Why Health Care Costs Will Keep Rising in 2026
Health care and employee benefit costs have been increasing rapidly in recent years, and this upward trend is not slowing down. According to Mercer, the total health care benefit cost per employee is projected to rise by 6.5 percent in 2026, which would be the largest jump since 2010. Over the past decade, average increases hovered around 3 percent annually.
Other industry experts report similar projections. The Business Group on Health anticipates a 7.6 percent increase, while PwC forecasts 8.5 percent growth in medical costs for the third straight year. Regardless of the exact figure, employers should prepare for higher health care plan expenses in 2026.
How Rising Health Care Costs Affect Employers
As employer health care costs continue to climb, many organizations are reassessing how to maintain benefit affordability while keeping plans financially sustainable. Some employers are sharing more costs with employees through higher premiums, deductibles, or copayments. Others are adjusting plan designs or keeping premiums steady but increasing out-of-pocket costs. Employers with self-funded or Individual Marketplace plans could experience even steeper increases, possibly between 15 and 20 percent.
Key Factors Driving Higher Health Care Costs in 2026
Cancer Care
Cancer remains the leading driver of employer health care spending for the fourth consecutive year. The rise in diagnoses and the availability of high-cost treatments such as cell and gene therapies continue to escalate expenses. Employers can help manage these costs by emphasizing preventive screenings, early detection, and partnerships with cost-efficient care providers.
GLP-1 Drugs and Prescription Costs
Prescription drug costs are surging, largely due to GLP-1 medications used for diabetes and weight loss. These drugs often cost around 1,000 dollars per month and are typically prescribed long-term. Employers can manage these rising prescription costs through utilization management, prior authorization, or integrated weight management programs that align with employee health goals.
Chronic Health Conditions
Chronic diseases such as heart disease, diabetes, obesity, arthritis, and mental health conditions account for nearly 90 percent of U.S. health care spending. Employers can reduce long-term costs by promoting wellness programs, improving mental health support, and ensuring access to preventive care and disease management resources.
Catastrophic Claims
Large, unexpected medical claims are becoming more frequent and costly. These include cancer treatments, organ transplants, and advanced genetic therapies. Ongoing inflation and hospital consolidation add to the burden. Employers should ensure strong stop loss protection and implement proactive claims management to mitigate financial risk.
Health Care Labor Costs
Persistent workforce shortages across the health care industry are driving higher wages and increasing provider costs. These expenses ultimately flow into employer-sponsored health plans, underscoring the importance of strategic plan design and cost containment strategies.
What Employers Can Do to Manage Rising Health Care Costs
While employers cannot control national health care inflation, they can take proactive steps to manage its impact.
Review and analyze health plan data to identify key cost drivers.
- Encourage preventive care and employee wellness to reduce long-term claims.
- Evaluate pharmacy benefits and explore alternative funding models.
- Partner with experienced advisors and carriers to design innovative benefit strategies.
Understanding what drives these cost increases empowers employers to make informed, sustainable benefits decisions that balance employee well-being with financial health.
Partner with Shepherd Insurance
For help managing rising benefit costs and developing a long-term benefits strategy, contact your Shepherd Insurance advisor. Our team provides strategic support and custom solutions to help employers navigate today’s evolving health care landscape.
