Marty Levy

September 1, 2026 | Source: Healthcare Dive, by Rebecca Pifer Parduhn

Healthcare spending isn’t just skyrocketing for U.S. companies. It’s also getting more difficult to predict, complicating efforts to keep cost growth in hand, according to new research.

Employers are projecting a median 9.2% increase in health costs in 2027, as hospital prices rise, drugs get more expensive and workers and their families simply get sicker, the Business Group on Health, a nonprofit that represents employers on health benefits issues, found in its latest survey.

Health cost growth is expected to dip to around 8% after plan benefit changes — still an uncommonly sharp year-over-year spike, if predictions bear out. But employers have underestimated actual medical spend for the past three years. And each subsequent “miss” has been bigger than the one before it, according to experts with the BGH.

That means the swell of healthcare costs coming for employers in 2027 could be even more dramatic than feared.

2025 marked “not only the highest annual cost increase, but also the largest gap between the projected and actual cost since we started collecting this data,” with the exception of 2020, the first year of the coronavirus pandemic, Ellen Kelsay, the president and CEO of BGH, said during a call with reporters on Tuesday.

“This pattern suggests that current forecasts for 2026 and 2027 may actually be too optimistic,” she said.

The BGH surveyed 127 employers covering some 8.7 million Americans for its research.

The 9.2% median increase uncovered by the group aligns with other recent polling from consultancies, including from Aon, which found employers expect healthcare costs to jump 9.5% next year.

Another survey from WTW forecasts a whopping 11.1% increase, which would represent the highest spike in costs in nearly two decades.

The findings put numbers around the unease dogging benefits professionals and human resources departments. Experts are anxious that employers — and the U.S. writ large — may be contending with an uncomfortable new normal as healthcare spending continues to surge past the nation’s economic growth, and that existing forecasting and budgeting strategies may no longer be adequate in the face of spiking medical costs.

Employers are still committed to providing health benefits to their workers, Kelsay said. But staring down another year of healthcare spending growth kissing the double-digits, employers are reconsidering the offerings on deck: trimming benefits, cutting programs and kicking vendors unable to provide cost savings to the curb.

Pernicious cost growth is also spurring a broader reappraisal of employers’ role as the backbone of the U.S. insurance system, according to the BGH CEO.

“Employers are facing, I would say, a growing existential reckoning about their role in healthcare,” Kelsay said. “For them, the calculus is really around kind of this philosophical role that they play, and how can they continue to do that on a sustainable basis.”

“That said, their backs are increasingly going to be up against a wall on these affordability challenges,” she added. “And they’re going to have to make some harder decisions.”

‘An inflection point’

Factoring in predicted trend for 2026 and 2027, cumulative healthcare costs will have jumped 76% over the past decade — more than double the rate of general inflation, the BGH found.

Employers chalk the quick growth up to skyrocketing hospital prices, as rampant consolidation eats away at competition in the sector. In particular, hospital operators have raced to acquire independent doctor’s offices, which allow them to charge additional facility fees, driving up the cost of claims.

Employers are also on the hook for higher drug spending, amid rising demand for pricey GLP-1 medications for weight loss, expensive specialty drugs entering the market and an overall decline in population health.

Pharmacy costs already make up one-fourth of total healthcare spending, and the category is projected to rise 12% in 2026 and another 12% in 2027 — a sharper uptick than overall trend, the BGH found.

For the fifth year in a row, cancer is far and away the most dominant condition driving up healthcare spending, with “no close second,” Kelsay said. Seventy percent of respondents said it was their No. 1 cost driver in 2026, up from 58% in 2025.

But other conditions, especially musculoskeletal and cardiovascular, are also reliable drivers. And employers are wary of categories necessitating complex care where spending appears to be on the rise, including maternity, gastroenterology and autoimmune conditions, like rheumatoid arthritis and lupus.

