Maintaining a competitive employee benefits program for your company is already costly. In fact, according to a survey from KFF in 2024, annual health insurance premiums for employer-sponsored programs came out to an average of $8,951 for single employee coverage and a whopping $25,572 for family coverage. Seeing as employers pay, on average, nearly 80% of employee health care costs for the benefit of the employee, many businesses end up seeing health care premiums as one of the biggest expenses to manage.
This article will go over the trend in rising health insurance costs, including the economic factors behind it, the effects it could have on your business, and how other businesses are managing the difficulties.
What Is an Employer-Sponsored Health Plan?
Employer-sponsored health plans are group health insurance plans provided by the employer to employees and their dependents for affordable coverage as a benefit. Employers generally pay the majority of employee health insurance premiums, which are monthly payments made to the health insurance providers to maintain coverage. Employees only pay a portion of these premiums, typically through payroll deductions.
Employer-sponsored health plans give employees a wide network of health care providers and services, including doctor’s visits, hospital care, and prescription drug coverage. Some health plans will also include more specific health care benefits, such as dental or vision plans.
Reasons for Rising Health Insurance Costs
Essentially, all reasons as to why health insurance premiums are forecasted to rise for 2026 relate directly to economic factors. Some of these factors are issues carried over from previous years or are based on other current pharmaceutical industry trends.
Here are some of the leading causes of the increase in health insurance premiums:
Increase in Inflation Causing Increased Health Insurance Premiums
Inflation is a common economic factor that disrupts all kinds of costs, including health insurance premiums for employers. Though inflation broadly affects all businesses, its unique effects on the health care industry are a contributing factor to higher health plan premiums.
Inflation causes strain on the health care industry in the following ways:
- An increase in health care employee wages, surpassing the national average
- Increase in healthcare facility expenses (overhead, supplies, etc.)
- Drug prices and an overall increase in drug spending
Inflation drives higher costs across the health care sector, from wages and facility expenses to prescription drugs. For example, drug prices alone have risen considerably over the last 40 years.
Increase in Specialty Medications
A wide variety of drugs are currently in high demand, many made to treat specific diseases or complications. Because the medications are high in demand and expensive to produce, those costs immediately take effect on insurance companies, which then trickle the costs down to the employer.
Leading examples of specialty medications increasing health insurance costs include:
- Weight loss drugs (GLP-1 drugs)
- Biologics and gene therapies
- Chemotherapies
While generic prescription drugs and biosimilars (similar products for biologics) are slowly making an effort to lower the overall price of specialty drugs, the process for these to be released for prescription use is slow, forcing companies with employer-sponsored insurance programs to pay out large sums for the brand-name drug.
Carried Over Covid-19 Costs
Despite the COVID-19 pandemic officially ending in May 2023, as stated by the World Health Organization, the costs of the pandemic have continued effects for health insurance companies.
The surges in COVID-19 hospitalizations in 2020 contributed to a high number of costs incurred by insurance companies. On average, the annual out-of-pocket payment from employees covered by large employers was $1,280 in 2020.
Because contracts between health care facilities and insurance companies can last up to five years, meaning expenses from the COVID-19 pandemic may still have outstanding balances, employer premiums would still be used to satisfy the lingering debt.
New and Existing Tariffs Affecting Prescription Drugs
As more tariffs are being proposed, as well as many existing tariffs already directly affecting the health-care industry, prescription drug prices will have an even more potent price tag on top of inflation and demand for specialty drugs.
According to the United Nations COMTRADE database on international trade from 2024, the United States has spent $213 billion on pharmaceutical imports, a considerable increase from 2023’s spending total of $178 billion. Any added tariffs affecting all pharmaceutical products or the purchase of pharmaceuticals from a particular country will have a direct impact on increasing health insurance premiums.
Future tariffs on any foreign-made pharmaceuticals could raise the prices further, adding another layer of cost pressure to employer-sponsored health plans.
The Effects Rising Health Insurance Costs Can Have on Your Business
It’s no surprise that increases in health insurance premiums can ultimately take on a large percentage of the company’s expenses. However, expenses aren’t the only issue at hand when it comes to facing higher health care premiums; the effects can also trickle down to the entire workforce.
Other ways higher health insurance premiums can negatively impact your business include:
- Issues with attracting and retaining talent with reduced benefits
- Higher risk of employee turnover
- Lower benefits satisfaction and reduced employee utilization
Maintaining a benefits package with top-tier health care insurance will keep your business competitive when acquiring new talent. Addressing rising health insurance premiums should be a top priority for all businesses when planning for next year’s benefits and open enrollment strategy.
Leveraging an employee benefits solution can help manage your current health insurance offerings and give you insight into the costs of your benefits plan.
How Businesses Are Handling the Current Issue
Finding the appropriate, cost-efficient response to the rising trend of higher health care premiums can vary, with some solutions offering a restructuring of the traditional employee benefits plan.
Effective strategies businesses of all sizes can use to counter the rise in health care premiums for the next year include:
- Adopt a Stop-Loss Insurance: A self-funded health insurance plan that caps employer liability and reimburses claims above a certain attachment point for affordability
- Transition to a Transparent Pharmacy Benefit Manager (PBM): Promote prescription drug price transparency, negotiate for lower drug costs, and encourage cost-effective options for employees
- Alternative Health Plan Options: Health Reimbursement Arrangements (HRAs), for example, allow employers to reimburse employees for qualifying healthcare costs, avoiding the fixed costs associated with traditional health insurance policies
Reviewing your employee benefits plan structure can help you figure out a strategy to cut costs on health care insurance premiums.
Get Help Managing Employer Health Insurance Costs
Maintaining a cost-efficient employee benefits program isn’t easy, but it’s essential to attract and retain talent. Understanding the needs of your employees and offering a competitive benefits package is key to attracting and retaining the workforce. Regardless, all businesses should be prepared for the forecasted rise in health insurance premiums, whether alternative benefits solutions are chosen or not.
Businesses of all sizes may see the looming trend as an immediate increase in their company’s expenses. Contact us today to get help with optimizing your benefits strategy and take control of health care insurance premiums.
