Why Your Employee Benefits Costs Keep Rising, and What You Can Do About It

If your renewal came in with a double-digit increase this year, you’re not alone. Employers are projecting a 9–10% jump in health care costs for 2026, with the average cost of coverage expected to exceed $18,500 per employee — the steepest increase in 15 years. The explanation from the carrier is usually a single word: trend. But “trend” isn’t a strategy, and accepting it every year isn’t your only option.

Understanding what’s actually driving costs is the first step to doing something about it.

What’s Fueling the Increases?

Medical Inflation and Utilization

The most persistent driver is medical cost inflation — the rising price of the same services year over year. Hospital systems, specialty care, and outpatient procedures all cost more than they did two years ago. Utilization bounced back sharply after the pandemic-era dip and hasn’t slowed down. People are using their benefits, which is the point — but it pushes premiums higher.

Pharmacy Costs, Especially Specialty Drugs

Specialty medications represent just 4% of all prescriptions but account for 50–70% of total drug spending. GLP-1 drugs like Ozempic and Wegovy have added an entirely new layer of cost pressure — running $766 to $1,000 per member per month. GLP-1 claims have grown from 6.9% of pharmacy claims in 2023 to 10.5% in 2025, and 57% of employers now say these medications are driving health care costs to a “great or very great extent.” If even a handful of employees are on specialty medications, it can move the needle on your entire group’s renewal.

High-Cost Claimants

Just 5% of plan members account for 56% of total health plan spending, and 1% of members drive 28% of all costs. Since 2021, the number of million-dollar claims has increased by approximately 61%. One nationally reported case involved a teacher whose employer plan absorbed over $4 million in a single year. She delivered premature triplets at 28 weeks, with the three infants spending two months in NICU before being released. A stark reminder that one claim can define an entire plan year. Without proper stop-loss coverage, that kind of exposure can be devastating for an employer group.

An Aging Workforce

As employee populations skew older, average utilization rises. Older employees typically use more healthcare services, which increases your group’s risk profile in the carrier’s eyes.

Mental Health and Chronic Disease

77% of large employers reported an increase in workforce mental health needs in 2024 — a 33-percentage-point jump from the prior year. Behavioral health claims are rising, and so is the cost of chronic conditions like diabetes, hypertension, and cardiovascular disease. These aren’t one-time claims — they generate recurring costs year after year, and they’re increasingly affecting working-age populations.

What Can You Actually Do?

Controlling cost doesn’t mean cutting benefits. It means being strategic about how your plan is designed and purchased.

1. Know Your Data

If you’re on a fully insured plan, ask for a claims utilization report at renewal. If you’re self-funded, you should be reviewing this quarterly. You can’t manage what you don’t measure. Understanding where the dollars are going — inpatient, outpatient, pharmacy, specific diagnosis categories — tells you where to focus.

2. Explore Plan Design Changes

Shifting cost-sharing through higher deductibles or copays is one lever, but it shouldn’t be the only one. Pair consumer-directed plan designs (like an HDHP with an HSA) with employee education so people understand how to use them effectively. Poorly communicated plan design changes create frustration without generating real savings.

3. Consider a Pharmacy Benefit Strategy

If you’re not actively managing your pharmacy benefit, you’re leaving money on the table. Pharmacy costs now represent roughly 27% of total health care spend — up from 21% just a few years ago. Work with a pharmacy benefit manager (PBM) or advisor who can audit your formulary, explore biosimilar alternatives to high-cost drugs, and implement prior authorization protocols for expensive specialty medications.

4. Invest in Preventive and Chronic Care Programs

This is a longer play, but one of the most effective. Employees who have access to primary care, wellness programs, and chronic disease management tools use expensive acute care less often. Telehealth, direct primary care (DPC) arrangements, and on-site or near-site clinics can all reduce downstream costs over time.

5. Evaluate Your Funding Strategy

Fully insured plans are simple, but you’re paying a significant margin to the carrier for that simplicity. Self-funded plans — or level-funded plans for smaller groups — allow you to capture the upside in good years, access your own claims data, and design more customized benefits. For groups with healthy populations, the long-term economics often favor moving away from fully insured.

6. Benchmark Aggressively at Renewal

Your advisor should be going to market every year, or at minimum every two years. Carrier pricing varies more than most employers realize, and loyalty doesn’t always pay. A competitive RFP process can reveal meaningful savings for the same or comparable coverage.

The Bottom Line

Healthcare cost increases aren’t inevitable — or at least, not at the rate most employers accept them. The difference between employers who manage costs effectively and those who don’t usually comes down to two things: access to data and the right advisory relationship.

If your current approach to renewal is reviewing the increase and choosing between Plan A and Plan B, there’s a better way. The employers who win on benefits cost are the ones who take a strategic view year-round, not just in the 90 days before renewal.

That’s exactly where a good benefits advisor earns their seat at the table.