Why Healthcare Costs Will Keep Rising

Healthcare costs, and consequently employee benefit costs, have been growing at an alarming rate in recent years, and they're not slowing down.

The estimate is that the total health benefit cost per employee is expected to rise by another 6.5% on average next year, the highest increase since 2010. To put this into perspective, the past decade typically increased 3% annually. While the Business Group on Health (BGH) expects a 7.6% increase in costs for 2026, PwC expects medical costs to grow at 8.5% for the third year in a row. Regardless of the exact figure for 2026, employers and their employees can expect their health care costs to continue to skyrocket throughout the next year.

Faced with sustained high healthcare costs, more employers are passing costs along to their employees. As such, that can show up as higher premiums, deductibles and copayments. While some organizations may try to limit the premium increase, they could raise other out-of-pocket costs, such as deductibles and copayments, making it essential to review all aspects of your healthcare costs. Shifting costs might help balance the budget for now, but it can end up hurting employee satisfaction, retention, and your company's ability to stay competitive. There are options for employers to deploy more strategic, data-driven strategies to manage costs that promote financial sustainability and prioritize employee education, satisfaction, and wellbeing. Individual Marketplace plans are likely to go up even higher, as much as 15%-20%. Understanding today's drivers of healthcare costs can help you make informed decisions about your coverage and financial planning.

Here are the six key factors driving rising healthcare costs.

Cancer Care

According to the BGH, cancer care has been the top driver of employer cost increases for four years in a row. The spending has worsened due to the growing prevalence of cancer diagnoses and the escalating cost of treatment. Cancer is complex; therefore, its diagnosis and treatment don't follow the same path for every individual.

Cancer diagnoses are increasing, not just among older adults but also among younger working-age individuals. This means more employees and dependents are entering treatment, often requiring long-term and intensive care. Additionally, new and innovative therapies—including cell and gene therapies, immunotherapies, targeted drugs and personalized medicine—may offer better outcomes but come with high price tags. These treatments often cost hundreds of thousands of dollars per patient, especially in late-stage cases.

With cancer cases and costs on the rise, employers may try to focus on healthy lifestyle promotion, cancer prevention and screenings, or centers of excellence partnerships.

GLP-1s and Prescription Drugs

General prescription drug spending is one of the fastest-growing components of health care costs in 2026. While broader pharmacy spending is facing significant inflation, glucagon-like peptide-1 (GLP-1) drugs are standing out as a key pharmacy spending driver.

GLP-1 use for weight loss is already widespread, but these costly medications are expected to grow in popularity. A recent RAND report revealed that 12% of Americans have used GLP-1 medications for weight loss, and 14% are interested in using the drugs. Furthermore, the number of prescriptions for the drugs has more than tripled since 2020.

GLP-1 medications typically cost around $1,000 per month. Many plans only cover GLP-1s for diabetes or won't cover these prescriptions at all. These costly medications are intended to be taken in perpetuity to achieve their benefits. This means that GLP-1 users may experience health benefits but will be required to use these high-cost treatments on an ongoing basis.

In response to the popularity of GLP-1s, more employers may require employees who use these medications for weight loss to get prior approval, participate in weight management programs or meet other requirements.

Chronic Health Conditions

Chronic conditions affect millions of Americans and require ongoing treatment, monitoring and medication, which adds up quickly for both individuals and employer-sponsored health plans. In fact, around 90% of U.S. health care spending is on people with chronic and mental health conditions. Chronic conditions include heart disease, stroke, cancer, diabetes, arthritis and obesity.

In general, chronic disease is increasing in prevalence in the United States and is projected to continue to do so in 2026 and the coming years.

Catastrophic Claims

Catastrophic claims, which are extremely high-cost medical events, are significant contributors to recent health care costs. These claims typically involve severe illnesses, complex treatments or long-term care needs, and occur across all ages of employees.

Catastrophic claims are often associated with cancer treatments, neonatal intensive care (or NICU) stays, organ transplants, mental health crises, severe trauma or accidents, genetic disorders and advanced therapies (e.g., cell and gene therapy). General inflation and the consolidation of health systems are driving up prices for services, making catastrophic claims even more expensive.

Healthcare Labor Costs

Lastly, the supply of healthcare workers continues to fall short of the growing demand for utilization. This shortage is due to rising healthcare demands, an aging population, retiring workforces and insufficient talent entering the industry. When key players in the healthcare industry are required to spend more on labor, those expenses are often passed on to both employers and users of the healthcare benefit: employees and their dependents.

What Can Employers Do to Lower Rising Healthcare Costs?

While you can't control every factor that affects healthcare costs, becoming a savvy healthcare consumer can make a real difference in managing expenses. By giving yourself and your employees the tools and knowledge to make smart healthcare choices, you can help everyone make more informed decisions and keep costs in check. Individuals can start by fully understanding what their health plan does and doesn't cover to help reduce their healthcare spending. This step can help individuals plan and budget accordingly. Additionally, prioritizing preventive care services play a critical role in reducing the risk of costly treatments later. When individuals understand how to navigate the healthcare system, make cost-effective choices, and participate in preventive care screenings, it leads to smarter utilization of benefits and ultimately reduces overall healthcare costs.

Additionally, employers should consider exploring alternative funding programs, such as self-funding, level funding, or captive arrangements, and evaluating innovative health insurance options tailored to their workforce's needs. Implementing an employee wellness program can further drive savings by promoting healthier lifestyles, increasing engagement in proactive health management, and reducing costly chronic conditions.

Lastly, ongoing discussions about cost containment and risk management are crucial, ensuring that strategies remain responsive to market trends, regulatory changes, and organizational objectives. By developing a strategic 3-5 year roadmap, focusing on education, budgeting and prevention, employers can proactively address these areas, anticipate future challenges, and position themselves to optimize benefits offerings, manage financial risk, and enhance employee wellbeing in a sustainable manner.

Explore OneDigital's Cost Containment Hub for strategic resources, data-driven solutions, and planning tools to help you build a long-term and cost-effective employee benefits strategy. For a 1:1 cost savings assessment, schedule a strategy session with our team here.