Employers brace for biggest healthcare cost bump in a decade

Modern Healthcare – Tuesday, August 19, 2025
By Nona Tepper

Employers are renegotiating vendor contracts, paring back benefits and implementing new pharmacy models to offset the largest projected rise in healthcare costs in at least a decade.

Large companies’ median healthcare costs will grow by an estimated 9% in 2026, up from 8% this year, and the highest increase since at least 2017, according to a report the Business Group on Health published Tuesday.

Employers plan to use a variety of strategies to combat rising expenses. Making changes to the health insurance they offer employees could reduce the anticipated increase in costs to 7.6% next year, the report said.

Employers’ overall costs are likely to be 62% higher in 2026 compared with their spending in 2017, according to the survey of 121 businesses covering 11.6 million people.

Roughly two-thirds of employers, or 66%, are concerned the new tax law’s reductions to exchange, Medicaid and Medicare programs will drive hospitals to raise prices for the commercially insured, the survey found. The health sector will lose $1.1 trillion over the next decade as a result of the “One Big Beautiful Bill,” the nonpartisan Congressional Budget Office reported last month.

Higher costs also reflect rising unit expenses and utilization of healthcare services, the group reported. Growing demand for glucagon-like peptide-1 receptor agonists, or GLP-1s, use of mental health services and new cancer diagnoses are key cost drivers.

Pharmacy costs comprised nearly a quarter, or 24%, of employers’ healthcare spending last year, up 3 percentage points from 2021, according to the survey. Some 84% of respondents reported being “very concerned” about overall pharmacy costs this year, and 41% said they are changing pharmacy benefit managers or soliciting bids in response. Eleven percent of businesses reported they will contract with a “transparent” PBM that returns drugmakers’ rebates in 2026.

Nearly half, or 45%, of employers also plan to reduce or will “strongly consider” cutting coverage of GLP-1s next year to combat rising expenses. Almost all employers currently cover GLP-1s for Type 2 diabetes, while 73% cover them for obesity, 49% for cardiovascular disease and 33% for treatment of chronic kidney disease, the survey said.

More than half of businesses surveyed, or 52%, noted they also plan to prioritize biosimilars in their formularies as a cost-saving measure.

Three-quarters of employers reported a higher incidence of cancers among workers this year and are looking to offer additional screenings to improve prevention efforts and increase the chances for early diagnosis. About half of the businesses surveyed will work with health systems to develop specialized cancer treatment programs, known as centers of excellence, for their workforces next year, and another 23% are considering doing so by 2028.

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