The trend in employer healthcare cost growth over the past decade has been one of steady, persistent inflation that consistently outpaces general economic growth and wage increases. While the rate has fluctuated from year to year, occasionally dipping during economic downturns or pandemics, the underlying trajectory remains upward. Surveys from KFF (the Kaiser Family Foundation) and Mercer show a clear pattern: after a decade of moderate increases averaging around 3% a year, costs began accelerating in the mid-2020s. KFF's benchmark survey found family premiums rose 6% in 2025 to $26,993, on top of 7% increases in each of the two prior years, while workers' wages rose about 4%. Mercer measured a 6.0% rise in average cost per employee. Early projections for 2026 and 2027 point higher still.
Key Drivers Behind the Rising Costs
Several structural factors are fueling this growth, making it unlikely to reverse in the near term. Employers and benefits leaders must understand these forces to manage their health spend effectively.
- Medical Inflation and Provider Pricing: The cost of medical goods and services, from hospital stays to prescription drugs, continues to rise faster than the Consumer Price Index (CPI). Consolidation among hospital systems and specialty physician groups often leads to higher negotiated rates for employers.
- Prescription Drug Costs: Specialty drugs, particularly for conditions like autoimmune diseases, cancer, and rare genetic disorders, now account for a disproportionate share of spending. GLP-1 agonists for diabetes and weight management have become a major new cost driver. Mercer's 2025 survey found prescription drug spending among large employers rose 9.4% on average, with GLP-1 medications a leading factor.
- Increased Utilization of Services: After a sharp drop during the height of the COVID-19 pandemic, healthcare utilization has rebounded strongly. This includes pent-up demand for elective procedures, mental health services, and preventive care, all of which increase total claims costs.
- Chronic Disease Prevalence: An aging workforce and rising rates of chronic conditions like obesity, diabetes, and hypertension drive both immediate healthcare use and long-term cost trends. The CDC estimates 90% of U.S. healthcare spending each year goes toward people with chronic or mental health conditions.
Historical Perspective: From Contained Growth to Accelerating Costs
The past decade splits into two phases. Between 2013 and 2019, employer cost growth was moderate, averaging roughly 3% to 4% a year but still above general inflation. Then came 2020: the pandemic caused a temporary drop in utilization and a near-zero cost growth rate for many plans. The rebound took time to build. By 2023 and 2024, family premiums rose 7% in each year, the steepest back-to-back increases in a decade according to the Business Group on Health, as utilization and provider prices caught up. Many employers responded with larger plan design changes or premium increases to absorb the multi-year catch-up effect.
The latest surveys point higher still. Mercer projects a 6.5% increase in average cost per employee for 2026, the largest since 2010, while the Business Group on Health put the median 2026 trend at 9% before plan design changes. For 2027, Aon projects a 9.5% increase that would push average spending past $19,000 per employee and extend the longest stretch of near-double-digit growth since 2007, while the Business Group on Health puts the 2027 median at 9.2%. The drivers include provider price increases, new high-cost gene and cell therapies, and continued demand for mental health services and GLP-1 prescriptions.
How Employers Are Responding
Smart employers are not simply accepting these trends. They are implementing a range of strategies to bend their own cost curve, even if overall market growth remains high.
- Plan Design Innovation: Many are moving beyond traditional high-deductible health plans (HDHPs) to narrow network plans, tiered networks, and reference-based pricing. These structures steer employees toward lower-cost, high-quality providers.
- Investing in Population Health: More employers are expanding wellness programs, offering on-site clinics, and providing ongoing chronic disease management. The goal is to reduce long-term claims by improving employee health today.
- Pharmacy Benefit Management (PBM) Audits and Direct Contracts: To combat rising drug costs, employers are renegotiating PBM contracts, excluding or limiting coverage for low-value medications, and exploring direct contracting with pharmaceutical manufacturers for specialty drugs.
- Emphasis on Value-Based Care: Increasingly, employers are partnering with providers who operate under value-based payment models. These arrangements reward outcomes rather than volume, potentially slowing cost growth over time.
- Self-Funding and Stop-Loss Strategies: More mid-sized employers are moving to self-funded plans combined with stop-loss insurance to gain transparency and control over their health spending.
Workers Are Absorbing More of the Cost
Employer cost growth rarely stays on the employer's side of the ledger. KFF's 2025 survey found workers contributed $6,850 on average toward family coverage and faced an average single-coverage deductible of $1,886, with more than half of covered workers at small firms carrying a deductible of at least $2,000. Aon projects the average employee will pay $5,297 for healthcare in 2026, split between $3,130 in payroll contributions and $2,167 in out-of-pocket costs. When first-dollar costs rise, people delay or skip care, and delayed care becomes costlier care. Cost-management strategies that only shift expense onto workers can trade a near-term budget win for higher claims and worse health later.
The Bottom Line for Benefits Leaders
The trend in employer healthcare cost growth is unmistakably upward and accelerating. After a decade of roughly 3% annual increases, realized growth reached 6% to 7% from 2023 through 2025, and the latest surveys point to 6.5% to 9.5% for 2026 and 2027, driven by specialty drug costs, provider consolidation, and higher utilization. Employers cannot control macroeconomic trends, but they can mitigate their impact through proactive plan design, data-driven vendor management, and a sustained focus on employee health. The organizations that succeed will be those that treat healthcare cost growth not as an inevitable line item, but as a strategic variable they can influence through informed decisions.