November 2026 Newsletter
Healthcare Costs in 2027: What's Driving Increases and What Employers Should Know
As businesses prepare for 2027, rising healthcare costs continue to present challenges for those offering group health insurance. Understanding the factors contributing to these increases can help employers anticipate the challenges ahead and make informed decisions about their employee benefits.
Projected Increases in Healthcare Costs
Recent industry projections suggest that employers could face some of the largest increases in healthcare expenses in more than two decades. According to a study conducted by Marsh, employer-sponsored health benefit costs are projected to increase by an average of 8.2% per employee in 2027, representing the largest annual increase since 2003.[i] While this figure reflects national trends rather than the specific renewal increases individual employers may experience, it highlights the continued financial pressures facing the employer-sponsored health insurance market.
What’s driving these higher healthcare costs?
Several factors are contributing to rising healthcare expenses, many of which extend beyond the control of individual employers.
Prescription Drug Costs: One of the most significant contributors is the increasing cost and utilization of prescription medications.[ii] In particular, the growing popularity of expensive GLP-1 medications, commonly prescribed for diabetes and weight management, has placed additional financial pressure on health plans.[iii] Some argue that the high upfront costs of GLP-1 medications may be offset by potential long-term savings associated with improved health outcomes for individuals with serious obesity-related conditions.[iv] However, for many employers, the prospect of long-term savings may be difficult to justify against the immediate expense of providing coverage for these medications.[v] Consequently, some employers are reconsidering their coverage of GLP-1 medications for weight management, including whether to implement more restrictive eligibility requirements or eliminate that coverage altogether.
Hospital and Medical Expenses: The cost of medical services continues to rise, driven in part by advances in medical technology and increasing prices for healthcare services. New diagnostic tools and treatment options can improve patient outcomes but often cost more than the treatments they replace. Additionally, consolidation among hospitals and healthcare systems has increased providers' negotiating power with insurers, contributing to higher prices for medical services.[vi]
Chronic Conditions and High-Cost Claims: The treatment of chronic and complex medical conditions also plays an important role in rising healthcare expenses. Conditions such as cancer, cardiovascular disease, and diabetes often require ongoing treatment, specialized medications, and frequent medical care. As treatment options become more advanced, the cost of managing these conditions can increase, particularly when patients require extensive or highly specialized care.[vii][viii]
Looking ahead to 2027: What does this mean for employers?
For employers, rising healthcare costs create an ongoing challenge: balancing the expense of providing health insurance with the need to offer competitive benefits that attract, retain, and take care of valuable employees. Although these costs are expected to remain a challenge, an experienced benefits advisor can help employers navigate the changing healthcare landscape by exploring strategies tailored to the needs of their workforce. Such strategies may include evaluating plan designs, encouraging preventive care, and identifying options that provide access to high-quality, cost-effective medical services.
[i] Marsh, Employers expect health benefit costs to jump 8.2% in 2027, and the impact will likely be felt by workers, according to Marsh (Sept. 2, 2026), https://www.mercer.com/en-us/about/newsroom/employers-expect-health-benefit-costs-to-jump-in-2027/.
[ii] Kathryn Mayer, Soaring Health Costs May Be the New Norm. Employers Must Adapt, SHRM (Oct. 15, 2026), https://www.shrm.org/topics-tools/news/benefits-compensation/soaring-health-costs-may-be-new-norm-employers-must-adapt.
[iii] Mayer, Soaring Health Costs May Be the New Norm.
[iv] Mayer, Soaring Health Costs May Be the New Norm. (discussing remarks by Kevin Hern, senior vice president of Lilly Employer at Lilly USA).
[v] Mayer, Soaring Health Costs May Be the New Norm.
[vi] Beth Umland & Sunit Patel, Survey: Health benefit costs expected to jump 8.2% in 2027, the biggest increase since 2003, Marsh (Aug. 31, 2026), https://www.mercer.com/en-us/insights/us-health-news/survey-health-benefit-costs-expected-to-jump-in-2027/.
[vii] Business Group on Health, Cost Volatility Forces Employers to Reassess Healthcare Strategy, Business Group on Health Survey Reveals (Aug. 25, 2026), https://www.businessgrouphealth.org/newsroom/news-and-press-releases/press-releases/2027-employer-healthcare-strategy-survey.
[viii] Umland & Patel, Survey: Health benefit costs expected to jump 8.2% in 2027.