Employer Health Care Costs: 9% Forecast Now Sets Up a 2027 Spike

A forecast that set the tone

In August 2025, Business Group on Health released its 2026 Employer Health Care Strategy Survey. Large employers in the survey expected their health care costs to rise by a median of 9% in 2026. They thought plan design changes could bring that down to 7.6%.21 The survey covered 121 employers that together insure 11.6 million people, and it was conducted in June and July 2025.21 Ellen Kelsay, the group's chief executive, called it the highest single-year forecast in more than a decade.25 The group also calculated that, with compounding, 2026 costs would be about 62% higher than in 2017.24

More than a year later, the forecast has held up as a warning. As a precise number, it has done less well. The group's 2027 survey, released in late August 2026, now puts the 2026 median trend at 8.5% before plan changes and about 7% after. That is a little below the original call.15 The same report says 2025 brought the largest annual increase and the biggest gap between projected and actual costs the group has recorded, apart from the pandemic year of 2020.13 Kelsay said this pattern suggests the 2026 and 2027 forecasts may still be too optimistic.13 The main thing the original survey got right was the direction. Cost growth is speeding up, and employers have repeatedly underestimated it.

Drugs are the main driver

The 2026 survey named prescription drugs as the main source of pressure. Pharmacy accounted for 24% of employer health spending in 2024, up from 21% in 2021.25 Employers expected pharmacy costs to rise 11% to 12% heading into 2026, and the group said plan design changes alone could not fix that.24 One adviser's summary of the survey put the pharmacy increase at 12% before plan changes and 11.3% after.27

GLP-1 drugs for obesity were the most visible part of that spending. In the survey, 79% of employers said they had seen more GLP-1 use, and another 15% expected to.21 The group predicted that the share of employers covering these drugs beyond diabetes would level off. Those that kept covering them for weight loss were expected to add more conditions, such as utilization management and weight-management programs.21

That prediction proved too mild. By the 2027 survey, coverage of GLP-1s for obesity had fallen from 72% of employers in 2025 to 60% in 2026.15 Not one respondent said it planned to add coverage.13 Pharmacy's share of total spending has risen to 25%.15 Marsh, the consultancy formerly called Mercer, estimates that rising GLP-1 use alone will add a full percentage point to employer cost growth in 2027.16 Employers had said they would put limits on these drugs. Many have instead stopped covering them for weight loss.

Cancer has remained the top condition driving costs for several years in a row.21 In the latest survey, 70% of employers named it their biggest cost driver, up from 58% the year before.13 More employees using mental health services was also flagged as a new cost driver. Seventy-three percent of employers reported higher use of mental health and substance use disorder services.23

Lower Medicare prices, and worries about who pays

The survey also connected employer costs to changes in federal programs. In explaining pharmacy cost pressure, the group cited "cost-shifting from proposed changes to Medicare and Medicaid."21 Two-thirds of employers (66%) said they worried that changes to government programs would hit their own budgets.25 Brenna Shebel, a vice president at the group, said this matched a long-held employer view: efforts to cut costs in Medicare and Medicaid often end up pushing costs onto employer plans.28

Medicare drug price negotiation is the clearest example. Negotiated prices for the first 10 Part D drugs took effect on January 1, 2026.1 They range from 38% to 79% below the drugs' 2023 list prices.10 CMS estimates that Part D enrollees will save about $1.5 billion as a result.1 The Medicare Rights Center puts savings to the Medicare program at about $6 billion a year.3 AARP's research arm found that enrollee cost-sharing on these drugs fell by about half on average in the stand-alone plans it studied.8 Prices for 15 more drugs, including Ozempic and Wegovy, take effect in 2027. A third round, which adds physician-administered Part B drugs, will apply in 2028.2

This is where reporting and analysis need to be kept apart. Employer groups clearly fear that lower Medicare prices will lead drugmakers to charge commercial payers more. None of the coverage reviewed here shows that this has happened. Advocates for Medicare enrollees describe the program as working as intended.8 Employer groups describe the same changes as a risk to their own plans.25 Both can be true. Medicare's gains are measured and immediate, while the cost to employers is so far a prediction. Including GLP-1s in the 2027 negotiation round is worth watching. Employers are cutting coverage of those drugs just as Medicare gets a negotiated price for some of them, which could widen the gap in access between retirees and workers. That last point is analysis, not something the sources report.

Medicaid cuts are already being priced in

The Medicaid side of the cost-shifting argument is better documented. The 2025 One Big Beautiful Bill Act requires most expansion adults without dependents to document 80 hours a month of work, school, or similar activity. States must enforce the rule by the end of 2026.35 Nebraska began enforcing it as early as May 1, Montana planned to start July 1, and several other states intend to start early.37 The Congressional Budget Office estimates the work requirement alone will add 5.3 million people to the uninsured by 2034. Combined with the law's other Medicaid changes, it puts the increase at 7.5 million.37 An Urban Institute and Robert Wood Johnson Foundation analysis estimates that 4.9 million to 10.1 million people could lose Medicaid in 2028 because of work requirements and eligibility checks every six months.32 That analysis also finds that 19% to 37% of enrollees who already work could lose coverage because they struggle with the paperwork.40

The link to employers runs through hospitals. A Commonwealth Fund analysis estimates that coverage losses from work requirements could raise hospitals' uncompensated care costs by $7 billion to $8 billion.33 Hospitals usually try to recover those losses from commercial payers. Kelsay has now put a rough number on the effect. Citing estimates from vendors that work with the group, she said Medicaid cuts and the loss of enhanced ACA subsidies are adding about 2 points to employers' medical cost trend.13 That estimate comes from vendors and has not been independently checked, so it should be read as an employer-side estimate. Still, it turns the 2025 survey's general worry into a specific cost.

The timing also matters. Shebel noted that the 2026 survey was finished before the federal tax and spending package passed.25 The 9% figure therefore did not include the Medicaid changes. That is one reason the later forecasts are higher.

The forecasts keep rising

The major surveys agree on the direction but differ on size. For 2026, Mercer projected that cost per employee would rise 6.5% after plan changes, or close to 9% without them. PwC projected 8.5% medical cost growth.29 For 2027, Business Group on Health projects a 9.2% median before plan changes and 8% after. Aon projects 9.5%, and WTW projects 11.1%.13 Marsh projects 8.2% after plan changes, the highest since 2003, or 11% if employers take no action.12 The International Foundation of Employee Benefit Plans projects a median of 10%.17 Milliman reports that employer-sponsored costs grew at least 7.9% in 2026, with pharmacy costs up 14.8%.19

Much of the difference comes from what each survey measures. Some report figures before plan changes, some after, and some survey large employers while others include smaller ones. A recent guide for small employers points out that the gap between the before and after numbers is mostly benefits that employees lose.18 By the group's count, cumulative costs from 2018 to 2027 could rise 76%, about twice the rate of general inflation.15

Workers will pay more

The 2026 survey framed this as a call for employers to rethink their benefits, with 41% switching or rebidding their pharmacy benefit managers.21 A year later, the burden is moving to employees. Marsh found that 59% of employers plan cost-cutting benefit changes for 2027, including higher deductibles. About two-thirds of large employers expect to raise workers' share of premiums.12 Kelsay has said employers are reconsidering their role as the backbone of the U.S. insurance system.13

The 9% forecast was a warning, and it now looks too modest. Rising drug prices, Medicaid coverage losses, and employers' own cuts to GLP-1 coverage have pushed cost growth higher than employers expected in 2025. Employers are now passing more of those costs to workers.