Accelerating spending on such conditions — and the expensive therapies that treat them — is an indication that America’s workforce is getting sicker. It’s a concerning trend that experts attribute to the pause in preventive care and screening during the COVID-19 pandemic, which led to doctors missing early warning signs of some serious health needs, as well as the general aging of America’s population.

“It’s clear employers are at an inflection point,” Brenna Shebel, the vice president of the BGH, said during the briefing.

Employers are also concerned about other areas that seem to be driving up spending, including artificial intelligence. More providers are putting the algorithms to work on billing, which appears to be contributing to upcoding. Some 64% of employers reported a cost impact from providers’ AI-driven revenue optimization.

Infusions, especially those related to oncology, are also drawing attention. And employers are bracing for higher costs as a result of GOP cuts to Medicaid and the loss of more generous subsidies for Affordable Care Act plans, which are expected to increase the number of uninsured Americans.

That could result in more potentially sick (and therefore costly) Americans looking for coverage through employment. Meanwhile, hospitals and doctors will likely try to make up for losses from treating uninsured people by raising prices for commercially insured individuals.

The No Surprises Act’ dispute resolution process is also a problem, employers told the BGH. The 2020 law holds consumers harmless for unexpected out-of-network medical bills by forcing insurers and providers to negotiate payment for those services themselves, with a backstop of an independent arbiter if needed.

The mechanism was meant to nudge more providers to enter contracts with insurers. But it’s had opposite effect, as providers have flooded arbiters with disputes, and reaped the lion’s share of payouts. That’s driving up U.S. health spending by billions of dollars, according to research, and inflating medical cost trend for employers by around 2%, Kelsay said, citing estimates from vendors that work with the BGH.

More than half of employers reported already experiencing high volumes of No Surprises claims, or are expecting a jump in the future.

“It’s a very, very large concern,” Kelsay said.

Making hard decisions

Employers are getting creative in light of spiking costs, increasingly reassessing benefits strategies and the vendors they partner with, the BGH found.

More employers are embarking on value-based arrangements meant to improve care quality while keeping costs in check. Some 92% of employers report they’ll be using one or more strategy like a center of excellence, a high-performance network or an accountable care organization by 2027.

More are also considering alternatives to traditional benefits arrangements, including deals with transparent pharmacy benefit managers, the BGH found. One-third of employers expect to have a transparent or “new generation” PBM in place by 2027, while almost half are considering shifting to the models in the following two years.

It’s the latest evidence that employers are fed up with the pharmacy benefits status quo. Along with concerns about rebates, leading PBMs have also been slammed for hidden fees, self-dealing and complex black box contracts that health insurers and employers say leave them in the dark.

Employers are also eschewing existing relationships if a vendor can’t demonstrate improved outcomes or lower costs, the BGH found. Some 95% of employers say they’ve issued a request for proposals for at least one vendor category. Most companies are also increasing scope of performance guarantees (83%) or increasing vendor reimbursement tied to outcomes (71%).

Another 58% of employers say they’ve already replaced or plan to replace vendors that aren’t performing in the coming year.

“One of the most visible demonstrations of employer disruption is the willingness to reevaluate these long-standing vendor partnerships and relationships to analyze their program value,” Shebel said.

To manage rising pharmacy costs, employers are also reassessing their coverage of GLP-1s.

The drugs are clinically effective but come with a steep price tag of hundreds of dollars or even upwards of $1,000 each month, leaving employers grappling with whether or not to cover them for obesity. And more businesses are electing not to, the BGH found.

The percentage of employers covering GLP-1s in that category dropped from 72% last year to 60% this year, according to the survey. Not a single employer said they plan to add GLP-1 coverage.

Companies that continue to offer GLP-1s are increasing the parameters around who can get them, including validating an individual’s clinical eligibility by checking their biometrics or requiring participation in a weight management program, the BGH found.

“Just generally speaking, healthcare affordability is becoming increasingly untenable for employers. GLP-1s have been a significant factor in that affordability equation. And for many employers, they’re having to make some hard decisions,” Kelsay said.

