# Why are healthcare costs rising so fast in 2026?

Source: https://www.getprescience.com/guides/why-are-healthcare-costs-rising
Author: Aditya Jain, MD, Cofounder and COO, Prescience
Published: 2026-11-06
Updated: 2026-11-06
Cite as: Aditya Jain, MD. "Why are healthcare costs rising so fast in 2026?." Prescience, November 6, 2026. https://www.getprescience.com/guides/why-are-healthcare-costs-rising

Healthcare spending rises when prices, the amount of care or the intensity of treatment rise. CMS reports that national spending reached $5.3 trillion in 2024, up 7.2%. Employer premiums are a different measure: they also reflect the covered population, benefit design and contract. I would separate those causes before deciding whether a renewal calls for a new plan, a contribution change or better access to cost information.

- **2024 national spending:** $5.3 trillion (CMS)
- **2024 spending growth:** 7.2% (CMS)
- **2027 projection:** 9% commercial medical trend (PwC)
- **Renewal review:** Separate prices, use and benefit changes

## How fast costs are rising, by measure

Premiums, claims trend and national health spending are not interchangeable. A premium includes the insurer’s expected claims and other costs. Medical trend estimates the change in the cost of treating members. National spending includes multiple payers and services. A projection is not a guarantee or an approved rate increase.

**Measures to keep separate**

| Measure | Verified figure | How to use it |
| --- | --- | --- |
| National health spending, 2024 | $5.3 trillion; 7.2% growth; 18.0% of GDP, CMS | Historical national context, not an employer quote |
| Commercial medical trend, 2027 | 9% projected by PwC in its June 2026 report | Planning context; benefits and population can make your renewal different |
| Your renewal | Use the written offer and current enrollment | Reconcile per-person rates, tier mix and plan changes before comparing totals |

PwC’s live report now covers 2027. Do not cite that page as though it still supplies a 2026-only forecast. When saving a benchmark, record the report year and whether the number is before or after assumed benefit changes. Otherwise two legitimate forecasts can look inconsistent simply because they measure different things.

## Prices vs. utilization: which one is driving it?

A simplified spending model is unit price multiplied by the number of services, with an additional adjustment for service mix. More intensive treatment can raise spending even if the number of visits is flat. That distinction matters when a vendor attributes a renewal entirely to “inflation.” Ask which prices, services and population assumptions changed.

RAND’s hospital-price study found that employers and private insurers in its data paid about 254% of Medicare prices for comparable hospital services in 2022. That is an aggregate comparison in the study, not a promise that a specific employer could buy care at Medicare prices. Negotiated prices and available alternatives differ by hospital and location.

For planned care, ask whether the member can compare clinically appropriate sites that participate in the exact network. Verify the facility and professional components, relevant authorization and the scope of an estimate. For urgent symptoms or emergencies, cost comparison should not delay appropriate evaluation.

## Where a premium dollar goes

A premium pays for more than the next doctor visit. It supports pooled covered claims and includes administrative expenses and other components. A national allocation chart cannot tell you how one employer’s premium is spent. I would ask what the quote includes and avoid treating one insurer’s margins or an industry average as the margin on this contract.

**Separate a premium increase from a contribution change**

Illustrative only, not a quote. Ten employees each have an $800 monthly premium. The employer pays 80%. Assume the premium rises 10% to $880, with no enrollment or benefit change.

- Current total annual premium: 10 × $800 × 12: $96,000
- New total annual premium: 10 × $880 × 12: $105,600
- Employer cost at 80%: $84,480, up from $76,800
- Employee monthly contribution at 20%: $176, up from $160
- If employer holds its contribution at $640 monthly: Employee pays $240 monthly

The underlying premium rises 10%, but holding the employer contribution flat raises the employee’s contribution by 50%, from $160 to $240. Both descriptions can be true. Show the full premium and the contribution policy separately so employees can understand the change.

## The direct drivers

_Chart: Observed 2025 growth: inflation 2.7%, wages 4%, family premiums 6%. Separately, PwC projects 9.0% group medical-cost trend for 2026, revised June 2026._

- **Provider prices and market structure.** Consolidation can affect negotiating leverage. For your renewal, ask what network and contracted-rate assumptions changed. Do not infer a particular hospital’s price from a national ownership statistic.
- **Prescription spending.** New treatments, utilization, negotiated prices and rebates can change net spending. Ask for gross and net costs, covered indications and any formulary changes before attributing the increase to one drug category.
- **Behavioral health.** More treatment can increase spending while improving access. Ask whether the change reflects more members receiving care, more visits per member or higher prices. A cost increase alone is not evidence of inappropriate treatment.
- **Chronic conditions.** Ongoing visits, supplies and medicines belong in a realistic benefits budget. Better access is valuable, but do not promise that every preventive or management program will lower total spending.
- **Enrollment and service intensity.** Changes in covered dependents, age mix and the types of services delivered can affect the bill. Separate those changes from a like-for-like rate increase.

