Benefits Strategy

Taking Action on Health Care Costs: A Business Group on Health Viewpoint

In an increasingly challenging cost environment, employers must strike a strategic balance between managing short-term trend increases and driving long-term value.

March 03, 2026

What Employers Are Seeing in Trend and Volatility

According to findings from Business Group on Health’s 2026 Employer Health Care Strategy Survey, employers anticipate a median 9% health care trend in the U.S., which is expected to drop to only 7.6% with plan design changes.¹ The 2023–2025 period marks the highest 3-year stretch of health care cost growth in more than a decade, signaling not only sustained pressure but increased volatility.

For the second consecutive year, actual costs exceeded employer forecasts—an increasingly concerning dynamic that is drawing greater attention from leaders seeking predictability and budget stability.

Near-Term Conditions Are Likely to Further Strain Cost Management

This volatile cost environment reflects price increases for medical services and prescription drugs, alongside persistent underlying flaws in the delivery system that limit transparency, reward volume over value and contribute to fragmented care. Rapid innovation in the pharmaceutical landscape is accelerating utilization and demand for high-priced medications, compounding affordability pressure. These forces are amplified by a growing disease burden across the workforce. While the conditions driving spend remain consistent, including cancer, musculoskeletal and cardiovascular conditions, their economic impact is intensifying due to higher unit prices, increasing utilization and the rising cost of medical and pharmaceutical therapies. As a result, cost trends have become increasingly unpredictable, with prices rising more than forecasted and a small number of high-cost claims materially increasing expense volatility. For multinational employers, these challenges are further exacerbated by double-digit benefit cost increases in some regions, reinforcing health care as a growing global burden.

Beyond traditional cost drivers, employers are navigating emerging factors that may further complicate cost management in the near term. These factors include investments in artificial intelligence (AI) that appear to increase claim costs through evolving coding and payment dynamics. Furthermore, abuses of the recently adopted federal Independent Dispute Resolution process (IDR) have aggravated the situation even more. These dynamics are unfolding as employer-sponsored plans are already under pressure, further increasing cost volatility without a clear line of sight to near-term value.

How Public Program Dynamics Add Pressure

An ever-changing macroeconomic environment further complicates the payment landscape. Each day, the U.S. sees 10,000 individuals become Medicare eligible, and of the 10,000 people born each day, nearly half qualify for Medicaid.^2,3 Recent federal changes affecting Medicaid and Affordable Care Act exchange populations are expected to increase coverage instability and administrative strain across publicly funded programs. As plans and providers absorb greater pressure from affordability challenges and enrollment churn, attention and capacity are increasingly diverted toward managing public program dynamics—exacerbating cost shift headwinds for employers in the commercial market.

How Employers Will Take the Lead to Address These Challenges

While annual cost increases are nothing new, the unprecedented rate of these increases and year-over-year volatility relative to forecasts signal a turning point that demands employer attention and action.

Survey data show that early adoption of trend mitigation tactics helps set a lower future cost trajectory, strengthening affordability over time.¹

With a long-term strategy of trend mitigation in place, the question now is how employers will address short-term demands while protecting the longer-term sustainability of their programs and meeting the health care needs of employees.

Why Pharmacy Remains a Central and Interconnected Cost Driver

Pharmacy does not operate independently from broader health care cost dynamics; increasingly pharmacy amplifies the impact of rising unit prices and the growing prevalence of complex and chronic conditions. As we explored in “Taking Action on Pharmacy: A Business Group on Health Viewpoint,” the growing impact of pharmacy as a cost driver is top of mind for employers. In 2024, nearly a quarter (24%) of employers’ health care spend went to pay for prescription drugs procured under both the medical and pharmacy benefit.¹ This upward trend continues to highlight the growing concern about pharmacy spend; in comparison, as recently as 2021, pharmacy represented 21% of overall health spend.¹

While specialty drugs and other high-cost medications like GLP-1s have accelerated pharmacy spending, employers are also contending with the rising prevalence of high-cost conditions such as cancer, musculoskeletal and autoimmune conditions. Many of these conditions require costly drug regimens and ongoing management under both the medical and pharmacy benefit. An overall increase in chronic disease burden coupled with a growing share of costs attributable to high-cost, complex cases is intensifying pressure on pharmacy budgets and reinforcing the need for more bold, strategic approaches to managing all aspects of health care spend, including pharmacy.

The current environment results in a system that is expensive for employers and employees, with inconsistent outcomes and a confusing employee experience. Employers need to actively seek to disrupt the current system.

Cost Management Calls to Action

To address rising costs, employers need to balance tactical short-term trend management and long-term strategic planning. Creating a more sustainable path forward requires employers to take a proactive and strategic approach to managing health care costs while still providing comprehensive benefits to meet growing employee needs.

