Healthcare Cost Increases Show No Signs of Slowing: What Employers Can Do

Healthcare Cost Increases Show No Signs of Slowing: What Employers Can Do
July 17, 2026 8 mins

Healthcare Cost Increases Show No Signs of Slowing: What Employers Can Do

Healthcare Cost Increases Show No Signs of Slowing: What Employers Can Do

While the current environment is challenging, there are new options and strategies to contain costs and support employees.

Key Takeaways
  1. Healthcare costs for employers are expected to increase 9.5% in 2027, marking a second consecutive year at this level, prior to cost-mitigation actions.
  2. Cost increases are now driven more by how much and what kind of care is used, not just by price hikes.
  3. Employers should manage these challenges by adopting strategies focused on core drivers of cost increases: price, utilization and care mix.

Cost Pressures on Employers Are Increasing

Healthcare costs for U.S. employers will rise even higher in 2027, charging toward double-digit increases. The projected 9.5 percent increase would add pressure to one of the most challenging cost environments the U.S. healthcare system has faced in more than 20 years.

healthcare-cost-increases-charts-1

Historical 2007 - 2025 increases from Aon’s annual Health Value Initiative database, which takes actual plan and population changes into account. The 2026 projected increase is prior to any cost mitigation changes; the 2026 increase after changes is not available at the time of this publication.

Shifting Cost Drivers

Understanding the forces behind increasing cost growth is essential. While many factors contribute to spend, healthcare trends can be understood through three core elements: price, utilization and mix. Knowing what’s driving trend among these core elements helps organizations develop strategies that address the root causes of cost increases.

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Cost Driver Scenarios
  • Price: The same MRI at the same hospital and provider costs more this year vs. last year.
  • Utilization: Increased doctor visits or prescriptions due to greater needs.
  • Mix: Emerging and higher-cost pharmaceuticals leading to more brand drug and specialty drugs over generics. Higher intensity services such as those done in inpatient or outpatient settings.

Historically, price accounted for 75 percent of the increase in healthcare trend, with utilization and mix driving just 25 percent. Today, however, this has flipped, with utilization and mix now accounting for 60 percent of the increase in healthcare trend. This change is driven in part by a notable increase in utilization of more expensive brand name and specialty drugs.

The shift has important implications: Employers not only need to focus on managing total cost of care but also focus on which care is being used and how much is being used.

Cost Drivers Are Shifting – and Employers Need to Adapt

  • 1. Price: Cost Growth Drives 40 Percent of Trend Increase

    Rising prices continue to influence healthcare spending, though the underlying dynamics are shifting:

    • Inflation-driven medical contracting pressures have eased slightly as increased labor cost (nurses and providers) increases have slowed. However, costs for supplies, drugs and services continue to rise.
    • Ongoing health system consolidation contributes to higher costs by increasing the market power of providers, enabling higher reimbursement rates and greater use of higher-cost facilities.
    • Providers are using artificial intelligence to optimize billing and augment clinical documentation, leading to upcoding and higher billed charges in some instances.
    • The No Surprises Act reduces surprise billing and lowers costs for patients. However, its Independent Dispute Resolution (IDR) process has resulted in higher reimbursement for out-of-network care, which contributes to increased costs for health plans.
    • Reduced drug rebates have offset much of the savings generated by lower commercial drug prices. The Inflation Reduction Act authorized Medicare negotiation of select drugs starting in 2026, which prompted some manufacturers to reduce prices in the commercial market as well. However, these price reductions have largely been offset by a reduction in rebates for the associated drugs. As rebate levels decline from historical norms, employers may realize less net savings than expected and face greater challenges in meeting budget targets.

    What Employers Can Do: Through use of data and more intentional design strategies, employers can improve their purchasing power and manage price growth by:

    • Modernizing pharmacy benefit strategy ​
      • Optimize pricing arrangements and contracting strategies to manage pharmacy risk exposure.
      • Consider strategies that improve alignment between pharmacy spend and value, rather than focusing solely on unit cost.
    • Optimize medical network strategy, leveraging price transparency and analytics ​
      • Use data and analytics to evaluate provider networks at national and market levels, pinpointing opportunities to improve discounts, quality and access.
      • Combine employer-specific experience with market data to identify cost and quality hot spots, and steer members to lower-cost, higher-quality providers.
      • Compare provider prices, identify outliers and monitor how carrier negotiations with hospital systems may impact future trends.
      • Align plan design, steerage programs and communications with insights from claims and transparency data.
  • 2. Utilization: More Care, More Often Drives 35 Percent of Trend Increase

