The landscape of employer-sponsored healthcare is facing an unprecedented period of volatility, with projections indicating a near 10% increase in costs for the upcoming year. This stark forecast emerges from the latest annual survey conducted by the Business Group on Health (BGH), a prominent organization representing large U.S. employers. The findings reveal that for the third consecutive year, actual healthcare expenditures have significantly outpaced employer projections, signaling a critical inflection point for employee benefits teams nationwide. The survey, which polled 127 employers encompassing a workforce of 8.7 million individuals, recorded an 8.8% year-over-year increase in 2025, marking the highest surge ever reported by BGH members.
"It’s clear that employers are at an inflection point," stated Brenna Shebel, vice president at BGH, during a press conference unveiling the survey’s results. This sentiment underscores the growing pressure on employers to find sustainable solutions amidst escalating healthcare expenses. The current environment is characterized by a confluence of factors, including rising prices across the healthcare continuum, an aging population with complex chronic conditions, and the rapid development and adoption of expensive new treatments.
Underlying Drivers of Escalating Healthcare Expenses
The BGH survey identified several key disease categories as primary drivers behind the soaring costs. Cancer, musculoskeletal conditions, and cardiovascular diseases continue to represent the most significant financial burdens. This finding is consistent with previous editions of the survey, highlighting the persistent challenges posed by these chronic and often complex illnesses. Beyond disease-specific costs, increases in the prices charged by hospitals, outpatient facilities, and pharmaceutical manufacturers are also contributing significantly to the upward trend.
A particularly alarming statistic within the report concerns pharmacy costs. These expenses alone are projected to rise by an estimated 12% in 2027, even before the implementation of any plan design modifications. This anticipated surge in prescription drug spending underscores the growing need for employers to re-evaluate their pharmaceutical benefit strategies.
Ellen Kelsay, president and CEO of BGH, described the cost-increase findings as "no doubt quite astounding." She further elaborated on the challenges faced by employers, noting that most have already finalized their employee benefits budgets for 2026. This reality means that significant cost-cutting measures may not be feasible until 2028 at the earliest, leaving employers with limited immediate options to mitigate the immediate financial impact.
Strategic Responses: Vendor Management and Emerging Care Models
In response to these mounting pressures, employers are initiating a thorough review of their vendor relationships and third-party partnerships. A striking 95% of survey respondents have issued requests for proposals (RFPs) to assess their current vendor landscape. Furthermore, a substantial 58% of employers are planning to replace underperforming vendors or eliminate programs with low utilization rates. To ensure greater accountability, 83% of respondents have also increased the scope of their performance guarantees with health partners, demanding more tangible outcomes from their contracted service providers.
Kelsay emphasized that these vendor-focused strategies are not the sole recourse for employers. An increasing number are exploring and adopting nontraditional and emerging care models to enhance efficiency and manage costs.
One area receiving particular attention is the role of Pharmacy Benefit Managers (PBMs). Often a point of contention in the healthcare ecosystem, PBMs are undergoing significant scrutiny. The BGH survey reveals a significant shift in employer attitudes, with nearly one-third of respondents anticipating having a "transparent" or "new-generation" PBM arrangement in place by 2027. An additional 47% are actively considering such arrangements for future implementation. Kelsay cautioned that these transitions are complex and time-consuming, typically requiring 12 to 18 months to ensure thorough due diligence and a smooth operational shift to a new partner. "These are big, big processes for employers," Kelsay remarked. "It’s not something they can quickly turn on a dime."
Diversifying Care Delivery and Managing High-Cost Medications
Beyond vendor management, employers are also exploring innovative approaches to care delivery. A growing trend involves requiring plan enrollees to utilize Centers of Excellence (COEs) for specific, high-acuity medical needs. The survey indicates that 82% of BGH respondents already have a COE model in place, with an additional 12% either implementing or actively considering this strategy moving forward. The adoption of value-based solutions, high-performance networks, and accountable care organizations (ACOs) are also key components of these evolving care delivery strategies. These models aim to shift the focus from fee-for-service to outcomes-based reimbursement, incentivizing providers to deliver higher quality care at a more sustainable cost.
Conversely, employers have significantly curtailed coverage for a specific class of medications: GLP-1s, particularly for weight management purposes. Not a single employer surveyed indicated plans to expand GLP-1 coverage for weight management in 2027. More notably, 14% of respondents reported having already dropped or planning to discontinue this coverage by 2027.
These findings align with recent data from the SHRM Employee Benefits Survey, which also highlighted a disparity in GLP-1 coverage, with diabetes management far outpacing coverage for weight loss. Even among the 60% of BGH members who are maintaining GLP-1 coverage, a majority plan to implement stricter utilization controls. These controls include validating members’ clinical eligibility for the medications and requiring participation in comprehensive weight management programs.
Kelsay attributed some of the employer hesitancy towards GLP-1s, beyond their substantial cost, to their emerging role as a perceived default option for weight loss rather than one among many available treatment avenues. The proliferation of direct-to-consumer marketing for these drugs has also contributed to increased patient demand and employer cost pressures. "For many employers, they’re having to make some hard decisions about maintaining the viability of their overall plan and whether or not they can do so while still continuing GLP-1s," she stated. "Some of this is also just a reframe of all the other programs that employers have long offered, [such as] other anti-obesity medications, other lifestyle, behavior, nutrition programs, bariatric surgery, you name it." This suggests a broader strategy to integrate GLP-1s within a more holistic and cost-effective approach to obesity management, rather than as a standalone solution.
Broader Implications for Employers and Employees
The escalating healthcare costs and the strategic responses being formulated by large employers have far-reaching implications. For employees, this could translate into increased out-of-pocket expenses, higher premiums, and potentially reduced access to certain medications or treatment options. The shift towards more stringent utilization controls for expensive drugs like GLP-1s, while aimed at cost containment, may create barriers for individuals who could benefit from these therapies.
For employers, the challenge lies in balancing the provision of comprehensive benefits with the need to maintain financial sustainability. The BGH survey underscores a growing recognition that traditional approaches to healthcare management are no longer sufficient. The emphasis is shifting towards proactive health management, evidence-based care pathways, and a more discerning approach to vendor partnerships.
The trend towards Centers of Excellence, while potentially leading to better outcomes for complex conditions, could also raise concerns about geographic accessibility and employee choice. Similarly, the move towards more transparent PBM arrangements, while promising greater cost control, requires significant investment in expertise and operational change.
As employers navigate this "unprecedented" environment, the focus will increasingly be on data-driven decision-making, innovative plan designs, and a renewed commitment to fostering a culture of health and well-being among their workforce. The coming years will likely see continued evolution in how employers approach healthcare benefits, with a persistent emphasis on finding sustainable models that deliver value for both the organization and its employees. The ability to adapt and innovate will be paramount for employers seeking to mitigate the impact of rising healthcare costs and ensure the long-term viability of their benefits programs.
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