Hospital Costs Rise as Employer Health Premiums Near 20-Year High

A squeeze in both directions

America's hospitals say they are paying more to care for patients. Employers say they are paying more to insure them. Workers, who sit between the two, are paying more for both. The latest round of financial reports and benefit surveys shows these pressures feeding into each other. The evidence points one way: prices are driving the cycle more than patients' rising need for care.

Start with the hospitals. A Strata Decision Technology review of the first half of 2026 found that median hospital operating margins were below zero at the start of the year, at -0.6% in January and -0.3% in February.21 Labor and supply costs are still climbing. In the West, they run about 50% above the rest of the country. Hospitals in the Midwest and Northeast face higher drug costs than other regions.21 Larger systems spend more even after adjusting for size. A Strata executive said she had expected economies of scale and was surprised not to find them.21

Vizient and Kaufman Hall describe pressures from labor, drugs, devices and supplies as "evolving, not easing." They also note that the patients still admitted to hospitals are older and sicker than before the pandemic, while simpler cases move to outpatient settings.29 Their data show that direct expense per employed physician rose about 6% between the third quarter of 2023 and the third quarter of 2025, with costs growing faster than revenue.29

Unpaid bills are a warning sign

Uncompensated care is the part of the hospital story most likely to get worse. A Kaufman Hall analysis covering more than 1,300 hospitals found that bad debt and charity care grew in dollars and as a share of gross revenue. Year-to-date through July 31, the share was up 7% from the year before.23 Emergency department visits rose 3% over the same period. Kaufman Hall's Erik Swanson said this increasingly reflects a coverage problem rather than a simple rise in patient volume, because uninsured and underinsured people treat the ER as their last resort.23

Hospitals also expect more uninsured patients as Medicaid cuts and new eligibility rules take effect. Some are building urgent care and outpatient clinics so their emergency rooms are not overwhelmed.21 For patients, the costs are already high. LendingTree puts the average hospital stay at nearly five days and $16,353, or about $3,297 a day.27 Paying for that stay in cash would take 435 hours of full-time work, up from 384 hours in the firm's previous estimate. In other words, hospital costs are rising faster than wages.28

Employers face the steepest increase in two decades

Employer coverage is where hospital prices turn into paycheck deductions. Every major benefits forecaster expects 2027 to bring an unusually large increase:

• Marsh (formerly Mercer): 8.2% per employee after planned cost-cutting, which would be the biggest jump since 2003. Without those changes, employers expect about 11%.1219
• Aon: 9.5%, after 8.8% growth in 2026.11
• Business Group on Health: a median 9.2% before plan changes.11
• PwC: a 9% medical cost trend, the highest in 17 years.11
• WTW: an underlying trend of 11.1%, its highest reading in almost 20 years.11

Small employers are hit harder. Insurers have asked for a median 14% increase on small-group plans for 2027.11 An eHealth survey found that 73% of smaller employers are considering dropping traditional health benefits altogether.17

The forecasts differ, but the differences are smaller than they look. One analysis found that most of the gap depends on whether a figure is measured before or after employers shift costs to workers. Across surveys, employers move roughly two to two and a half percentage points of annual cost growth onto employees through plan design.15 The same analysis points to a real disagreement: CMS actuaries project private insurance spending growth of about 5% a year, roughly half what the consultancies expect.15 It also notes that most of the 2027 figures are preliminary, self-reported employer expectations rather than paid claims.15 Readers should treat the headline numbers as directional. Still, Aon forecast 9.5% for 2026, and costs actually grew 8.8%. That suggests these surveys have not been badly overstating the trend.15

Workers will pay for it. Fifty-nine percent of employers plan cost-cutting changes such as higher deductibles, and about two-thirds of large employers expect to raise workers' share of premiums.12 Health care workers are affected too. One nurse practitioner said her family's monthly premium rose from $700 to $1,500 and now takes about a fifth of her income.12

