Why businesses struggle to forecast health costs
Add Axios as your preferred source to
see more of our stories on Google.
Illustration: Aïda Amer/Axios
Employers' best-laid strategies for addressing steep health cost increases next year may be overly optimistic, according to a new survey the Business Group on Health released Tuesday.
Why it matters: Corporations are consistently underestimating their future costs due to extreme volatility in health markets, underscoring the need to overhaul strategies for providing worker benefits.
- Missed forecasts are affecting wages and companies' ability to hire and invest in their core business, said Ellen Kelsay, president and CEO of the Business Group on Health.
Driving the news: The group's survey of 127 companies covering 8.7 million individuals in the U.S. forecasts a median 9.2% jump in health costs for 2027 absent any changes to offset the jump.
- Actual costs wound up exceeding employer predictions for the past three years.
- Last year's actual increase was 8.8%, or 2 percentage points higher than employers predicted, making for the biggest miss that the business group has recorded other than for the first year of the pandemic.
- Employers blame it on factors like rising costs for GLP-1s, cell and gene therapies, more chronic conditions and bigger bills from providers tied to consolidation.
- Other reasons include more billing disputes going to arbitration under the No Surprises Act.
What they're saying: "Employers' ability to accurately predict their health care costs is not just a budgeting problem. It's emblematic of a bigger picture issue with the overall health care system," Kelsay said.
The big picture: The sobering assessment comes amid more signs of near-double-digit increases next year.
- Benefits consultant Aon this month projected that costs would jump at least 9.5%, to more than $19,000 per employee, next year.
- Another new survey from the National Alliance of Healthcare Purchaser Coalitions found employers projecting a 7.7% increase next year.
- Some are coping by switching to new pharmacy benefit managers in an effort to better contain drug spending.
Between the lines: A third of employers expect to have a more transparent or new-generation PBM in place next year, and an additional 47% of those surveyed are considering such changes for 2028 or 2029.
- Companies also are shifting more costs onto employees, as well as steering them to higher-performing health systems or care navigators.
- Coverage of GLP-1s for obesity has dropped from 72% to 60% of employers over the past year, with almost 7 in 10 that do offer coverage requiring biometric verification to restrict access.
- They are also steering patients to lower-cost drug options, including greater use of biosimilars.
What we're watching: For the fifth year in a row, cancer is the top condition driving health spending, with 70% of respondents ranking it first this year, up from 58% in 2025.
- More than 9 out of 10 employers categorized cancer as one of the top three conditions fueling costs.
- Maternity care costs also are a concern, with employers pointing to an uptick in high-risk pregnancies and required neonatal intensive care stays.
- Forthcoming changes in how OB-GYNs bill insurers are also expected to drive up costs next year.
The bottom line: It's increasingly hard for corporations to absorb big health cost increases without scaling back or restructuring coverage.
- The employer group estimates that health care costs by next year will have risen a cumulative 76% over a decade — roughly double the rate of general inflation.
- "Employers are facing, I would say, a growing existential reckoning about their role in health care," Kelsay said.
The survey of 127 employers covering a total of 11 million individuals was conducted in June.
