Employers Explore New Strategies as Health Plan Costs Rise

A number of surveys are predicting another year of steep group health insurance cost increases in 2027, prompting many employers to rethink plan designs, pharmacy benefits and relationships with health care vendors.

The Business Group on Health’s “2027 Employer Healthcare Strategy Survey” projects a median 9.2% increase in employer health care costs in 2027, which employers hope to reduce to about 8% through plan changes. Other forecasts predict similar premium increase in the coming year.

Multiple forces pushing costs higher

There is no single culprit behind the increases. Instead, employers are being hit by large claims, expensive prescription drugs and rising costs of treating common serious health conditions.

Catastrophic claims: According to a survey by the International Foundation of Employee Benefit Plans (IFEBP), employers cited catastrophic claims more often than any other factor as the primary driver of higher costs. A small number of employees play an outsized role in increasing average claims costs due to lengthy hospital stays, complex cancer treatments, specialty medications or other intensive care that can generate claims of hundreds of thousands of dollars or more.

Cancer is a major contributor. In the Business Group on Health survey, 70% of employers ranked cancer as the top condition driving their health care costs, and 92% placed it among their three most expensive conditions. Musculoskeletal conditions ranked second, cited by 68%, followed by cardiovascular conditions at 37%.

Prescription drugs: Pharmacy benefits now account for about one-quarter of employer health care spending, and drug costs are projected to increase 12% in 2026, according to Business Group on Health.

The pressure is coming from several directions. Among IFEBP respondents who identified specialty and other high-cost drugs as their primary cost driver:

• 67% cited GLP-1 drugs,
• 54% cited autoimmune and inflammatory therapies,
• 42% cited cancer drugs, and
• 21% cited cell and gene therapies.

Employers are grappling with how to provide access to effective but expensive treatments without allowing a small number of prescriptions to significantly increase total plan spending.

Medical care and provider pricing: Employers are also paying more for hospital and physician services.

Business Group on Health points to declining population health, rising provider prices and increased use of expensive therapies as part of the broader cost problem. Employers have also underestimated their health care costs for three consecutive years, illustrating how difficult medical expenses have become to predict.

Employers sharpen their cost-control strategies

With costs continuing to climb, employers are increasingly looking beyond simply raising deductibles and shifting more expenses to workers.

Approaches employers are considering include:

• Steering workers to high-value providers. Centers of excellence, high-performance networks and care navigation programs can direct employees to providers with better outcomes and more competitive pricing. Eighty-four percent of Business Group on Health respondents plan to offer at least one center of excellence in 2027.
• Reassessing pharmacy benefits. Employers are exploring transparent or next-generation pharmacy benefit managers that provide greater visibility into drug pricing and rebates. They are also tightening utilization controls on costly drugs, including GLP-1s, and encouraging the use of lower-cost biosimilars when clinically appropriate.
• Demanding more from vendors. Employers are scrutinizing wellness, digital health and other benefit programs for measurable results. In 2027, 58% of Business Group on Health respondents plan to replace underperforming vendors, while the same percentage plan to eliminate underutilized programs. Seventy-one percent are increasing the portion of vendor fees tied to outcomes.
• Improving employee navigation. Providing employees with cost and quality information before they schedule care may help them find higher-quality, lower-cost providers. Employers may also consider reducing cost-sharing for high-value preventive and chronic-condition care.
• Analyzing claims data. Claims audits, utilization reviews and predictive analytics can help employers identify billing problems, high-cost conditions and opportunities for earlier intervention.

The takeaway

With cost pressures coming from multiple directions, a targeted strategy focused on the plan’s largest cost drivers may help control spending while preserving the benefits employees value.

Work with us and your carriers to review claims and utilization data before renewal.