Rising Employer Health Benefit Costs: What to Expect by 2027

As the landscape of employer-sponsored health benefits continues to evolve, American employers are facing unprecedented challenges when it comes to managing healthcare costs. A recent report from Marsh's National Survey of Employer-Sponsored Health Plans reveals that health benefit costs are projected to rise by a staggering 8.2% in 2027. This increase marks the steepest rise in nearly 25 years, amplifying concerns for both employers and employees alike. With costs already elevated over the past four years, understanding the underlying factors driving this trend is crucial for businesses aiming to maintain competitive benefits while controlling expenses.

The projected rise in health benefit costs comes on the heels of an average increase of 6.7% in 2026, itself indicative of the post-pandemic market dynamics. However, the compounded effects of previous years’ cost escalations and the anticipated increases signal a pressing need for strategic planning. Employers must navigate a complex landscape shaped by longstanding pressures such as provider consolidation, the introduction of advanced therapies, and shifts in costs from government-sponsored programs. Yet, it is the emergence of new factors that has propelled the 2027 increase into record territory.

Understanding the Key Drivers of Cost Increases

According to Marsh's actuaries, three new elements are primarily responsible for the rising costs, with each contributing roughly one percentage point to the overall trend:

• GLP-1 Medications: These weight management drugs, originally intended for diabetes treatment, have expanded their indications to include obesity, cardiovascular risks, and sleep apnea. As a result, the pool of eligible patients has widened, leading to significant increases in associated costs. Some employers have opted to drop coverage for these medications in 2027 to mitigate immediate expenses, but this decision may create a competitive disadvantage in attracting talent.
• AI-Enabled Claims Submission: The implementation of advanced software tools has transformed how healthcare providers submit claims. Physicians can now capture additional diagnoses and submit more precisely coded claims, resulting in a higher volume of processed claims at elevated levels. This technological advancement contributes to the rising trend as more claims are filed and approved than in previous years.
• No Surprises Act and IDR Process: The Independent Dispute Resolution (IDR) process, which was designed to protect patients from unexpected out-of-network bills, has morphed into a high-volume arbitration system. With providers filing approximately 2.6 million disputes in 2025—far exceeding federal projections—this process is adding significant costs to employer health plans.

The Impact on Employers and Their Strategies

In light of these challenges, employers are beginning to take proactive measures to manage costs. Marsh's survey highlights that 59% of employers plan to implement cost-cutting changes to their health benefits in 2027, with nearly two-thirds expecting to increase the employees’ share of premium costs next year. This shift reflects a growing trend among companies to reassess their benefits structures in response to rising expenses.

Adapting Benefits: The Rise of Variable Copay Plans

One innovative approach gaining traction is the introduction of variable copay plans. These plans, which offer low or no deductibles while incentivizing members to choose higher-performing providers for specific services, are seen as a way to steer healthcare utilization effectively. In fact, 12% of large employers plan to implement such plans in 2027, and this figure rises to 18% among employers with 20,000 or more employees. This model not only helps manage costs but also encourages quality care, potentially offsetting some of the financial burdens associated with rising claims.

Renewal Conversations: Preparing for Change

As open enrollment approaches, the topic of benefit renewal is more critical than ever. Employers must be prepared to confront the reality of cumulative cost growth and articulate the rationale behind any changes to their health benefits. For instance, an employer that has not altered its benefit structure in several years may find itself facing a stark contrast to the anticipated 11% unmanaged increase in costs. Clients who have cut GLP-1 coverage or shifted to higher-deductible plans will need to communicate these changes effectively to employees, explaining not just the adjustments but also the rationale behind them.

Considerations for Self-Funded Plan Sponsors

For self-funded plan sponsors, the impact of rising costs is particularly direct. Claims from the IDR process, for example, flow directly through their plans, necessitating careful consideration of stop-loss attachment points. Brokers advising self-funded plans should be proactive in assessing whether these attachment points were set prior to the recent surge in IDR volumes. This evaluation is crucial to avoid unexpected financial burdens as claims continue to rise.

Key Takeaways

• Projected health benefit costs are set to rise by 8.2% in 2027, the highest increase since 2003.
• Three key factors driving this increase include GLP-1 medications, AI-enabled claims processing, and the IDR process.
• Employers are responding by making cost-cutting changes, with 59% planning adjustments to their health benefits.
• Variable copay plans are emerging as a strategy to manage costs while incentivizing quality care.
• Clear communication with employees is essential during renewal conversations to explain changes in benefits.

Frequently Asked Questions

What are GLP-1 medications, and why are they significant for health benefit costs?

GLP-1 medications are a class of drugs initially developed for managing diabetes but have expanded their use in treating obesity and related health conditions. Their rising popularity has increased the number of eligible patients, leading to higher costs for employers. As these drugs become more widely prescribed, some employers have opted to limit or eliminate coverage to control expenses, which can impact their ability to attract and retain talent.

How does AI-enabled claims processing affect healthcare costs?

AI-enabled claims processing allows healthcare providers to submit more detailed and accurately coded claims, resulting in a higher number of claims being processed and approved. While this technology can improve efficiency, it also contributes to higher overall costs for employers as claims volumes increase. Employers need to be aware of this trend as they plan their budgets and benefits structures.

What is the IDR process, and how does it impact employer health plans?

The Independent Dispute Resolution (IDR) process was established to protect patients from unexpected out-of-network medical bills. However, it has led to a surge in disputes filed by providers, significantly exceeding initial projections. The resulting costs from these disputes are directly passed on to employers, particularly those with self-funded plans, necessitating careful financial planning and risk assessment.

What strategies can employers use to manage rising health benefit costs?

Employers can adopt several strategies to manage rising health benefit costs, including implementing variable copay plans that incentivize employees to choose higher-performing providers, increasing employee contributions to premiums, and adopting technology to streamline claims processing. Clear communication about changes and the rationale behind them is also essential for maintaining employee trust and satisfaction.