Workers to bear brunt of health cost increases in 2026

• "The story this year is perhaps more daunting and sobering than it ever has been," Ellen Kelsay, CEO of Business Group on Health, said on Tuesday.

By the numbers: A survey the group released of 121 large employers insuring 11.6 million people found companies' medical costs sharply outpaced their expectations over the past two years.

• They are now projecting health costs to jump a median of 9% next year absent any cutbacks in benefits to offset the increases.
• A survey from the International Foundation of Employee Benefit Plans projected a median increase of 10%.

Between the lines: The cost pressures in some ways mirror the experience in Affordable Care Act and other insurance markets that have seen costs surge on higher demand for health procedures and tests and rising drug costs.

• Cancer is the top driver of employer health costs for the fourth year in a row, as diagnoses increase and treatment costs grow, according to the Business Group on Health survey.
• Employers have also expressed concerns about pricey biologic drugs, anti-inflammatory specialty drugs and the soaring demand for GLP-1s for obesity.
• In 2024, pharmacy expenses accounted for nearly a quarter of all employers' health care spending (24%), and the companies project an increase of 11% to 12% next year, per the Business Group on Health.

Employers appear much more reluctant to eat higher benefit costs.

• Mercer found 51% said they would be shifting costs to employees this year, up from 44% last year.
• "What we had been seeing in the data for quite a few years is employers really not doing a lot of cost-shifting," said Beth Umland, Mercer's director of research for health and benefits.
• "As we are entering our third year of elevated cost trend, employers are like, 'All right, we got it. We got to readjust this.'"

They'll also scrutinize other employee health perks.

• "Employers are going to do some things much more aggressively ... in terms of holding their vendors accountable and exploring alternatives, because passing cost increases is a Band-Aid approach. It does not fix the long term," Kelsay said.

What to watch: Nearly one-quarter of large employers will have alternative health plan arrangements in place next year, and another 36% are considering them for the future, per the Business Group on Health.

• Your employer might even introduce what they call a "high performance network" or "exclusive provider organization" this year.
• They sound suspiciously like the HMOs of old as they offer much narrower networks for participants, in exchange for lower rates. But they have key differences. For instance, patients have better tools and data at their disposal via apps on their phone to compare providers' cost and quality.
• "They are also, for the most part, avoiding the primary care physician gatekeeper feature. That's the HMO feature that just kind of turned out to be a lightning rod for a lot of people," Umland said.

Zoom out: While the funding cuts and enrollment restrictions on public health insurance programs included in the GOP's tax-and-spending bill don't directly affect employer-sponsored health coverage, they'll likely have ripple effects.

• Two-thirds of employers surveyed by Business Group on Health reported being concerned about cuts to Medicaid and Medicare.
• "When there's compression on government spending in Medicare and Medicaid, some industry stakeholders look to make up for those losses on the commercial market and raise their pricing," Kelsay said.

Maya Goldman contributed to this report.

Editor's note: This story has been updated to remove an incorrect reference to Mercer's forecast.