffs on industries that affect the health-care sector, with more expected on prescription drugs and semiconductors. A recent deal with the European Union also levies a 15% tariff on a range of imported goods, but it’s unclear whether those include pharmaceuticals.

“The consensus among the chief actuaries we spoke with was really that tariffs would be increasing the unit cost of drugs and that that would really be passed through to payers,” Skoog said.

State filings in Massachusetts, Michigan, Oregon, and elsewhere indicate that fully insured small businesses could experience double-digit premium increases as well next year. The spikes reflect those in the individual Obamacare market as insurers post disappointing earnings guidance in the face of higher-than-expected medical costs.

The industry is also bracing for the end of enhanced ACA premium tax credits and cuts to Medicaid. Those losses will likely be felt by employers as the health-care industry seeks to recoup costs, Kelsay said.

The increases could hit employees’ wallets too as surveys indicate companies plan to shift part of the burden onto workers. More than half of employers surveyed by Mercer expect to increase patient cost-sharing in 2026, more than the 45% that planned to increase costs in 2025.

Specific Medical Drivers

GLP-1 weight loss drugs are one of the top concerns for employers since they can exceed $1,000 a month before manufacturer rebates. Coverage has been slowly increasing in recent years, but cost constraints could reverse the trend.

In addition to traditional cost-control methods like prior authorization, some employers are limiting covered prescribers to obesity medicine specialists or on-site clinics to ensure patients stick with accompanying behavioral health treatment, Kelsay said.

“There are a lot of patients, perhaps, for whom this drug is not effective, or they abandon therapy on the drug because the side effects are so brutal,” she said.

Studies have shown that many people abandon the drugs within a year, often because of side effects or high costs. That can look like a “waste of money” to employers, said Susan Pantely, a member of the American Academy of Actuaries’ Health Practice Council, especially if patients gain the weight back.

“Is it a long-term solution for the problem?” she said. “And I think if employers were certain about that, it makes it an easier decision.”

Mental health and cancer claims are also surging, according to PwC. Inpatient mental health claims spiked by 80% between January 2023 and December 2024, while outpatient claims jumped 40%. Mental health is expected to increase another 10% to 20% in 2026.

Cancer topped BGH’s survey as the most expensive condition for employers last year, Kelsay said, and she doesn’t expect that to change. Data show that certain types of cancer are increasing in younger people.

Employer Solutions

Businesses are changing tactics to tamp down costs.

For small employers, that includes partially self-funding and purchasing stop-loss insurance to skirt state regulation and qualify for the less expensive, more flexible large employer market. The House Committee on Education and the Workforce in June advanced a package of insurance bills under Chairman Tim Walberg (R-Mich.) that would prevent state regulation of stop-loss.

Both self-insured and fully insured employers are also turning to more transparent pharmacy benefit managers to lower drug costs, along with alternative arrangements to cover cell and gene therapies, including targeted stop-loss insurance, subscription models, and outcomes-based agreements.

“A lot of plans are rethinking that and moving more toward transparent pricing and more kind of pure administrative cost-based contracting approaches,” Skoog said.

Alternative health plans are also growing in popularity as pressure on the traditional insurance industry mounts. Interest in transparent pricing is fueling a crop of startups and smaller insurance ventures offering employers options on integrated provider networks and reference-based pricing. The latter limits payments to medical providers based on average prices or Medicare rates.

More interest in transparency is expected after President Donald Trump signed an executive order to boost enforcement of price transparency rules in February, and another targeting broker fees for pharmacy benefit managers in April.