October 26, 2026

What’s Driving Healthcare Costs in 2027? 9 Factors Employers Should Know

What’s driving healthcare costs in 2027? 9 factors employers should know

Healthcare costs have climbed fast in recent years, and 2027 won’t be any different. Employers should plan for health benefit costs to rise 8%–10% or more, the steepest increases in well over a decade. Here’s what’s behind the jump and what you can do about it.

Key takeaways

  • Major forecasters expect employer health costs to rise 8%–10% or more in 2027.
  • Cancer care has been the No. 1 driver of employer costs for five years running.
  • GLP-1 weight loss drugs, specialty medications and cell and gene therapies are pushing pharmacy spending higher.
  • Chronic conditions, an aging population, AI-driven billing and provider consolidation are adding pressure.
  • Employers who understand these drivers can plan smarter and protect their people and their budgets.

How much will healthcare costs rise in 2027?

Most forecasts land between 8% and 10% for employers, with some premiums rising even more:

  • Mercer: Total health benefit cost per employee is projected to rise 8.2% on average, the highest increase since 2003, even after planned cost-cutting measures.
  • Business Group on Health (BGH): BGH expects a 9.2% median increase, which employers hope to bring down to about 8% through plan design changes.
  • PwC: PwC projects a 9% group medical cost trend, the highest in 17 years.
  • International Foundation of Employee Benefit Plans: The foundation expects a median increase of 10%.
  • KFF: Among 295 small group insurers, the median proposed premium increase is 14%.
  • Individual Marketplace plans: The median proposed premium increase is about 15%.

Whatever the exact number, costs are heading up. Here are the nine factors driving them.

1. Cancer care

Cancer care has been the top driver of employer health costs for five consecutive years, according to BGH. More people are being diagnosed, and treatment keeps getting more expensive. Because every cancer is different, there’s no single, predictable path for diagnosis or treatment.

Diagnoses are rising among older adults and also among younger, working-age people. That means more employees and dependents are entering treatment, often needing long-term, intensive care. New therapies can lead to better outcomes, but they come with high price tags. These include cell and gene therapies (CGTs), immunotherapies, targeted drugs and personalized medicine. Treatment can cost hundreds of thousands of dollars per patient, especially in late-stage cases.

What employers are doing: promoting healthy lifestyles, encouraging cancer prevention and screenings, and partnering with centers of excellence.

2. GLP-1 medications

Glucagon-like peptide-1 (GLP-1) drugs for weight loss are now mainstream, and use keeps growing. According to Gallup’s 2026 National Health and Well-Being Index:

  • 11% of U.S. adults currently take a GLP-1 for weight loss, up from 3% in 2024.
  • 15% have used one at some point.
  • 91% of U.S. adults are aware of these drugs, up from 80% in 2024.

These medications are meant to be taken long term to keep their benefits. Users may see real health improvements, but they’ll need ongoing, high-cost treatment to maintain them.

More options are on the way. The first oral GLP-1 for weight loss became available in early 2026. Pipeline drugs such as retatrutide and CagriSema are showing strong results, and more than 100 obesity drugs are in clinical development.

How people get these drugs is changing, too. In the past, a drug left off a formulary was out of reach for most employees unless they paid full retail price, which for GLP-1s has often topped $1,000 a month. Today, people have other ways to get these drugs. Manufacturers offer direct-to-consumer pharmacy programs, the federal government runs a cash-price platform (TrumpRx.gov) and telehealth companies prescribe and fill GLP-1s outside of insurance.

What employers are doing: requiring prior authorization or participation in a weight management program, or limiting coverage to diabetes treatment. Some plans don’t cover GLP-1s at all.

3. Specialty medications

Specialty drugs are a core driver of 2027 healthcare inflation, and they now make up most new drug approvals. An estimated 80% of U.S. Food and Drug Administration (FDA) approvals in 2025 were specialty drugs [add source], and that momentum has carried into 2026. These targeted therapies treat complex chronic and rare conditions, and they’re expensive.

Two categories stand out:

  • Biologics and biosimilars: Biologics lead the specialty market, treating autoimmune diseases, cancers and more. Biosimilars are gaining ground as lower-cost alternatives as major biologics lose exclusivity. The FDA approved 18 biosimilars in 2025. Approvals in 2026 so far include the first biosimilars to golimumab (Simponi) and new denosumab, pegfilgrastim and ranibizumab products. Experts expect at least 10 new biosimilars a year over the next five years. BGH reports that employers are using formulary design, coverage policies and clinical edits to encourage lower-cost biosimilars when clinically appropriate.
  • Cell and gene therapies: As of September 2026, the FDA has approved 54 CGTs, and more than 500 more are in the pipeline, according to Trilliant Health. Examples range from chimeric antigen receptor T-cell (CAR T) therapy for blood cancers to gene editing for rare genetic disorders. These treatments can transform lives, but they’re costly and complex to deliver. BGH reports many employers are turning to centers of excellence and specialized contracts to manage CGT costs.

Because these therapies often need special handling, administration and monitoring, and come with unique payment structures, they add another layer of cost and complexity.

4. Chronic health conditions

About 90% of the nation’s $5.3 trillion in annual healthcare spending goes to people with chronic and mental health conditions. Conditions like heart disease, stroke, cancer, diabetes, arthritis and obesity need ongoing treatment, monitoring and medication. A growing share of people have two or more chronic, high-cost conditions.