Today’s workforce is no longer one-size-fits-all, but many small businesses still feel forced into offering one-size-fits-all health benefits.

Small businesses face a familiar dilemma. Rising healthcare costs demand predictability, while increasingly diverse employee needs demand greater choice.

With employees working across different locations and navigating different healthcare needs, family situations, doctors, prescriptions, and provider networks, a single health plan may not work equally well for everyone.

Research commissioned by Justworks and conducted with The Harris Poll examines how small business decision-makers and employees view health benefits. The findings reveal a growing disconnect between what employers want to provide and what employees expect from their coverage.

For growing businesses competing against larger organizations for talent, benefits flexibility is becoming more than an HR preference. It is increasingly connected to recruitment, retention, and the overall employee experience.

Key Findings

Small businesses are not struggling because they do not care about employee benefits. Many are struggling to find coverage options that fit modern teams while remaining financially and operationally manageable.

Key findings from the report include:

• Half of small business decision-makers are concerned about how their current benefits may affect hiring and retention.
• Among those concerned about talent, eighty percent say it is difficult to find a health benefits solution that works for employees with different needs.
• Ninety-six percent of talent-concerned decision-makers say offering employees more choice in their health coverage is important.
• Eighty-nine percent of small business decision-makers say providing employees with more healthcare choice is important.
• Eighty-six percent of employees say flexibility in choosing their health insurance provider matters when evaluating a job offer.
• Eighty-seven percent of employees would consider working for a small business that provides a monthly reimbursement so they can select their own health insurance coverage.

The Growing “Bene-Fit” Gap

For years, conversations about employee benefits centered on one primary question:

Can the business afford to offer health insurance?

That question still matters. Cost and affordability remain the biggest health benefits challenge for many small businesses, with thirty-four percent of decision-makers identifying it as their leading concern.

However, employers are now facing a second question:

Even when we offer health insurance, does it work for everyone on the team?

According to the research, fifty-two percent of small business decision-makers worry at least quarterly that their current health benefits may not fully meet their employees’ needs.

That concern is even higher among businesses with twenty-five to ninety-nine employees.

Nearly half of small businesses are also concerned that their current benefits offering could make it harder to recruit or retain employees. Only fifty-five percent believe that a single employer-provided health plan can realistically meet the needs of everyone on their team.

Employees are expressing similar concerns from the other side of the hiring process.

Eighty-six percent say the ability to choose their health insurance provider is important when evaluating a job offer. Eighty-seven percent would consider joining a company that offered a monthly reimbursement to help them select coverage based on their own doctors, prescriptions, networks, and healthcare needs.

This disconnect is what the report describes as the “Bene-Fit” Gap: the difference between what employers want to provide and what employees need from their benefits.

Benefits Flexibility Is Becoming a Talent Gap

Growing companies have always competed for qualified employees. What has changed is what employees expect from the companies they join.

Nearly half of small business decision-makers are concerned that their benefits offering could make hiring or retaining talent more difficult.

Among this group:

• Eighty percent say it is difficult to find a benefits solution that works across different healthcare needs, family situations, and employee locations.
• Ninety-six percent say offering employees more choice in their health coverage is important.
• Forty-two percent say rising healthcare costs are causing them to reconsider how they provide benefits.

The problem is not a lack of employer concern.

Many business leaders recognize the importance of competitive benefits but may not feel they have enough tools, information, or coverage models available to address the different needs within their workforce.

Employees Want Benefits That Fit Their Lives

Employees are increasingly evaluating benefits based on how well the coverage fits their personal circumstances.

Among small business decision-makers:

• Eighty-nine percent say offering employees more choice is very or somewhat important.
• Fifty-nine percent say finding a solution that works for different employee needs is difficult.
• Forty-four percent say having more plan choices would make them more likely to offer or improve employee benefits.
• Twenty-seven percent say the greatest advantage of having access to multiple coverage models is being able to find the right fit for a diverse workforce.

