Employer Health Costs to Rise 9.5% in 2027, Steepest in Decades

A fourth straight year of steep increases

The benefits consulting firms that track U.S. health care costs rarely agree on an exact number. For 2027 they agree on the main point: employer-sponsored coverage is about to get much more expensive. Aon expects employer health costs to rise 9.5% in 2027. The firm calls it the fourth consecutive year of "elevated" increases and one of the longest stretches of health care inflation employers have faced in decades.11 Aon's projection draws on more than 1,100 U.S. employers covering 7.9 million employees. It follows an 8.8% increase in 2026.12

Other forecasts land close by. The Business Group on Health projects a median 9.2% increase among large employers before any plan changes. PwC's Health Research Institute puts group medical cost trend at 9%, its highest reading in 17 years. WTW's survey shows an underlying trend of 11.1%, the steepest it has recorded in nearly two decades.12 Marsh (formerly Mercer) surveyed more than 1,800 employers and projects an 8.2% rise per employee even after cost-cutting. That would be the largest increase since 2003. Without those measures, Marsh says the figure would be about 11%.1516

The spread between 8.2% and 11.1% matters less than it looks. Most of the gap comes from what each firm measures. Some figures show the underlying trend before employers act. Others show what employers expect to pay after raising deductibles, narrowing networks or switching vendors. The Business Group on Health's 9.2% median drops to roughly 8% once plan changes are counted. WTW's 11.1% falls to 9.7%.12 Read together, the forecasts say the same thing. Even after employers cut where they can, 2027 will bring a larger increase than most benefits budgets have absorbed in about 15 years.12

Where the numbers diverge

There is one real inconsistency. AEI's summary says Aon's 9.5% comes on top of an 8.3% increase in 2026. Other accounts of the same Aon research put the 2026 increase at 8.8%.1712 The dollar figures also vary. One account describes $14,432 as the average total plan cost per employee in 2026. Another says it is the employer's cost, with workers paying another $3,130 out of their paychecks.1213 Several outlets say Aon's 2027 projection takes average cost above $19,000 per employee.1315 The arithmetic favors the second reading. Adding $14,432 and $3,130, then applying a 9.5% increase, gives a total just above $19,000. That suggests the $19,000 figure is the combined employer and employee cost.

Either way, employers still pay most of the bill. By Aon's count, they covered about 82% of total plan costs in 2026. Federal labor data show private employers paying about 80% of single-coverage premiums and 68% of family premiums.13 Paying 80% of a 9% increase costs far more in dollars than paying 80% of a 5% increase. That explains why so many employers are reworking plan design this year.13

Drugs are the biggest driver

Prescription drugs are the main reason costs are rising. The Business Group on Health expects pharmacy spending, already about a quarter of large employers' health spending, to grow 12% in both 2026 and 2027. Specialty medications and GLP-1 prescriptions account for much of that growth.12 Marsh estimates that rising GLP-1 use alone adds about one percentage point to employer cost growth in 2027.11 Employers are pulling back. Among large employers, coverage of GLP-1s for weight loss fell from 72% to 60% in a single year, and none plan to add it for 2027.16 Some employers looking for quick savings have dropped GLP-1 coverage entirely for next year.14

The same drugs are getting much cheaper in Medicare. Starting January 1, 2027, negotiated prices take effect for 15 more Part D drugs. Semaglutide, sold as Ozempic, Rybelsus and Wegovy, will cost Medicare $274 for a 30-day supply, compared with a 2024 list price of $959.4 Discounts across the 15 drugs range from about 38% to 85%. CMS projects about $12 billion in Medicare savings and $685 million less in out-of-pocket costs for enrollees in 2027.78 A separate "most favored nation" deal between the Trump administration and Eli Lilly and Novo Nordisk goes further. It sets a $245 Medicare price for Ozempic, Wegovy, Mounjaro and Zepbound, which is below the negotiated $274.2

In our reading, these Medicare prices do not directly lower what employers pay. Medicare's negotiated prices and the most-favored-nation price apply to Medicare. Commercial plans still negotiate separately and still face the list-price structure that drives their pharmacy trend. The more relevant change for employers may be Novo Nordisk's announced cut to the U.S. list price of Ozempic, Wegovy and Rybelsus, to $675 a month starting January 1, 2027.4 That is still more than double what Medicare will pay. So 2027 will likely show a wider, more visible gap between what the government pays for these drugs and what private plans pay. That puts more pressure on employers and their pharmacy benefit managers to explain the difference.

The Medicare program has its own complications. One analysis found that about 41% of formulations of the 15 selected drugs appear to have 340B ceiling prices below the negotiated prices. Safety-net providers worry they could lose savings on drugs that community health centers prescribe often.2 Analysts also note that it is unclear how Part D plans will handle drugs that now carry two different government prices.10

Medicaid cuts begin the same month

On January 1, 2027, the same day the new Medicare prices take effect, the 2025 budget reconciliation law's Medicaid work requirement begins. Adults ages 19 to 64 in the ACA expansion population will have to show 80 hours a month of work, school, job training or community service, or qualify for an exemption.22 About 18.5 million to 20 million adults in 43 states and the District of Columbia fall under the rule.2326

Estimates of how many will lose coverage vary widely. CMS's own interim final rule projects 2.3 million people losing Medicaid enrollment in 2027, rising to 3.1 to 3.3 million in later years. That is about 15% of the expansion population.22 The Congressional Budget Office projects 4.8 million more uninsured people by 2034 because of the requirement, and about $326 billion in federal savings over ten years. KFF notes that those savings will come mostly from coverage losses.23 Manatt Health estimates the CMS rule adds about 1.8 million people a year to the losses expected under the law alone, because it narrows the medical-frailty exemption and limits self-attestation. Manatt cautions that its numbers are model projections.30

The track record points toward the higher estimates. When Arkansas ran a similar requirement, about 18,000 people lost coverage. Researchers found more than 95% of the target group already met the rules or qualified for an exemption but could not prove it, and they found no statistically significant increase in employment.2629 Early results from the first state under the new law look similar. Of 7,280 enrollees up for renewal, 533 lost coverage. Only 43 were found ineligible. The other 490 were dropped because they did not return forms within 30 days.23

How the three pieces connect

Supporters argue that work requirements will move people into jobs with employer insurance, shifting costs off Medicaid.26 That argument meets the employer-cost forecasts head-on. Critics point out that most Medicaid enrollees who work are not offered an employer plan. They also note that people dropped for missing the requirement are still treated as Medicaid-eligible, which bars them from marketplace premium tax credits.26 The individual market is also under strain. ACA insurers have proposed a median 15% premium increase for 2027, partly because enhanced subsidies expired.11 Small-group insurers are seeking a median 14%.15

Our analysis is that costs are moving around the system rather than being contained. Medicare is getting large, legally mandated discounts. Medicaid is reducing enrollment through paperwork. Hospitals in rural and low-income areas, which depend on Medicaid funding, face more uninsured patients.21 Employers face drug prices and hospital rates that consolidation keeps pushing up.11 With the costs they control, employers are passing more to workers. About 59% plan cost-cutting changes such as higher deductibles.11 Aon reports that workers' total health care costs rose 7.9% in 2026, the fastest pace in a decade, and expects a similar increase in 2027.14

AEI argues that the rising premiums will add pressure for broader reform.17 The 2027 numbers support that view. Federal policy is lowering what Medicare pays for drugs and reducing how many people Medicaid covers, while employer-sponsored coverage, which insures the largest group of Americans, absorbs its biggest increase in two decades.