Price or volume? The central dispute

The core argument is over why costs are rising. The American Hospital Association points to a federal report that says the amount of care, not price, has driven recent spending growth. It also stresses that hospitals are treating sicker, more complex patients.24 That same federal report, however, found that hospital prices rose 3.4% in 2024, the fastest increase since 2007.24

The independent evidence leans toward price. STAT's reporting found that hospitals and drugmakers use their market power to charge employers and workers more than double what Medicare pays, and often much more.24 At Sentara Norfolk General Hospital, a major joint replacement costs nearly $100,000 under Anthem's broad-network plan, compared with $28,000 under Medicare.24 In New York City, a new health department report found that average negotiated inpatient prices ranged from 76% of Medicare rates at the public NYC Health + Hospitals system to 336% at NewYork-Presbyterian. A C-section ranged from $7,332 to $63,753 depending on the hospital and insurer.30

The New York findings also weaken the common claim that hospitals must charge private insurers more to make up for low government payments. The public system, which treats a large share of Medicaid and uninsured patients, has the lowest negotiated rates. The highest-priced system treats relatively few of those patients.30 Hospital executives do cite pressure from government programs. Sentara, for example, has said public payment rates and coming Medicaid cuts force it to negotiate hard with insurers.24 But the pricing data do not show the highest prices at the hospitals with the most public-program patients.

AI is adding to billing costs

A newer factor is software. The Blue Cross Blue Shield Association says AI coding tools at hospitals added $942 million in costs between 2023 and 2025. The tools recorded patients as having more complex conditions without any matching increase in treatment, raising payments by an average of nearly $12,000 per case.2526 Hospitals respond that insurers use their own algorithms to deny or downgrade valid claims.22 AI vendors argue their tools simply capture what providers are already owed.26 Nearly 70% of health plans surveyed by PwC named AI-assisted coding among their top three cost drivers.11 Both insurers and hospitals have reasons to blame the other, but the result is the same either way: more money goes to billing disputes rather than patient care.

What Medicare drug negotiation can and can't fix

Drug prices affect every part of this picture. On January 1, 2027, Medicare's negotiated prices for 15 more Part D drugs take effect, including the Ozempic, Rybelsus and Wegovy family.4 The three semaglutide drugs will share a negotiated price of $274 for a 30-day supply.2 AARP cites estimated savings of $8.5 billion to $12 billion a year.1 CMS projects about $685 million in out-of-pocket savings for beneficiaries in 2027.9 An academic review found the discounts meaningful, but U.S. prices remain well above those in peer countries.8

These savings will do little for hospitals or employers in the short term. The 2027 drugs are retail pharmacy drugs. Medicare negotiation does not reach Part B drugs, which are given in clinics and hospitals, until 2028.4 Those drugs matter a great deal to employer plans. A Milliman actuary said hospital outpatient costs for employer plans rose 8% in each of the last two years, driven largely by expensive cancer drugs.24 In one example, an employer paid almost six times as much for a vial of the same drug at the same hospital under a different plan, close to $4,400, while Medicare pays about $300.24 There may also be unintended effects for hospitals: some 340B providers worry that the negotiated prices could be higher than their 340B discount prices on certain products.2

GLP-1 weight-loss drugs alone add about one percentage point to employer cost growth in 2027, according to Marsh.14 Cancer care was again the top cost driver named by employers, cited by 70% in the Business Group on Health survey.11

The outlook

This is a cost spiral. High commercial prices push up premiums. Employers pass the increases to workers through higher contributions and deductibles. More people end up underinsured, unpaid bills grow, and hospitals cite those losses when they negotiate the next round of commercial rates. Medicare's drug negotiations are a real but limited step, and they don't reach the hospital-administered drugs where employer spending is growing fastest.

The more important change may be political. Employers that once opposed government involvement in pricing are now showing openness to it. States including Indiana and Delaware have already passed versions of price limits, and some researchers believe tying prices to Medicare rates is a matter of when, not if.24 With voters trusting Democrats over Republicans on health care by 22 points ahead of the November midterms, according to an NBC News poll, health care prices are likely to stay a central issue.22