  • Heart disease and stroke: The American Heart Association estimates these could affect more than 60% of U.S. adults by 2050, with related costs reaching $1.8 trillion. After adjusting for inflation, that’s about triple today’s costs. The U.S. Centers for Disease Control and Prevention (CDC) reports heart disease and stroke caused more than 850,000 deaths in 2024 and cost the healthcare system $223.2 billion a year.
  • Obesity: More than 2 in 5 U.S. adults have obesity (a body mass index of 30 or higher), according to the CDC. Obesity is linked to heart disease, Type 2 diabetes and sleep apnea, and related medical costs total nearly $173 billion a year.
  • Diabetes: More than 40 million Americans have diabetes. The CDC estimates its total cost, including medical care and lost productivity, at $413 billion in 2022.

Chronic disease keeps becoming more common in the U.S., and that trend is expected to continue through 2027 and beyond.

5. An aging population

Americans are living longer while birth rates decline, and older adults use more healthcare. The Congressional Budget Office (CBO) projects life expectancy at birth will rise from 78.9 years in 2025 to 82.3 years in 2055. Life expectancy at age 65 is expected to grow from 19.7 years to 21.8 years.

According to the Centers for Medicare & Medicaid Services (CMS), per-person healthcare spending for people age 65 and older is about five times higher than for children and almost 2.5 times higher than for working-age adults. This group is a smaller share of the population but accounts for a large share of spending, largely because of chronic conditions. As more Americans reach retirement age each year, overall healthcare spending will keep rising.

6. AI-driven billing and documentation

Artificial intelligence (AI) tools are helping providers bill for more, even when care hasn’t changed. According to PwC, AI-powered documentation and coding tools help providers capture more billable detail. Nearly 70% of health plans surveyed ranked this among their top three drivers of rising costs in 2027. As these tools spread, employers may see claims showing higher severity even when patients’ treatment is the same.

7. Catastrophic claims

A single catastrophic claim can significantly affect an employer’s health plan costs. These extremely high-cost events happen across all age groups. They often involve:

  • Cancer treatment
  • Neonatal intensive care unit (NICU) stays
  • Organ transplants
  • Mental health crises
  • Severe trauma or accidents
  • Genetic disorders
  • Advanced therapies, such as cell and gene therapy

General inflation and health system consolidation are driving prices up, making these claims even more expensive.

8. Healthcare workforce shortages

There aren’t enough healthcare workers to meet demand, and the gap is growing. The Conference Board reports more than 700,000 healthcare job openings each month, with only about 306,000 unemployed workers available to fill them. The U.S. Health Resources and Services Administration (HRSA) projects shortages of more than 141,000 physicians and more than 108,000 registered nurses by 2038. The National Institute for Health Care Management projects that 47 states will face a primary care physician shortage by 2037.

What’s straining the workforce:

  • Growing demand from older adults: Americans age 55 and older make up about 30% of the population but account for 57% of healthcare spending.
  • Clinicians nearing retirement: About 20% of active physicians are 65 or older, and another 22% are 55–64. That means more than 4 in 10 are within a decade of traditional retirement age. [Verify; original copy also cited “nearly 47%.”]
  • Rising need for behavioral health care: HRSA projects shortages of nearly 100,000 mental health counselors, nearly 100,000 psychologists and more than 43,000 psychiatrists by 2038. Behavioral health use has grown 62.6% since 2018.
  • A shrinking talent pipeline: A new $100,000 federal fee on H-1B visa petitions is expected to reduce the number of internationally trained physicians and nurses. Rural communities, low-income areas and smaller employers will likely feel it most.
  • Residency bottlenecks: Medical school enrollment has grown, but federally funded residency spots haven’t kept up. Rising tuition and student debt are also steering some top students away from medicine.

When patients wait longer or can’t get primary care, they often delay treatment until conditions worsen or head to the emergency room instead. Both lead to higher costs over time.

9. Provider consolidation

As hospitals and physician practices merge, larger systems gain negotiating power and prices go up. According to the U.S. Government Accountability Office (GAO), at least 47% of physicians were employed by or affiliated with hospital systems in 2024, up from less than 30% in 2012. Private equity owned or invested in practices representing about 6.5% of physicians. Studies reviewed by GAO show this consolidation can raise spending and prices without improving quality of care. Mercer also names provider consolidation as a factor in its 2027 projection.

Frequently asked questions

How much will employer healthcare costs increase in 2027? Most major forecasts project increases of 8%–10% or more. Mercer projects 8.2%, BGH 9.2%, PwC 9% and the International Foundation of Employee Benefit Plans 10%.

What is the biggest driver of employer healthcare costs? Cancer care has been the top driver of employer health costs for five consecutive years, according to BGH.

Why are GLP-1 drugs increasing health plan costs? GLP-1s are expensive, widely used and meant to be taken long term. With 11% of U.S. adults now taking one for weight loss, they’re a growing share of pharmacy spending.

What can employers do about rising healthcare costs? Employers can review plan design, encourage biosimilars and generics, use centers of excellence, invest in prevention and wellness, and work with a benefits partner to plan ahead.

The Bright Side

Rising costs are real, but so is your ability to get ahead of them. Every driver on this list is one you can plan for. Employers that understand where costs are coming from can make smarter plan design choices, offer prevention and wellness programs that matter, and help their people get the right care at the right time.

Small steps can make a big difference. These include encouraging cancer screenings, setting thoughtful GLP-1 coverage rules and steering members toward lower-cost biosimilars. Better care at a better value is good for your budget, and even better for your people.

You don’t have to figure it out alone. Daybright Financial helps employers simplify the complexities of employee benefits, so you can focus on your people today while planning for tomorrow. Talk to our Employee Benefits team about how to prepare your plan for 2027.

This post is not intended to be exhaustive nor should any discussion or opinions be construed as legal advice. Readers should contact legal counsel for legal advice. Content sourced from Zywave.