Employers Eye Bold Health Care Overhauls as Cost Increases Hit 20-Year High

U.S. employers project health care costs will surge 9.1% in 2026 before plan changes, marking the highest increase in more than two decades and prompting one-third of companies to consider transformative changes to their health care programs within three years, according to a new WTW survey.

The escalating financial burden has reached a tipping point for U.S. businesses. Projected health care cost increases show a steady climb from 7.0% in 2024 to 8.1% in 2025 and 9.1% in 2026 before plan modifications. Even after implementing plan design changes to hold down costs, employers face increases of 6.0%, 7.0%, and 8.0% respectively across those years, WTW said.

Three primary culprits emerge as the main cost drivers, according to the report. Pharmacy expenses, particularly specialty pharmaceuticals and GLP-1 weight-loss medications, top the list. High-cost claimants follow closely, while chronic conditions including musculoskeletal disorders and cancers round out the top three concerns. These factors have pushed 59% of employers to plan broader cost-saving initiatives over the next three years, compared to just 46% who implemented such measures in the previous three-year period.

The financial strain of rising health plan costs extends beyond corporate budgets. Employee affordability has become a critical priority alongside managing medical and pharmacy costs, as companies recognize the delicate balance between controlling expenses and maintaining workforce satisfaction, the report noted.

Alternative Strategies Replace Traditional Cost-Shifting

Rather than simply passing higher costs to employees, companies are pursuing innovative approaches to health care cost management. Alternative plan designs have gained significant traction, with 41% of employers currently utilizing these models and another 46% planning implementation within two years. These designs emphasize select provider networks, price transparency, enhanced navigation tools, and advanced primary care options.

“Fewer employers are absorbing rising costs because it’s becoming too expensive. They’re also avoiding aggressive cost-shifting because it can affect employee health, satisfaction and retention. Instead, employers are looking to bold disruptive changes that control costs and improve health to create a more sustainable path forward,” said Tim Stawicki, chief actuary, Health & Benefits at WTW.

Vendor management has become a critical focus area. Nearly half of companies are evaluating vendor performance, while 36% have put medical plans out to bid. Pharmacy benefit managers face particular scrutiny, with three-quarters of employers bidding out these services and 58% conducting pharmacy benefit audits.

GLP-1 medications for obesity present a particular challenge, WTW said. While 57% of employers currently cover these drugs for weight loss, 15% are reconsidering or have already eliminated coverage. Cost management strategies include requiring lifestyle program participation, implementing 30-day fill limits, and establishing step therapy protocols.

Technology and Clinical Programs Shape Future Benefits

Artificial intelligence stands poised to revolutionize health care benefits management. Though only 21% of employers currently use AI moderately or extensively in their programs, 80% believe the technology will fundamentally transform benefits management, communication, and delivery within three years. Navigation support, personalized decision tools, and vendor evaluation represent the most promising AI applications, the report said.

Clinical program expansion addresses the growing burden of chronic conditions. Employers are prioritizing cardiovascular health, musculoskeletal disorders, digestive health, obesity management, and oncology support. These targeted interventions aim to improve health outcomes while controlling long-term costs.

“Employers must take a more revolutionary approach to address both immediate cost pressures and long-term cost trends, especially since health care costs appear firmly on an upward trajectory. At the same time, employers see innovations in clinical programs, technology, and effective uses of AI in healthcare to address the burden of chronic disease and to help people protect their health,” said Courtney Stubblefield, managing director, Health & Benefits at WTW.

View the full analysis here. &