What You Will Learn: This article explains why employer health insurance costs are projected to rise again in 2027 and why traditional renewal strategies aren’t always enough. We will review:
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If your company’s health insurance renewal came back significantly higher than expected, you’re not alone. Employers across the country are dealing with some of the steepest healthcare cost increases in decades, and the outlook for 2027 isn’t particularly encouraging.
According to Marsh’s National Survey of Employer-Sponsored Health Plans, employers expect healthcare costs to increase an average of 8.2% in 2027, the largest projected increase since 2003. Without changes to their existing plans, employers anticipate increases averaging 11%.
We’re seeing that pressure firsthand. Double-digit renewals are increasingly common, and some companies are facing proposed increases of 30%, 40%, or more.
The difficult part is that many of the factors behind these increases have little to do with how well a company manages its benefits.
Hospital pricing, specialty medications, aggressive billing practices, and high-cost medical claims are all contributing to the problem. Meanwhile, insurance carriers have become more conservative in how they price risk.
Here’s what’s happening and where employers still have opportunities to control costs.
Hospital Prices Keep Increasing
Hospital and physician costs remain one of the largest contributors to rising health insurance premiums.
Over the past decade, hospitals and physician groups have continued consolidating into larger healthcare systems. These organizations have considerable negotiating leverage with insurance carriers, particularly in markets where there are few competing hospitals.
When carriers agree to higher reimbursement rates, those additional costs eventually find their way into employer premiums.
The price of the same procedure can also vary substantially between hospitals, even within the same geographic area.
For employers, this means the provider network included in a health plan can have a significant impact on costs. A broad network may offer more choice, but that flexibility often comes at a price.
For a closer look at how hospital pricing plays out in one state, see why California employer health insurance costs keep rising.
Healthcare Waste and AI-Assisted Billing Are Adding to the Problem
Another issue receiving increased attention is how healthcare services are billed.
Unnecessary procedures, duplicate testing, billing errors, and inappropriate charges have always contributed to healthcare spending.
Now, artificial intelligence is introducing another concern.
Hospitals and physician groups are increasingly using AI-assisted coding tools to review medical records, identify additional diagnoses, and optimize reimbursement. These systems can improve documentation and administrative efficiency, but they can also lead to higher payments when patients are assigned more complex billing classifications.
In March 2026, the Blue Cross Blue Shield Association published research estimating that approximately $2.3 billion in healthcare spending nationwide may be associated with more aggressive AI-enabled coding practices.
The distinction matters: improved medical documentation is legitimate, and AI-assisted billing isn’t inherently fraudulent. However, when higher billing classifications aren’t supported by corresponding medical care, insurers and employers may be paying more than they should.
Marsh also identified AI-enabled billing practices as an emerging contributor to projected healthcare cost increases for 2027.
For employers with self-funded plans, medical claims auditing and payment-integrity programs may be worth evaluating more closely.
Prescription Drugs Are Becoming Harder to Manage
Prescription drug spending continues to grow, driven by specialty medications, expensive treatments for complex conditions, and increasing utilization of GLP-1 medications.
Drugs such as Wegovy and Zepbound have created difficult decisions for employers considering coverage for weight management.
At the same time, specialty medications for conditions such as cancer, autoimmune disorders, and rare diseases can generate substantial costs for individual patients.
Marsh estimates that increasing utilization of GLP-1 medications alone could account for approximately one percentage point of employer healthcare cost growth in 2027.
But there’s another issue that deserves attention: how employers purchase prescription drugs.
Pharmacy Benefit Managers (PBMs) negotiate pricing and administer pharmacy benefits, often through complex arrangements involving rebates, discounts, and other compensation.
For many employers, particularly those with traditional fully insured plans, determining the actual cost of their pharmacy program can be difficult.
Depending on the funding arrangement, reviewing PBM contracts, specialty drug sourcing, rebate structures, and alternative pharmacy programs can uncover opportunities to reduce spending.
This is an area where we’ve seen employers benefit from looking beyond what their existing insurance carrier offers.
High-Cost Claims Are Creating More Volatility
One expensive medical claim can have an outsized impact on a smaller employer’s health plan.
Advanced cancer treatments, specialty medications, organ transplants, and other complex medical conditions can result in claims reaching hundreds of thousands of dollars or more.
Although stop-loss insurance can protect self-funded employers against certain large expenses, significant claims can still affect future pricing.
For fully insured groups, claims history may also influence renewal rates, depending on the market and applicable underwriting rules.
This is one reason employers need to understand what’s driving their healthcare spending rather than focusing exclusively on the overall renewal percentage.
A 25% increase resulting from a handful of high-cost claims may require a different strategy than an increase driven by broad medical inflation or higher provider reimbursement rates.
