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Cost Management

Jesse Klein

cfobrew.com

Corporate all-hands meetings will probably have a slide about employer health insurance this year, because health insurance costs are going to be a hot topic. Get ready, because employers—and employees—will have to figure out how to cover a cost spike.

Employer coverage is expected to increase an average of 9.2% to 9.5% in 2026, the biggest increase in 15 years, according to the 

 on employers. The rising costs are attributable to lingering inflation, as hospitals ask for higher prices; the 

; and the need for more healthcare services, as rates of cancer, cardiovascular problems, and musculo-skeletal issues climb among working age people, according to the Journal.

Aging workers are also staying in jobs longer and accessing more telemedicine, which is all adding to ballooning medical care costs, the 

. And of course we can’t forget tariffs, which are affecting prices of medical devices, supplies, and drugs.

“This is the worst I’ve seen,” Pam Kehaly, CEO of Blue Cross Blue Shield of Arizona, told The Wall Street Journal about the rising healthcare costs.

Employers are looking at alternatives to cut costs and avoid pushing rate hikes onto employees. A WTW survey provided to the Wall Street Journal found that 60% of large employers were considering switching health insurers, and a third were thinking of finagling new plans with limited access to providers to cut down costs.

But some will still choose to push the costs onto employees “through larger payroll deductions for premiums or higher out-of-pocket charges such as deductibles,” per the WSJ. 

Those all-hands are going to be a lot of fun, for sure.

Health insurance costs face largest rate hike in 15 years

After three years of health insurance costs increasing, this year…they will also increase.

Alex Zank

It’s a good time to be cutting-edge technology. A human worker? Not so much.

 of more than 200 finance leaders, nearly six in 10 organizations are investing in data, modern infrastructure, and artificial intelligence. The same percentage also said they’re spending money on “operational efficiency initiatives to streamline processes and protect margins in an uncertain economic climate.”

But it’s not like companies are throwing money at AI hand over fist, at least not yet. Just 42% of the respondents said they were spending 10% or more of their capital budgets on AI, despite the fact that 84% said they’re optimistic about AI’s potential.

And it’s not all spend, spend, spend at these organizations, either.

“Cost reduction remains top of mind” among finance leaders, according to the survey. Respondents said they anticipate laying off employees, cutting capital expenses, and shedding third-party services.

“The era of blanket cost-cutting is over,” the report states. “CFOs are pursuing intelligent reallocation of capital, prioritizing transformation over trimming.” The result, according to RGP, is cuts to “legacy areas” and more money for “innovation enablers.”

 Those who’ve been in the CFO seat for a while know that role has changed significantly over the years into a strategic partner of the chief executive. But it’s not just the CEO they’re rubbing elbows with these days.

According to RGP, the finance chief “is evolving into a broader enterprise leadership position, requiring deep collaboration with CIOs and CHROs.” The consulting firm added that CFOs now share decision-making with their counterparts in HR and IT “around workforce strategy, digital investment, and enterprise transformation.”

“Whether it’s funding AI pilots, restructuring operating models, or navigating workforce redeployment, the CFO’s perspective is essential.”

CFOs say they’re prioritizing tech investments, and cutting costs elsewhere

It’s a tale of two budgets.

The “One Big Beautiful Bill” (OBBB) will have lasting impacts on electricity investment and prices for the next decade, according to a 

 from nonpartisan think tank Energy Innovation. And, surprise, surprise, it’ll make your utility bills go up.

The legislation passed by the Senate will likely boost oil and gas production by expanding drilling on public land and slashing costs by reducing the federal government’s share of revenue from fossil fuels extracted on public land. But even more and cheaper production won’t be enough to keep energy bills from going up, especially because renewable energy is 

“There’s less incentive for developers to invest in these [renewable energy] projects,” Daniel O’Brien, senior analyst at Energy Innovation, told CFO Brew. “With less new low-cost production capacity coming onto the grid, power prices become more expensive for consumers…for industries and businesses alike.”

 According to Energy Innovation’s findings, repealing Biden-era energy tax credits, along with delaying funding for agriculture and forestry projects, will increase household energy costs by $170 a year on average over the next decade.

Wholesale electricity prices will increase by 25% in the next five years and 74% in the next decade, according to Energy Innovation’s research. And in terms of higher energy costs and job cuts, the top five biggest losers of the bill are all Trump voting states: South Carolina, Florida, Texas, Kentucky, and North Carolina.

