Employers at an ‘inflection point’ as health costs near double-digit increases

Healthcare costs for large U.S. employers are projected to surge by nearly 10% in 2026, according to the Business Group on Health’s (BGH) latest annual survey, which gathered responses from 127 employers covering 8.7 million individuals. The year‑over‑year increase of 8.8% recorded for 2025 was the highest ever reported by BGG members, marking the third consecutive year that actual expenses exceeded employers’ own forecasts. Disease categories such as cancer, musculoskeletal and cardiovascular conditions, together with rising prices for hospitals, outpatient facilities and pharmaceuticals, were identified as the primary drivers of the cost escalation. Pharmacy spending alone is expected to climb 12% by 2027, even as many employers have already locked in their 2026 benefits budgets, leaving them unable to implement substantial cost‑cutting measures until at least 2028.

In response to the mounting financial pressure, employers are intensifying scrutiny of vendors and third‑party partnerships. Ninety‑five percent of survey participants have issued requests for proposals, and 58% plan to replace underperforming vendors or eliminate low‑utilization programs, while 83% are expanding performance guarantees with health partners. A notable shift is occurring toward more transparent or “new‑generation” pharmacy benefit manager (PBM) arrangements, with roughly one‑third of respondents expecting such contracts in place by 2027 and an additional 47% considering them for future years; employers anticipate a 12‑ to 18‑month transition period to ensure due diligence. Moreover, 82% already employ a centers‑of‑excellence (COE) model for certain care pathways, and 12% are planning to add or explore COE options, reflecting broader movement toward value‑based solutions, high‑performance networks, and accountable care organizations.

Coverage of GLP‑1 drugs, particularly for weight management, is being sharply reduced as employers grapple with affordability and the drugs’ expanding direct‑to‑consumer market. No employer in the survey intends to add weight‑loss GLP‑1 coverage for 2027, and 14% plan to drop it altogether, while 60% maintaining the benefit intend to impose stricter utilization controls such as clinical eligibility verification or mandatory participation in weight‑management programs. This retrenchment mirrors findings from the SHRM Employee Benefits Survey, which noted broader coverage for GLP‑1s in diabetes treatment but limited support for weight‑loss indications. Employers are weighing whether to preserve overall plan viability while still offering anti‑obesity options, including alternative medications, lifestyle interventions, nutrition programs, or bariatric surgery, as the landscape of employer‑sponsored health benefits continues to evolve under unprecedented cost pressures.

⚡ Effects Interpreter