## The incentive problem

The ACA medical loss ratio rules generally require insurers to devote at least 80% of adjusted premium revenue to clinical services and quality improvement in the individual and small-group markets, and 85% in the large-group market. Insurers that fall short may owe rebates. This is not a direct cap on profit: administration and other expenses also matter, and the calculation includes adjustments and aggregation rules. The rules do not apply to a self-funded employer’s claims budget in the same way.

My concern about incentives is a reason to ask questions, not proof of misconduct. Ask how brokers and administrators are paid, whether compensation changes with premium or enrollment, and what happens if a promised saving does not occur. Review the agreement rather than assuming every vendor benefits from higher medical spending. A transparent fee can still buy useful work.

## What a 14% renewal means for a 10-person team

**Stress-test a hypothetical 14% renewal**

Illustrative stress test, not a quote or a market forecast. Ten employees have an average $800 monthly premium, $96,000 annually. The employer contributes 80%. Assume a 14% increase with no enrollment or benefit change.

- Current annual premium: $96,000
- Renewal at +14%: $109,440
- Increase: $13,440 a year
- Employer share of the increase (80%): $10,752
- Employee share of the increase (20%): $2,688, or about $22 more per employee per month
- Same plan after three years at 14%: About $142,000 a year

After three identical annual increases, $96,000 × 1.14³ = $142,228.22. That compounding is a scenario, not a prediction. Ask how the company would respond to several possible renewals and whether its contribution policy could remain sustainable. A lower premium that comes with higher member costs should be shown as a benefit change, not automatically as a reduction in the price of care.

## What employers can actually do

**Cost levers for a small or mid-size employer**

| Lever | What it means | Watch out for |
| --- | --- | --- |
| Funding model | Compare fully insured, level-funded, PEO and ICHRA quotes; see [level-funded vs. self-funded vs. fully insured](https://www.getprescience.com/guides/level-funded-vs-self-funded-vs-fully-insured) | Level-funded renewals can jump after a bad claims year |
| Site of care | Steer imaging, labs and planned surgery away from hospital outpatient departments to fairly priced independent sites | Only works if someone helps employees find and book them |
| Primary care and navigation | Make primary care cheap and easy, and give people someone to call for nonurgent needs, without delaying emergency care | Navigation that is just a phone tree doesn't change behavior |
| Pharmacy | Clear formulary rules, generics and biosimilars first, criteria for GLP-1s | Excluding drugs entirely can push costs into medical claims |
| Plan design | Copays people can see before a visit instead of a high deductible | A higher deductible lowers premium but discourages needed care |
| Data and transparency | Ask for claims reports and use price transparency data to see where money goes | Small groups often get little data from fully insured carriers |

- Choose a model where your vendors make money when costs go down, not up.
- Help employees get to fairly priced, high-quality care before the bill arrives.
- Assess primary care and prevention on appropriate clinical outcomes, access and evidence, without assuming every program produces a financial return.

## What usually doesn't lower costs

- **Calling cost shifting a saving.** A higher deductible changes who pays and may change use of care. Show member costs explicitly and avoid assuming that every reduction in use is appropriate or will reduce future claims.
- **Accepting a vendor’s return-on-investment claim without a method.** Ask for the comparison population, time horizon, fees, exclusions, attrition and independent review. A favorable case study does not establish a predictable return for your company.
- **Comparing unmatched quotes.** Different networks, drug coverage, deductibles, enrollment assumptions or administrative obligations can explain a lower price. Reconcile those terms before attributing the difference to efficiency.

## Keep a written renewal comparison

Before approving a renewal, save the current and proposed benefit documents with the same enrollment assumptions. Record premium rates by tier, employer contributions, employee payroll deductions and any separate fees. Mark changes to networks, prescriptions, deductibles and out-of-pocket maxima. This creates a useful record for explaining why the budget changed and avoids relying on a remembered headline about national inflation.

