Health-care inflation is significantly impacting coverage costs for employees and employers alike, potentially marking the largest increase in health-care spending by large employers in 15 years. Recent data from the Labor Department’s Consumer Price Index indicates that medical care costs rose 4.2% on an annualized basis in August, outpacing the overall inflation rate of 2.9%. The costs associated with doctors’ visits also saw an increase of 3.5%, while hospital and outpatient service expenses surged by 5.3%.
These elevated medical costs are expected to translate into higher health insurance premiums for 2026, particularly for consumers who do not qualify for government subsidies available through the Affordable Care Act exchanges. Insurers are forecasting double-digit premium increases for these individuals in the coming year. Additionally, employees with employer-sponsored health coverage should anticipate higher premium and out-of-pocket costs next year. Business group surveys reveal that large employers are projecting an average increase of 9% in health-care costs for 2026, which would represent the highest inflation rate for health care since 2010.
Over fifty percent of companies surveyed by the consulting firm Mercer indicated they are contemplating passing some of these increased costs onto their employees. However, a survey by the Business Group on Health (BGH) reveals that most large employers are exploring alternative strategies to manage these expenses. “Employers have shied away from passing on costs to employees whenever possible. This year, there are indications they may consider it, but only as a last resort,” said Ellen Kelsay, BGH president and CEO.
Prescription drug costs are a primary contributor to rising health-care expenses, with the Consumer Price Index showing a 0.9% increase in drug prices in August. Nonetheless, large employers are contending with much steeper projected increases in pharmaceutical costs, with expectations for a 12% rise in the coming year, following an 11% hike this year. The driving forces behind these increases are mainly cancer treatments and weight loss drugs, such as Novo Nordisk’s Wegovy and Eli Lilly’s Zepbound. “For the fourth consecutive year, cancer treatments are the top condition driving healthcare costs, particularly among younger patients and later-stage diagnoses,” Kelsay explained.
To address the growing demand for expensive treatments, many large employers are beginning to adjust eligibility criteria for access to weight loss medications and exploring cost-effective options for employees, such as the cash-pay market. Some telehealth providers have begun informing employees that they can use health savings accounts to buy these medications at lower prices. While employers are concerned about the cost of these drugs, they remain committed to ensuring access for their employees, albeit reluctantly.
Increased reliance on direct-to-consumer purchasing options for GLP-1 medications has been observed, with eligible employees opting for online pharmacies at significantly reduced rates compared to list prices that exceed $1,000. As a result, GLP-1 medications have become a leading category of cash-pay spending in pre-tax flexible spending and health savings accounts. Data indicates a tripling in the use of GLP-1 providers among employees this year compared to the previous one.
However, employers are mindful that these cash-pay options may exclude lower-income workers who cannot afford out-of-pocket expenses, prompting discussions on how to improve equitable access for employees. Some self-insured employers have established contracts with specialty medical care centers for conditions like cancer treatment but face challenges when trying to adopt similar agreements for pharmaceuticals due to existing contracts with pharmacy benefit management companies (PBMs).
In response to these challenges, employers are increasingly advocating for better options from PBMs and are considering new benefit management entities that offer innovative payment models for developing drug therapies. “This is a pivotal moment for employers and PBMs as they work to make GLP-1 drugs more affordable,” said Paytient’s CEO. The urgency of addressing these issues could provide a blueprint for tackling similar challenges associated with other high-cost medications.
