Health plans are bracing for a significant increase in patient treatment costs by 2027, with projections indicating a 9% rise in commercial health costs—the highest medical cost trend observed in nearly 20 years. This new analysis, conducted by PwC, highlights various inflationary factors driving these trends, particularly the burgeoning use of artificial intelligence (AI) tools by healthcare providers.
Payers attribute the escalating costs to AI-enabled documentation and coding tools that enable providers to document care with greater specificity and complexity. This enhanced documentation can lead to higher reimbursement amounts without a corresponding increase in the intensity of care provided. According to the report, 70% of health plans identify provider AI tools as one of the top three contributors to rising costs. For instance, more detailed notes can lead to more itemized claims, significantly inflating costs for health plans.
Alongside AI adoption, rising provider reimbursement expectations, escalating pharmacy expenditures—particularly for specialty drugs—and increased demand for behavioral health services are contributing to this upward cost trajectory. Data reveals that utilization of behavioral health services has surged by 62% from 2018 to 2024, adding further strain on health plans. Additionally, there are ongoing regulatory challenges, such as out-of-network payment disputes under the No Surprises Act, which continue to exacerbate financial pressures.
To predict employer medical costs for the upcoming year, PwC health researchers conducted a survey of actuaries from 27 U.S. health plans during spring 2026. These plans collectively cover over 103 million employer-sponsored members and 8 million members from the Individual Affordable Care Act (ACA) marketplace. The findings indicate that the Group market medical cost trend is projected at 9% for 2027, while the Individual market is expected to see an 8.5% trend. Notably, the projections for 2026 have been adjusted upward for both markets.
As health plans grapple with increased costs, the historical strategies aimed at curbing expenses—such as the use of biosimilars and generic drugs—are proving insufficient to make a significant impact. Many health plans have already integrated these elements into their baseline cost predictions.
PwC’s report suggests several areas where health plans should concentrate their efforts to mitigate rising costs:
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AI Adoption: Increased utilization of AI in healthcare settings facilitates more comprehensive documentation, potentially leading to greater billing precision and increased provider revenue without raising claims denial rates. Health plans are advised to focus their payment integrity initiatives on high-risk claims to ensure accurate payments before funds are disbursed.
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Provider Reimbursement Pressure: Heightened price expectations among providers—intensified by market consolidation—are complicating negotiations for health plans. Effective strategies may include more disciplined contracting practices and targeted protections against reimbursement drift.
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Rising Pharmacy Trends: The escalating costs of pharmaceuticals, particularly concentrated in high-impact categories, are challenging for payers. Effective management of pharmacy spending may require innovative approaches that extend beyond traditional formulary controls, especially as high-cost therapies emerge.
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Behavioral Health Demand: With a significant increase in demand for behavioral health services correlating with rising prescription rates, health plans must enhance access to these services and manage them effectively to alleviate financial pressures.
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Regulatory Pressures: The Independent Dispute Resolution process under the No Surprises Act has made reimbursement increasingly contentious, with providers winning a majority of disputes filed. Payers are encouraged to refine their reimbursement policies and network strategies to minimize reliance on out-of-network providers.
The comprehensive analysis underscores the necessity for health plans to adapt strategically in the face of these multifaceted challenges, aiming to improve both the affordability and accessibility of healthcare services while managing rising costs effectively.