After implementation, review enrollment errors and access complaints through the administrator. A lower quoted price is only part of the decision. If members cannot obtain the care the proposal promised, document the issue and ask for a corrective response before the next renewal cycle.

**Put a real proposal next to the renewal record**

Use your current census and contribution policy for the comparison. Separate changes in headcount and benefits from changes in price before deciding whether an alternative improves the budget.

[Compare my renewal costs](https://www.getprescience.com/quote)

[Calculate the renewal increase](https://www.getprescience.com/tools/health-insurance-renewal-calculator)

## How Prescience approaches cost

At Prescience, we design and run your company's health plan, from setup and enrollment to claims, compliance and COBRA. What your team gets:

- **An effective $0 deductible,** so the plan helps from the first visit.
- **Simple copays** shown before a visit, capped by a low out-of-pocket maximum.
- **A broad national PPO network,** plus providers we contract with directly.
- **24/7 physician-led care navigation:** a care team that finds the right provider, books appointments and explains costs up front.

What your company gets: one monthly cost set in your quote, usually 10–20% below comparable fully insured coverage and fixed before the plan starts, with no admin fees. You keep your payroll provider, and the plan can start mid-year.

> **Prescience Diamond: A company health plan with an effective $0 deductible.** Rising trend is exactly why we fix your monthly cost in the quote before the plan year starts, so a mid-year cost surprise doesn't land on your budget.
> - **An effective $0 deductible** and simple copays shown before a visit
> - **A broad national PPO network,** plus providers we contract with directly
> - **24/7 physician-led care navigation** that books visits and explains costs
> - **Usually 10–20% below comparable fully insured coverage,** fixed in your quote, with no admin fees
> Best for teams of about 15 or more that want one great group plan. [Get a Diamond quote](https://www.getprescience.com/get-started?p=Employer&product=diamond)

## Frequently asked questions

**How much will health insurance costs rise in 2026?**

There is no single rate for every employer. Review the actual renewal, enrollment mix and benefit changes. National spending and medical-trend forecasts provide context but do not establish an approved premium increase for your company.

**How much will employer health costs rise in 2027?**

PwC’s June 2026 report projects 9% commercial medical cost trend for 2027. That forecast is not a guarantee or an employer premium quote. Your contract, enrollment, benefits and local market can produce a different renewal.

**What is driving healthcare cost increases?**

Provider prices and consolidation, more use of care since the pandemic, specialty drugs including GLP-1s, growing behavioral health use and chronic disease, plus incentives that reward higher spending.

**Are prices or utilization the bigger driver of health costs?**

Both can matter, along with service intensity and population changes. Ask for the period, population and definition behind a trend estimate. National spending, insurer claims and an employer premium renewal measure different things.

**How much do employers pay hospitals compared with Medicare?**

RAND found private plans paid hospitals 254% of Medicare rates on average in 2022, with wide variation by state.

**Where does a health insurance premium dollar go?**

Covered claims are a major component, alongside administration and other costs. The CMS medical loss ratio rules set minimum spending ratios for insured markets, subject to detailed adjustments. Those ratios are not a direct profit cap or a breakdown of your company’s specific premium.

**Why are small business health insurance premiums rising faster?**

Do not assume all small-group premiums rise faster. The insurer’s market pool, local provider prices, benefits and enrollment affect the result. Obtain the actual rate explanation and compare equivalent alternatives before attributing the increase to your employees’ claims.

**Do GLP-1 drugs raise employer health costs?**

Coverage and utilization can add pharmacy spending, but the amount depends on the drugs, indications, prices, rebates and treatment patterns. Evaluate clinical coverage and net cost separately rather than applying a national percentage to your own renewal.

**What can a small employer do about rising health insurance costs?**

Compare equivalent quotes, explain contribution changes, check clinically appropriate sites of care and review pharmacy and administrative terms. Show employee costs separately. Lower premiums alone do not prove lower total spending or better access.

## Sources

- [CMS, 2024 National Health Expenditure highlights](https://www.cms.gov/files/document/highlights.pdf)
- [PwC, Behind the numbers 2027, June 2026 projection](https://www.pwc.com/us/en/industries/health-industries/library/behind-the-numbers.html)
- [RAND, Hospital prices, Round 5.1](https://www.rand.org/pubs/research_reports/RRA1144-2-v2.html)
- [CMS, Medical loss ratio](https://www.cms.gov/marketplace/private-health-insurance/medical-loss-ratio)