Listed below are some key actions that employers can take to address these issues:

Holding vendor partners accountable: Adopt more robust accountability measures to ensure that vendor partnerships deliver value and cost efficiency. Actions may include data-driven analyses of program/solution effectiveness and engagement; increased transparency into pricing, reimbursement and payment structures; and explicitly outlined goals of each program and how vendors will be held accountable for closing the gaps.
Adopt a new approach to Request for Proposal (RFP) processes: Employers are motivated to pursue RFPs, renegotiate contracts and/or exit long-standing relationships when vendors do not deliver on stated goals. Clear performance guarantees, defined outcomes and enforcement mechanisms are becoming table stakes across health plans, PBMs and point solutions. Employers need to balance the urgency of the cost problem with taking thoughtful action, as multiyear RFPs are more likely to have longer-term, rather than near-term, impact.
Simplify and optimize the ecosystem: Employers should remove underperforming or duplicative programs and look for opportunities to simplify the ecosystem to reduce fragmentation and administrative costs. Increasingly, employers are considering alternatives to vendor relationships for pharmacy, medical and navigation services, among others. Employers can also identify opportunities to raise awareness and leverage any in-network point solution providers available through their existing health carrier(s). Another approach employers are using outside the U.S. to enable greater vendor accountability and allow for more timely data insights and analysis involves deploying a multinational captive for employee benefits.
Use data, transparency and AI to improve decision-making: Emerging transparency data and more agile reporting can be used to identify cost drivers, variation in unit prices and opportunities to improve value. By pairing claims and clinical insights with faster analytics and AI-enabled reporting, employers and their partners can support timely course corrections, stronger vendor governance and more precise benefit design. Third-party data analytics can help employers identify cases where medications or treatments could be administered more affordably at another site of care or by another provider without compromising quality. At the same time, employers must establish clear guardrails and oversight to ensure that AI applications utilized within the health care delivery system do not drive higher costs through increased coding intensity and/or expanded service utilization.
Lean more purposefully into value: Relying more on value-based network designs, such as centers of excellence (COEs), high-performance networks (HPNs), advanced primary care and other value-based offerings, can drive better health outcomes while controlling costs. In fact, a point-in-time review of the 2026 survey results comparing those employers with high trend to those with low trend suggests that the lower trend companies are more likely to deploy value-based approaches.¹ Elevating value-based strategies within program and network design and making them more attractive and accessible to members can lower cost and improve employee experience and health outcomes by shifting care toward high-quality providers and programs. Moving beyond pilots to scale proven value-based approaches while holding partners accountable for clinical and financial outcomes is also important.
Encourage employees to be more proactive: Addressing key risk factors through targeted well-being and lifestyle management programming and incentive design can help mitigate costs over the long term. Employers and their partners should utilize available data and navigation support to proactively direct employees toward preventive health screenings/services, primary care, holistic well-being programs and other high-value offerings. This approach includes making quality care an obvious and easy choice through simpler benefit design, clearer guidance at moments that matter and fewer barriers to using preferred providers and programs. Improving adherence to fundamentals is an essential prerequisite to sustainable long-term cost management.
Reassess strategies to manage pharmacy costs: Active management of prescription drug costs, especially for high-cost therapies such as GLP-1s and other specialty drugs, through utilization management and behavior-change initiatives is a must. Employers should also demand greater transparency in pricing, PBM practices and fiduciary models in order to break away from rebate-driven formularies that don’t necessarily result in the lowest net cost. While looking for lower cost, clinically effective alternatives, employers should challenge their partners to prioritize specialty generics as well as biosimilar options in formulary and utilization management strategies. Employers should also prepare to take advantage of continued changes in the pharmacy supply chain, including federal reforms, alternative operating models and direct-to-consumer pricing dynamics.
Prioritize long-term success as well as short-term savings: To effectively manage rising health care costs, employers should consider taking a long-term approach by investing in initiatives that address disparities and gaps in health access and support, increase access to mental health care and take a whole-person approach to well-being. While removing such programs may seem like an immediate way to manage costs in the short term, this approach can ultimately lead to suboptimal long-term outcomes.

Conclusion

Although employers have long focused on managing health care costs, the current state is becoming increasingly untenable for both employers and employees. Sustained cost increases, heightened volatility, a proliferation of vendor programs, declining population health, innovation and growing complexity have made health care more expensive, less predictable and harder to navigate—without commensurate improvements in outcomes or experience.

In this environment, bold and disruptive actions are necessary. The conversation must shift from whether change is disruptive to how purposeful change can restore greater predictability, value and experience in employer-sponsored health care. By acting with greater clarity, discipline and urgency, employers can address the structural issues driving today’s cost challenges.