Inside the Pressure Cooker: Cost Trends and Strategies for Renewal Season

This renewal season, employers and plan sponsors face a landscape marked by persistent inflation, surging pharmacy costs, and evolving employee expectations.

The pressure cooker analogy is more apt than ever, with cost drivers and regulatory shifts converging to create a challenging environment for benefits decision-makers.

Medical Cost Trend: No Relief in Sight

The projected medical cost trend for 2026 remains at 8.5% for group plans, matching 2025 levels and reflecting sustained inflationary pressures. Pharmacy trend is even higher, outpacing medical.

Hospital costs are rising due to wage inflation, increased care severity, and aggressive revenue cycle management by providers. Rural hospitals, in particular, are struggling, with federal aid only partially offsetting financial stress. 

Leaders should interpret these trends as signals of deeper, structural changes in healthcare utilization and cost, requiring bold, data-driven strategies.

Pharmacy Costs & Specialty Drug Inflation

Pharmacy spending jumped by $50 billion in 2024, more than doubling the previous year's growth. Specialty drugs, including GLP-1s for diabetes and obesity, and new gene therapies, are major contributors. 

GLP-1s alone are projected to account for up to 1% of the overall medical cost trend in 2026. Plans are tightening clinical criteria and integrating wraparound services (nutrition, digital coaching) to manage both cost and outcomes. 

Biosimilars are a real win lately, more people are starting to use alternatives for drugs like Humira and Stelara, which can save up to 80% compared to the originals. Still, health plans need to make approvals easier and help providers feel comfortable making the switch to really see those savings.

Behavioral Health: Utilization and Cost Surge

More people than ever are using behavioral health services. Lyra Health found that inpatient hospital stays for mental health went up from 4% to 12% between 2022 and 2023, and almost half of benefits headers have noticed more claims for kids, teens, and serious mental health needs. It shows how quickly demand is rising, and there’s no sign of slowing down. 

Employers have to strike a balance between offering good coverage and trying out new ways to pay for care, like investing in point solutions, adding more coverage under their plans plus partnering with EAPs. That way, they can keep costs under control while still making sure their employees get the support they need. 

AI, Technology, and Plan Design Innovation

Artificial intelligence and digital tools are beginning to reshape how employers approach benefits strategy. Predictive analytics can help identify cost drivers early, giving leaders a clearer view of where medical and pharmacy spend is heading and which interventions may have the greatest impact. For example, integrating AI-powered workforce insights into plan design allows employers to anticipate emerging employee needs while ensuring resources are allocated where they will deliver the strongest ROI. 

On the plan design side, organizations are adopting more flexible, tech-enabled models—from virtual care and digital coaching platforms to dynamic plan features that adjust based on usage patterns. These innovations not only improve the employee experience but also strengthen cost containment efforts by aligning benefits more closely with workforce behavior. Employers that incorporate tools from the Cost Containment Playbook into their strategy can better balance rising costs with the demand for personalization and value. 

Regulatory & Policy Shifts 

The expiration of enhanced ACA subsidies at the end of 2025 could increase premiums and the uninsured rate, impacting risk pools and plan costs. Employers must also ensure compliance with annual notice requirements (Medicare Part D, CHIP, WHCRA, HIPAA, etc.) and monitor evolving federal and state regulations.

Employee Expectations & Workforce Trends 

• Employees expect flexible, personalized benefits, robust mental health support, financial wellness programs, and inclusive family benefits (fertility, adoption, eldercare). 
• Multi-generational and diverse workforces require tailored communication and engagement strategies to maximize benefit utilization and satisfaction. 

Employers who invest in total wellbeing programs see measurable improvements in retention, productivity, and overall satisfaction. 

It is estimated that the U.S. healthcare industry will face a shortfall of 2.1 million nursing professionals in 2025.

— Research by Josh Bersin, HR and Workplace Industry Analyst

Recommendations

Where does this leave employers who provide about 50% of Americans’ health insurance? While some employers are financially able to cover these higher increases, many others may not be able to absorb these costs. OneDigital recommends the following cost-saving strategies:

• Keep track of contract renewal dates and the progress of ongoing negotiations for medical groups that your employees use.
• Consider plan design changes such as tiered network plans, the elimination of out-of-network coverage, or the introduction of multiple HDHP options.
• Consider alternative funding models that could allow you to reduce plan spend without compromising on coverage.
• Assess possible plan design changes or potentially add an HDHP plan.
• Develop a robust open enrollment strategy to educate and incentivize employees to enroll in the plan that best fits their needs.
• Evaluate prescription drug costs and consider ways to reform your plan and take control of your spending.
• Ensure that your benefit committee is engaged, proactive, and empowered to propose cost mitigation strategies to management.

Looking for more actionable strategies? Access OneDigital’s Cost Containment Playbook for 25 Strategies for Healthcare, Pharmacy, & Workforce Optimization.