According to O’Brien, the Energy Innovation model uses government data, and sometimes academic or NGO sources, to predict “what the energy system would look like with current policies in place” analyzing power capacity needs through different economic conditions. What they found is that “the cheapest and fastest way to meet electricity needs is through wind and solar.” However, the new bill provides fewer resources and investments for those types of renewable energy sources.

For example, during the Biden years, Oklahoma 

 from an investment in windmills on its plains that provided residents with cheap, green electricity. Without the tax break, continued investment is likely to stall and prices will likely increase, according to CNBC. And O’Brien predicted that less efficient gas plants, known as peaker plants that are only meant to run at peak hours, will increase operations, pushing up costs and pollution.

 in the OBBB that forbid clean energy credits from going to projects that source materials from China will also “significantly hamper the development of domestic electricity generation capacity,” according to the report. Most 

The cuts to electricity supply come right as the US is in need of it most—for the AI boom. Data center energy needs are likely to more than double by 2035, according to 

. Restricting supply and making energy more expensive during this key moment will “damag[ing] US industrial competitiveness,” the report says.

But it’s not just electricity prices. Energy Innovation’s analysis shows that both GDP and job growth will also be collateral damage.

“Manufacturing is one of the biggest losers around the country,” O’Brien said. Without the tax credits, businesses lose the incentives for creating facilities to produce energy products like batteries and cells that go in wind turbines. And as demand for solar and wind drops, so does demand for the basic components and materials behind them, like steel and glass, causing a secondary economic downturn, he said.

The US could lose out on $980 billion in GDP as private investment stalls out, and 760,000 jobs will be lost by 2030 as factories shutter, according to Energy Innovations.

So next time your heating bill cracks triple digits, start calling your senators instead of your utility supplier.

Electricity prices will soar due to Trump’s ‘One Big Beautiful Bill,’ according to report

Just as US demand for energy skyrockets, the bill will cut off cheap, clean energy supplies

CFOs looking for quick, cheap energy could be in for a long, and expensive, wait. A 

 from the journal Energy Research & Social Science and the Boston University Institute for Global Sustainability, as well as universities in Denmark and the UK, looked at 83 countries and found that historically, more than 60% of energy projects ran over budget between 1936 and 2024. The average energy project blew past its expected costs by 40% and was delayed by nearly two years. The study found that this trend is global, including for newer tech like hydrogen, carbon capture, and nuclear.

The study examined 662 energy infrastructure projects, from coal plants and geothermal power to bioenergy and hydroelectric dams. The budget for all the projects was $812 billion, but the actual costs skyrocketed to $1.358 trillion. Nuclear power plants were the largest contributor to that increase: The average project costs $1.6 billion more than expected, or 102.5% over budget.

On the other hand, solar energy is the overachiever of the clean energy group project—usually finishing construction early or under budget, according to the report.

Most surprisingly, as projects got bigger than 1,561 megawatts in capacity, instead of benefiting from economies of scale, they were more likely to run over cost. (The study didn’t specify how much more over). These diseconomies of scale suggest that smaller, modular renewable energy projects can be deployed more easily and carry less financial risk.

Energy infrastructure is taking too long and is too expensive

Energy projects on average run 40% over budget and take two years longer than expected.

How’s this for an Onion-style headline: Tariff experts were 

 of 500 manufacturing, construction, transportation, warehouse and other industrial professionals, less than 10% of US companies have brought any manufacturing or other production back to US soil because of the tariffs.

The survey was conducted by PlantTours, a communication headset company used for tours by Disney, Johnson & Johnson, Unilever, Amazon, P&G, and many others.

On top of the lack of reshoring, 64% of the professionals surveyed said their companies made no significant supply chain changes, and only 21% said they moved to domestic suppliers.

Instead, the tariffs have caused them to increase prices, cut profit margins, and reduce their workforces.

About 75% of respondents said that the increased costs from the tariffs were showing up as increased prices for consumers. Even the 41% who initially tried to absorb the costs had to ultimately pass them along to customers. The increase in prices led to a loss of customers for at least 14% of businesses.

More than half of the respondents (55%) said that tariffs reduced their profits by 10% to 15%, and one construction company exec told PlantTours they had to revise the terms of some contracts when the cost of materials started to balloon.

