Healthcare benefit cost increases expected to hit a 20-year high in 2027

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Total health benefit cost per employee is expected to rise 8.2% on average next year, marking the highest increase since 2003, according to a new survey of over 1,800 US employers from professional services firm Marsh.

And that’s with cost-reduction measures. If US employers take no action to lower costs, employers expect an 11% rise in the cost of current plans, the survey found.

“Think of that 11% as the underlying trend. That is how medical benefit costs are increasing, and then employers have the opportunity to try to manage that trend down to a number that they can handle, and that’s the 8.2%,” Beth Umland, director of employer research for health and benefits at Marsh, told CFO Brew.

Should these anticipated rises occur, 2027 will be the fifth consecutive year of “elevated health benefit cost growth,” Marsh said, and the 8.2% climb would be the highest increase in that five-year period.

“It’s getting close to three times CPI, so that’s going to be tough for any organization to manage, especially since healthcare costs are already expensive,” Umland said. “You add those kinds of increases on it, and it’s certainly getting CFOs’ attention.”

Out with the old. Again, sorry if you were having restful, stress-free nights.

It wasn’t always like this. “The golden age was, for about a good 10 years, employers were seeing pretty consistent increases of about 3% year over year,” Umland noted, in reference to the decade before the pandemic. “It felt as if employers had figured out how to keep health benefit cost increases pretty stable.”

The pandemic and the significant inflation spike in 2023 seemed to usher in “the end of the era of stability into where we are now,” she explained. But organizations can get better at balancing the skyrocketing costs again.

For starters, there are new cost drivers that shouldn’t get overlooked as firms design cost mitigation strategies: Marsh expects that rising GLP-1 utilization, for instance, will account “for a full percentage point of the overall cost growth for 2027.”

“The utilization of these medications has been so much greater than anyone could have anticipated that it has really been a factor pushing up cost,” Umland said. “Most of the employers who offer them will continue to offer them, but just maybe tighten the utilization controls,” she added, while a “small percentage” will likely drop coverage.

There are also new cost mitigation strategies to consider.

“The ability to really understand and measure provider performance, and understand provider charges has gotten a lot better,” Umland noted. “One of the upsides of AI technology is that the analytics have just gotten a lot better.” That can help companies find “the higher performing, less expensive providers,” she continued. “That concept has been around a long time, but it hasn’t worked. It can only work as well as the data, and all of a sudden the data is just getting a lot better.”

Data dive. And that’s where Umland recommends CFOs start: the data.

“Use your data. Take a look at the programs that you are offering now. Analyze what the impact really has been,” she recommended. And with any additional solutions you might enact “make sure that those are performing the way you hoped they would be,” she added.