    Healthcare utilization is now a major driver of rising costs, reflecting continued demand for medical services and medications. Shifts include:

    • Outpatient care growth: Higher use of outpatient services, including emergency room visits, cancer injections and diagnostic testing.
    • Hospital stays: Inpatient utilization, and patients who are admitted often, require more care that is often more expensive.
    • Pharmacy utilization: Use of specialty medications continues to grow at 14 percent, particularly for inflammatory conditions including rheumatoid arthritis, atopic dermatitis and Crohn's disease. Less common conditions like cancer, cystic fibrosis, multiple sclerosis and hemophilia are also increasingly being treated with high-cost specialty drugs. GLP-1 medications (particularly those used for weight loss) have seen rapid adoption. Across Aon’s clients, use of anti-obesity GLP-1 medications increased 75 percent in 2025. The GLP-1 category is generally expected to grow in 2027 as additional injectable and oral formulations are approved by the FDA and additional indications are approved for existing therapies.

    What Employers Can Do: Through a combination of alternative plan design, clinical programs and vendor solutions, employers can more deliberately manage and direct the right utilization.

    • Define the organization’s risk and affordability strategy, then align clinical management programs accordingly, such as prior authorization, second opinions and evidence-based pathways, to reduce unnecessary and avoidable procedures, imaging and specialty drug use.
    • Improve adherence to maintenance medications, cancer screenings and chronic care protocols through primary care-focused strategies.

    Employers that can actively manage utilization – not just price – are better positioned to mitigate trend while also improving member outcomes.

  • 3. Mix: Where Care Happens and Which Treatments Are Used, Driving 25 Percent of Trend Increase

    Shifts in care locations and treatment mix are increasing costs. Factors include:

    • Site of care: Some medical care is shifting away from hospitals to outpatient and specialty settings, often involving high intensity services bundled with expensive therapies.
    • Treatment mix: Specialty and biologic medications represent a growing share of pharmacy spend, alongside GLP-1 therapies. The expanding pipeline of high-cost drug approvals is increasing utilization and fueling pharmacy cost growth.
    • The introduction of biosimilars has provided an opportunity for employers to see some savings on these high-cost drugs. While the price of biosimilars can be significantly lower than their brand counterparts, they come with negligible rebates or no rebates. With competitive contractual guardrails around how the rebate adjustment is made, employers can still see net savings because of shifts to biosimilars.
    • High-cost claimants: A relatively small number of members often drive a large share of total spend (five percent of members drive 60 percent of claims), reflecting complex combinations of advanced therapies, comorbidities and high-intensity care patterns.

    What Employers Can Do: Employers can improve the mix of healthcare services by critically evaluating care and treatment mix, and incorporating more direct care strategies:

    • Steering members to high-quality, lower-cost providers with shown patterns of appropriate levels of care delivery.
    • Strengthening access to primary care through lower cost-sharing, primary care directed alternative health plans, and access to onsite or near-site clinics.
    • Implementing voluntary or mandatory centers of excellence (COEs) for surgeries and radiology services.
    • Enhancing management of high-cost therapies and negotiating contractual protections to ensure that adjustments due to market changes remain fair and equitable.
    • Focusing on high-cost claimants with advanced analytics. Identify emerging high-cost claimants, and focus increased resources on early intervention.

Turning Data into Action

Understanding how price, utilization and mix contribute to rising costs is critical for employers navigating today’s shifting healthcare landscape. Just as important is the ability to translate data into specific actions. This is essential for effective cost containment going forward.

  • Reframe the trend narrative: Recognize the shift from a price-driven environment to one where utilization and mix are increasingly important. Managing trends now requires a broader set of levers than the traditional playbook.
  • Use analytics as key enablers: Data and analytics enable employers to look around corners and create transparency while optimizing spend and networks.
  • Create a cost containment playbook: Modernize strategies in partnership with C-Suite leaders. Draw on cost containment ideas deployed over a multi-year horizon to balance savings, member experience and organizational capacity.

General Disclaimer

This document is not intended to address any specific situation or to provide legal, regulatory, financial, or other advice. While care has been taken in the production of this document, Aon does not warrant, represent or guarantee the accuracy, adequacy, completeness or fitness for any purpose of the document or any part of it and can accept no liability for any loss incurred in any way by any person who may rely on it. Any recipient shall be responsible for the use to which it puts this document. This document has been compiled using information available to us up to its date of publication and is subject to any qualifications made in the document.

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