Health plan cost trends for employer-sponsored benefits are approaching their highest levels in 15 years, fueled by inflationary pressure, AI implementation, a broken No Surprises Act dispute resolution process and market consolidation.
“We have seen elevated medical trends for several years, but costs now feel like they’re reaching a breaking point,” said Edward Kaplan, national health practice leader and senior vice president at Segal. “Employers and Taft-Hartley plans are under intense cost pressures to manage the affordability of wage increases, price inflation and health benefit commitments, forcing more difficult choices for decision makers.”
The median trend for medical plans is expected to reach 9.9% next year, according to the benefits and HR consulting firm’s 2027 Health Plan Cost Trend Survey. Among the key findings:
- Pharmacy surge. Prescription drug trends are projected at 11.5%, driven by surging specialty drug costs and expanding indications for GLP-1 weight-loss medications.
- Industry consolidation. Increasingly concentrated market power and the expansion of private equity interests in health care have led to higher prices and increased utilization.
- AI impacts. Increased coding intensity, without corresponding changes to patient care, is driving approximately 20% of inpatient cost growth.
- No Surprises Act arbitration. The Independent Dispute Resolution arbitration process has drastically favored providers, generating an estimated $5 billion in system costs since 2022.
“Medical providers prevail 88% of the time in No Surprises Act disputes, at costs much higher than standard in-network rates,” said Eileen Flick, the company’s leader of health care informatics and senior vice president. “These outcomes are fueling unnecessary cost growth across the health care system. It’s imperative that plan sponsors have visibility into these outcomes and are armed with the information necessary to better navigate this complex process.”
As costs increase, plan sponsors are pivoting toward direct, hard-dollar savings strategies. The top cost-management protocols being implemented include deploying narrow networks, direct contracting, risk sharing and centers of excellence to focus on preferred providers. Sponsors are moving away from inflationary, rebate-driven models toward transparent, pass-through pricing arrangements with pharmacy benefit managers. Others are shifting patient volume from high-cost hospital environments to lower-cost settings such as ambulatory surgical centers or home infusions.
“There has never been more information available, including transparency, plan and claims data for plan sponsors to leverage,” said Eric Miller, vice president and consulting actuary at Segal. “While the feeling of exasperation is palpable throughout the economy, there is benefit to taking an active role in managing plan costs through strategies that are targeted and data informed.”