Employees Are Feeling the Pressure Too
Healthcare costs are becoming an increasingly difficult expense for employees and employers alike.
According to KFF’s 2026 Employer Health Benefits Survey, the average annual family premium reached $28,303 nationwide. Employees contributed an average of $7,471 toward that coverage.
At smaller companies, average employee contributions for family coverage were even higher, reaching $9,687 annually.
These costs affect compensation decisions, employee recruitment, and retention.
When a company receives a substantial renewal increase, absorbing the entire cost may not be financially practical. But passing the increase to employees can make coverage less affordable.
For many employers, neither option is attractive.
That’s why we’re seeing more companies reconsider how their health plans are structured and funded.
Why Traditional Renewal Negotiations Aren’t Always Enough
We’ve been working through some particularly challenging renewals this year.
Carriers are taking a more conservative approach to underwriting, especially when groups have experienced large claims or increasing prescription drug utilization.
They’re also often less willing to negotiate significant rate reductions.
Historically, employers could sometimes achieve considerable savings simply by marketing their plans to competing carriers. That remains an important part of the process, but it isn’t always enough in the current environment.
Employers need to evaluate the broader economics of their benefits programs.
That may include how the plan is funded, whether prescription drugs are being purchased efficiently, how provider networks are structured, and what opportunities exist to better manage high-cost claims.
The objective shouldn’t be to change insurance companies simply for the sake of changing. It should be to determine whether the existing arrangement is still the right one.
What Employers Can Do to Reduce Health Insurance Costs in 2027
There are several areas worth evaluating before accepting a substantial renewal increase.
1. Begin the Renewal Process Earlier
Starting 90–120 days before renewal provides time to analyze claims, compare carriers, negotiate pricing, and evaluate alternatives.
2. Compare Fully Insured, Level-Funded, and Self-Funded Options
Different funding arrangements can produce very different results. The most appropriate option depends on the company’s size, employee demographics, claims history, and willingness to assume financial risk.
3. Review Pharmacy Spending Separately
Employers with access to detailed pharmacy data should evaluate PBM contracts, specialty medications, rebates, and alternative sourcing arrangements rather than relying exclusively on the carrier’s standard pharmacy program.
4. Evaluate Hospital and Physician Networks
Lower-cost network options may provide savings without substantially reducing access to quality care. The key is understanding which providers employees use and what disruption a change might create.
5. Examine Medical Billing and High-Cost Claims
For self-funded plans, independent claims reviews, payment-integrity programs, and care navigation may help reduce unnecessary spending.
6. Revisit Plan Design and Contributions
Offering multiple plan options, adjusting contributions by coverage tier, or introducing different cost-sharing arrangements can improve affordability.
Not every strategy makes sense for every employer. The savings available, financial risks, and employee impact need to be evaluated together.
Frequently Asked Questions
How much are employer health insurance costs expected to increase in 2027?
Marsh projects an average 8.2% increase in total employer health benefit costs per employee in 2027 after planned cost-control measures. Without changes, surveyed employers anticipate increases averaging 11%. Individual renewals can be substantially higher or lower.
Why are group health insurance premiums increasing so much?
Higher hospital prices, prescription drug spending, specialty medications, complex medical claims, and broader healthcare inflation are major contributors. Provider billing practices, claims experience, and insurance market conditions can also affect premiums.
Can employers lower health insurance costs without reducing benefits?
Sometimes. Carrier negotiations, alternative funding arrangements, pharmacy management, provider network changes, and claims auditing can create savings opportunities without necessarily reducing covered benefits. Results depend on the employer and its existing program.
Is level-funded health insurance better than fully insured coverage?
Level funding may offer advantages for certain employers, but it isn’t universally better. Underwriting, renewal volatility, stop-loss coverage, contract terms, and financial exposure should all be considered before making a change.
When should employers begin reviewing their health insurance renewal?
Ideally, 90–120 days before renewal. More complex transitions, particularly those involving self-funding, new administrators, or substantial plan changes, may require additional time.
Looking Ahead
I don’t expect the health insurance market to become significantly easier in the near future.
Hospital costs continue to rise, prescription drug spending remains difficult to manage, and insurance carriers are increasingly cautious about pricing risk.
Employers will need to be more proactive about understanding where their healthcare dollars are going and whether their existing plans are structured efficiently.
At New City Insurance, we work with employers nationwide to evaluate their health insurance programs, negotiate with carriers, and identify opportunities through alternative funding arrangements, pharmacy cost management, and other strategies.
If your company is facing a difficult renewal or wants to understand whether better options are available, we’re happy to review your existing program.
Jeff Stoltey
New City Insurance