When an Individual Coverage Health Reimbursement Arrangement, or ICHRA, was described to employees, the most appealing features included flexibility and the ability to choose coverage based on individual doctors, networks, and prescriptions.

An ICHRA allows an employer to provide a defined amount of money that eligible employees can use to purchase their own individual health insurance coverage.

Thirty-six percent of surveyed employees valued the ability to use remaining eligible funds toward healthcare expenses such as therapy or contact lenses. Thirty-three percent valued having greater choice based on their doctors, provider networks, and prescription needs.

The findings do not suggest that traditional group plans are no longer valuable.

Traditional employer-sponsored coverage remains an effective solution for many organizations. However, the data indicates that employees and employers are increasingly open to different approaches when a single group plan does not adequately serve the entire workforce.

Personalization Is Becoming an Employee Expectation

Employees are not necessarily rejecting employer-sponsored health benefits. Instead, many are looking for greater control over how those benefits are structured.

When asked how they would prefer employer-provided health benefits to work:

• Thirty-three percent were open to either an employer-selected plan or an employer-funded individual model, depending on quality and cost.
• Twenty-nine percent preferred an employer-selected plan or set of plans.
• Twenty-seven percent preferred receiving a set monthly amount to choose their own coverage.

This suggests that there is no single model that works for every employee or every business.

Some employees may prefer the simplicity of a traditional group plan. Others may place greater value on selecting coverage that includes their preferred doctors, medications, and provider networks.

The most effective benefits strategy may depend on the organization’s workforce, location, budget, participation levels, and long-term business objectives.

What Employers Should Consider

The research points to a broader shift in how small businesses may need to approach employee benefits.

Workers want more choice. Employers want to provide meaningful coverage. The challenge is finding a structure that balances flexibility, affordability, compliance, and administrative responsibility.

Before making changes, employers should evaluate:

• Whether the current plan is meeting employee needs
• How employees are distributed geographically
• Whether employees are using different doctors, provider networks, and prescriptions
• The predictability of the company’s healthcare spending
• Employee participation and eligibility requirements
• The administrative responsibilities associated with each benefits model
• How benefits affect recruitment and employee retention

The goal is not necessarily to replace traditional group coverage.

The goal is to understand whether the current strategy remains the most appropriate fit for the business and its employees.

CorpStrat Insight

The growing demand for benefits flexibility does not mean every company should immediately move away from traditional group insurance.

It means employers should stop assuming that one benefits structure will automatically serve every workforce.

Traditional group plans, level-funded arrangements, defined-contribution strategies, and individual coverage reimbursement models can each serve different business needs. The right approach depends on the company’s size, employee demographics, locations, budget, risk tolerance, and long-term hiring strategy.

Employers should also be careful not to evaluate health benefits based only on the annual renewal increase.

A plan that appears affordable but does not meet employee needs may create hidden costs through low participation, employee dissatisfaction, recruitment challenges, and turnover.

At the same time, providing more choice without a clear strategy can create confusion and additional administrative responsibility.

The strongest benefits strategy is not necessarily the plan with the lowest initial price or the greatest number of options. It is the one that creates the right balance between cost control, employee choice, plan quality, and operational simplicity.

CorpStrat helps employers evaluate these tradeoffs, compare available funding and coverage models, and build a benefits strategy aligned with both workforce needs and business objectives.

Source

This article references research published by Justworks in “The Small Business ‘Bene-Fit’ Gap Report,” dated July 9, 2026. The research was commissioned by Justworks and conducted with The Harris Poll.

Reference: Justworks, The Small Business “Bene-Fit” Gap Report.

And you may not need to switch insurance companies to take advantage.

By Marty Levy, CLU, RHU  |  CorpStrat Insurance & Employee Benefits

If you run a small or mid-sized business in California, you already know the annual ritual: your group health insurance renewal comes in, the premium increase makes your stomach drop, and you scramble to figure out what to cut — richer benefits, fewer employees covered, or just take the hit to your budget.