Another unintended consequence of the tariffs? A push toward automation and reduction in workforce. Nearly half (45%) said they had laid people off as a result of the tariffs. Around 40% said their companies had pivoted toward innovation and automation to cut costs.

But even with the chaos, the professionals interviewed didn’t cite the tariffs as their top challenge. Inflation was still sitting pretty at the top, at 38%, and tariffs came in a lowly second at 19%. While almost 60% of respondents did say the “tariffs brought no notable upsides,” around 30% said they came with silver linings, such as forcing them to make their supply chains more resilient.

Construction site with signs blocking materials reading tariffs.

Tariffs trigger price hikes and layoffs in manufacturing and construction

Less than 10% of manufacturing and construction companies are reshoring, and one in five are switching to domestic suppliers, survey said. 

Here’s a good economic data point for a change—although to be clear, it’s a reflection of a time before President Donald Trump announced his reciprocal tariffs plan (then 

Prices for producers and manufacturers decreased 0.4% in March from the previous month, compared to increases of 0.1% in February and 0.6% in January, the Bureau of Labor Statistics 

. The producer price index report also showed that wholesale pricing increased 2.7% on an annual basis, down from 3.2% in February.

This was better than experts’ predictions, according to CNN, which 

 that “economists were expecting monthly prices to rise by 0.2% and to accelerate to 3.3% on an annual basis.”

The decrease in the producer price index is largely thanks to a 0.9% drop in the cost of goods, according to the BLS report. The cost of services also decreased in March, but only by 0.2%.

 The price of gas decreased 11.1% in March, which accounted for two-thirds of that 0.9% drop in goods pricing, according to BLS. The cost of diesel fuel, eggs, vegetables, and beef products also declined. The price of steel mill products, on the other hand, increased 7.1% last month.

Producer price index surprises economists with 0.4% decline in March

Now let’s do April.

Graison Dangor

Brace yourselves: A key measure of employer healthcare costs is poised for its biggest annual increase in more than a decade as more people use mental health care and get prescriptions for new, expensive drugs—yes, including Ozempic—according to 

For CFOs concerned about employee healthcare costs, the news isn’t great.

PwC’s report looks at the medical cost trend, i.e., the “percentage increase in the cost to treat patients from one year to the next, assuming benefits remain the same.” PwC analysts said they now expect those cost trends for 2023 and 2024 to be higher than they’d originally thought, after health plans said that more people were getting prescriptions for the new class of weight loss drugs and more treatment overall that’s “driven by demand from care deferred since the pandemic.”

The 8% now projected for 2023’s final data would be the largest jump since 2012; it’d also be a return, following a dip in 2022, to accelerating cost growth that began in the late 2010s, the analysts said. Costs for 2024 are expected to grow 7.5% from 2023.

In 2025, health plans will pay 8% more for a patient to get the same treatment they received in 2024, according to PwC’s July 15 report. But it won’t just be understaffed, highly-in-demand mental health care or weight loss drugs pushing up the costs for commercial insurance. New cell and gene therapies and drugs for Alzheimer’s disease and other neurological conditions, the analysts wrote, will be (1) expensive and (2) used a lot. The report projects hospitals that are unhappy with how much they can charge Medicare and Medicaid may try to make up for it with commercial insurance plans. Healthcare providers paying higher wages takes time to get passed on to health plans and employers. Also, the consolidation of providers, including from PE purchases, appears to be pushing up costs, according to the report.

The pace of M&A in 2023 continued to slide from a peak in 2021, but overall deal value is still higher than before the pandemic. More health plans reported that consolidation was a top factor in raising costs this year than last: “likely a manifestation of the lasting impact of consolidation on contract negotiation as existing contracts come up for renewal over time,” PwC analysts wrote.

 The labor market is tight enough that most employers won’t push a bigger share of healthcare costs on to employees, according to PwC. One concrete thing they can try is to “reevaluate employee assistance programs and behavioral health resources” the report reads, “to proactively support the mental health of the workforce, potentially reducing the need for more intensive and costly interventions later on.”

Employers can also try “seeking more transparency and better reporting” on how well their health plan has been keeping costs down to encourage better cost management. To close with some high, high-level advice: The report suggests that employers “reengineer financial, workforce, and business models and capitalize on each transformational opportunity—from investments in innovation and technology to deals.”