Healthcare costs are projected to rise 8%–10% or more in 2027. Estimates include 8.2% from Mercer, 9.2% from Business Group on Health (BGH), 9% from PwC and 10% from the International Foundation of Employee Benefit Plans. KFF reports a median proposed premium increase of 14% among 295 small group insurers.
Individual Marketplace plans face a median proposed premium increase of about 15% for 2027. Employers will also face rising healthcare costs.
Here’s a look at the key drivers that will impact rising costs.
Cancer Care
According to BGH, cancer care has led employer cost increases for five consecutive years. Rising diagnoses, including among younger adults, and costly new therapies are driving spending. Employers can respond by promoting healthy lifestyles, cancer prevention and screenings, and partnerships with centers of excellence.
GLP-1s
GLP-1 use for weight loss is rising, Gallup reports 11% of U.S. adults take these medications in 2026, up from 3% in 2024. Growing demand, ongoing treatment, and new drugs could increase employer health plan costs. Employers may require prior authorization or weight management participation, limit coverage to diabetes or exclude GLP-1s entirely. Meanwhile, direct-to-consumer and telehealth programs offer access outside insurance.
Specialty Medications
Beyond GLP-1s, specialty medications are driving healthcare cost increases in 2027. Industry experts estimate these drugs accounted for nearly 80% of FDA approvals in 2025, with growth continuing in 2026. These targeted therapies offer new treatment options for chronic and rare conditions but carry high costs.
Growing use of these specialty drugs is driving costs:
- Biologics and biosimiliars – Biologics offer targeted treatment for cancer, autoimmune diseases, and other conditions, while biosimilars provide lower-cost alternatives. Following 18 FDA biosimilar approvals in 2025, more are reaching the market. According to BGH, employers are increasingly using formulary and coverage policies to encourage biosimilar use when clinically appropriate.
- CGTs – Cell and gene therapies offer potentially transformative outcomes but pose significant cost and logistical challenges. Trilliant Health reports 54 FDA-approved therapies as of September 2026, with more than 500 in development. According to BGH, employers are using centers of excellence and specialized contracts to manage costs.
Special handling, administration, monitoring and payment structures add complexity, but specialty drug innovation continues to reshape healthcare delivery.
Chronic Health Conditions
Chronic conditions require ongoing care, driving costs for individuals and employer health plans. About 90% of U.S. healthcare spending is on people with chronic and mental health conditions. Cardiovascular disease is a major contributor: the American Heart Association projects heart disease and stroke could affect over 60% of U.S. adults by 2050, with related costs reaching $1.8 trillion.
Obesity and diabetes are major healthcare cost drivers. The CDC reports that obesity affects more than 2 in 5 U.S. adults, with related medical costs estimated at nearly $173 billion annually. Diabetes affects over 40 million Americans and costs an estimated $413 billion in medical care and lost productivity in 2022. Rising chronic disease rates are expected to sustain cost pressures in 2027 and beyond.
Aging Populations
Longer life expectancy and declining birth rates are aging the U.S. population, adding pressure to healthcare costs. According to the Centers for Medicare & Medicaid Services, per-person healthcare spending for adults 65 and older is nearly 2.5 times that of working-age adults, largely due to greater care needs and chronic conditions. As this population grows, overall spending is expected to rise.
AI-driven Billing and Documentation
AI-powered documentation and coding tools help providers capture more billable details, potentially raising employer costs without changing patient care. According to PwC, nearly 70% of surveyed health plans ranked this among their top three cost drivers for 2027.
Catastrophic Claims
Catastrophic claims, high-cost medical events such as cancer treatment, neonatal intensive care, and organ transplants, drive healthcare spending across all employee age groups. Inflation and health system consolidation further increase these costs.
Healthcare Talent Shortages
Healthcare workforce demand continues to outpace supply. The U.S. Health Resources and Services Administration (HRSA) projects shortages of over 141,000 physicians and 108,000 registered nurses by 2038, while the National Institute for Health Care Management expects primary care physician shortages in 47 states by 2037.
Key factors driving these shortages include:
- The aging population – Americans 55 and older represent about 30% of the population but 57% of healthcare spending. Their growing numbers increase demand for primary care and chronic disease management.
- Workforce approaching retirement – The physician workforce is also aging, nearly 47% of practicing physicians are 55 or older, raising concerns about retirements as demand for care grows.
- Demand for behavioral health services – HRSA projects major shortages of mental health professionals by 2038, even excluding current unmet needs. Meanwhile, behavioral health service use has risen 62.6% since 2018, outpacing overall medical use.
- A shrinking talent pipeline – Internationally trained clinicians help fill U.S. workforce gaps, but a $100,000 federal H-1B visa petition fee could hinder recruitment, especially for smaller employers serving rural and low-income communities.
- Residency bottlenecks – Medical school enrollment has grown but limited federally funded residency positions restrict how many graduates can enter practice. Rising tuition and student debt also steer some students toward other careers.
Labor shortages limit access to primary care, potentially delaying treatment and worsening conditions or pushing patients toward costlier emergency care.
Healthcare and Provider Consolidation
Provider consolidation gives larger health systems more bargaining power, potentially raising costs for employers and employees without improving care quality. According to the U.S. Government Accountability Office, at least 47% of physicians were employed by or affiliated with hospital systems in 2024, up from less than 30% in 2012. Mercer identifies consolidation as a driver of projected healthcare cost increases in 2027.
Employer Takeaway
Rising healthcare costs strain both employer and employee budgets. Understanding cost trends helps employers make informed benefits decisions. Download the bulletin for more details.