There’s a newer option that more California employers are turning to, and it’s worth understanding: level funded health plans. Major carriers including Anthem Blue Cross and UnitedHealthcare now offer these plans — and here’s the part most employers don’t realize — you may be able to access one without leaving your current insurance company.

So, What Exactly Is a Level Funded Plan?

Think of it as a smarter middle ground between two traditional options most employers already know:

• Fully insured plans — you pay a fixed monthly premium no matter what. Simple, but expensive. The insurance company keeps the profit if your group has a healthy year.
• Self-funded plans — the employer pays claims directly as they come in. More control and potential savings, but real exposure if your employees have a bad health year.

A level funded plan works like this: you pay a fixed, predictable monthly amount — just like a traditional plan. That payment covers your employees’ claims, stop-loss insurance (which protects you if claims run unusually high), and administration fees. At the end of the year, if your group’s actual claims came in lower than what you paid in, you get a refund of the difference. If claims ran higher, the stop-loss coverage kicks in — so your worst-case scenario is capped.

In plain terms: you get the budget predictability of a traditional plan, with the upside of a self-funded plan. If your employees stay healthy, money comes back to you — not to the insurance company.

Who Is This Really For?

Level funded plans are generally the best fit for:

• Employers with roughly 10 to 150 employees
• Companies whose workforce tends to be younger and relatively healthy
• Business owners who are frustrated watching premiums climb every year with nothing to show for it
• Organizations willing to look at some basic claims data to make a smarter decision

They’re not for every group. If your claims history is high or your employee population carries significant health risk, a fully insured plan may still be the right call. That’s exactly why it takes a real analysis — not just a quote — to evaluate whether this approach makes sense for your specific situation.

Anthem and UnitedHealthcare Are Already There

One of the biggest misconceptions I hear from employers is that level funded plans are only available from obscure or unfamiliar carriers. That’s no longer true. Anthem Blue Cross and UnitedHealthcare — two of the most recognized names in the business — now offer level funded products in California.

What that means practically is significant: your employees may be able to stay in the same network they’re already using, keep their current doctors and hospitals, and maintain continuity of care — while your business transitions to a structure that gives you a shot at real savings.

You don’t have to blow up what’s working. In many cases, the carrier stays the same. What changes is the financial structure behind the plan — and who benefits when your group has a good year.

The Real Advantage: Transparency

Traditional fully insured plans are essentially a black box. You write a check every month and never really know how your claims compare to your premium. Level funded plans flip that. You get actual claims data — what your employees used, what it cost, how your group performed. That information is powerful. It helps you make smarter decisions about benefits design, wellness programs, and year-over-year planning.

For employers who’ve felt like passive passengers on the health insurance train, that transparency is often one of the most valued aspects of switching.

How to Explore This — Without Going It Alone

Level funded plans aren’t complicated to run, but they do require more upfront analysis than a standard renewal. Here’s what the process looks like when we work through it together:

• We pull your current census data and review your claims history (usually the last 12–24 months).
• We run a comparison across carriers — including Anthem and UnitedHealthcare — to see which level funded structure pencils out best for your group.
• We walk through the stop-loss parameters so you understand exactly what your worst-case exposure looks like.
• We compare it side-by-side against your current fully insured renewal so the decision is apples-to-apples.

This isn’t a sales pitch — it’s an analysis. Some groups are a great fit. Others aren’t ready yet. Either way, you walk away with better information than you had before.

Ready to See If This Makes Sense for Your Business?

If you’re a California employer and you’ve never had a real conversation about level funded options, now is a good time to start — ideally before your next renewal cycle creeps up.

Reach out to me directly and we’ll take a look at your situation together. No pressure, no jargon — just a straightforward review of whether this approach could save you money and give you more control over one of your biggest operating expenses.