Rising Health-Care Inflation Signals Largest Employer Spending Increase in 15 Years

Health-Care Inflation Accelerates, Pressuring Employer Health Coverage Costs

Health-care inflation is intensifying, driving up costs for patients and employers alike and setting the stage for what could be the steepest rise in health-care spending by large companies in 15 years.

According to the Labor Department’s Consumer Price Index (CPI) data for August, medical care costs increased 4.2% on an annualized basis, significantly surpassing the overall inflation rate of 2.9%. Specifically, prices for doctors’ visits climbed 3.5%, while hospital and outpatient services surged 5.3%.

Impact on Health Insurance Premiums and Employer Spending

These rising medical costs are contributing to projected higher health insurance premiums for 2026. Consumers purchasing coverage through the Affordable Care Act (ACA) exchanges without government subsidies may face double-digit premium hikes, based on early insurer filings.

Similarly, workers covered by employer-sponsored health plans are likely to encounter increased premiums and out-of-pocket expenses. Surveys from multiple business groups indicate that large employers anticipate an average 9% rise in overall health coverage costs next year, marking the highest healthcare inflation since 2010.

More than half of companies surveyed by benefits consultant Mercer earlier this year are considering passing some of these costs onto employees. However, the Business Group on Health (BGH) reports that most large employers are still seeking alternative cost-saving measures before shifting expenses to workers.

“Employers have avoided passing on costs for as long as possible. This year, we see initial signs they may consider it as a last resort,” said Ellen Kelsay, president and CEO of BGH. “They are exploring every other option first.”

Pharmaceutical Costs: Cancer Drugs and GLP-1 Weight Loss Medications Drive Spending

Prescription drug prices increased 0.9% in August according to CPI data, reflecting a mix of generic and brand-name drugs. Nonetheless, pharmaceutical costs remain a principal driver of employer health spending.

BGH surveys project a 12% increase in drug costs for large employers next year, following an 11% rise this year. Key contributors include expensive cancer therapies and treatments for diabetes and obesity, particularly GLP-1 receptor agonists such as Novo Nordisk’s Wegovy and Eli Lilly’s Zepbound.

“Cancer has been the leading condition driving healthcare costs for four consecutive years, with younger patients and later-stage diagnoses contributing to higher expenses,” Kelsay explained. “Close behind are costly weight loss drugs, which have fueled much of the recent pharmaceutical spending growth.”

Nearly two-thirds of employers with 20,000 or more employees now offer access to GLP-1 medications, according to Mercer, while fewer than half of small employers plan to do so in 2026.

Emerging Cash-Pay Market and Access Challenges

The growing demand for GLP-1 drugs has led many employers to tighten eligibility criteria and explore more affordable access options, including encouraging employees to purchase medications through the cash-pay market using health savings accounts (HSAs).

A telehealth executive, speaking anonymously due to confidentiality, revealed that some large employers quietly inform workers about using HSAs to buy these drugs at lower cash prices. Online pharmacies like Eli Lilly’s Lilly Direct and Novo Nordisk’s Novocare offer GLP-1 drugs at approximately half the list price, often exceeding $1,000.

Health payment processor Paytient reports a tripling in usage of GLP-1 providers over the past year, with these drugs becoming the top category of cash-pay spending in pre-tax flexible spending and health savings accounts.

However, employers express concern that cash-pay options may exclude lower-income workers unable to afford out-of-pocket costs. This has prompted discussions about negotiating cash-pay prices to improve equitable access.

Contractual and Structural Barriers to Cost Management

Self-insured employers have historically contracted directly with Centers of Excellence for specialty care, such as cancer treatments and joint replacements, to control costs. However, similar direct contracting is currently infeasible for many drugs due to pharmacy benefit manager (PBM) contracts, which prevent circumventing established reimbursement arrangements.

Employers are increasingly pressuring PBMs for innovative solutions. BGH’s Kelsay notes emerging startups are developing models to negotiate drug prices on behalf of pooled employer groups, particularly for advanced therapies like cell and gene treatments.

Brian Whorley, founder and CEO of Paytient, characterizes the push to make GLP-1 drugs affordable as a critical test for employers and PBMs. “These drugs are clinically effective and life-changing but create challenging financing decisions. Success here could establish a blueprint for managing similar specialty drugs in the future,” he said.