Corporate America has watched its spending on employee healthcare rise steadily higher over the past three years, but 2026 is shaping up to reflect the biggest increase in a decade. Employers predict that healthcare spending will rise by 9%, according to a new survey, after an 8% spike this year, the previous 10-year high.
The 2026 increase is driven by a perfect storm: high demand for weight loss drugs, increased diagnoses and costly treatments for cancer and mental health, pharmaceutical tariffs, and sophisticated AI-enhanced billing systems used by more and more hospitals. And it is almost certain to lead to higher employee premiums and deductibles.
The annual survey of 121 companies, covering 11.6 million employees and their families, was released in August by the Business Group on Health, a coalition of more than 400 companies. “The story this year is perhaps more daunting and sobering than it has ever been,” said Ellen Kelsay, president of the Business Group.
Annual premiums for employer-sponsored health insurance increased 7% a year for the past two years, according to a report by the non-profit think tank KFF, to an average of $25,572 per employee for family coverage and $8,951 for individuals. Companies typically pay 75% to 80% of the premium cost, or, as KFF CEO Drew Altman said, “employers are shelling out the equivalent of buying an economy car for every worker every year to pay for family coverage.”
What does this mean for employees? Kelsay says increased employee contributions are usually a last resort but acknowledged that “these cost increases are a situation that we haven’t seen before.” Given that 154 million Americans rely on employer-sponsored health insurance, higher employee contributions are sure to have a ripple effect on the economy.
The Business Group report followed on the heels of a survey by the International Foundation of Employee Benefit Plans in which U.S. employers projected a median healthcare cost increase of 10% for next year. Again, the blame was place on GLP-1 weight loss drugs such as Wegovy and Ozempic, cancer treatments, and increased care for catastrophic illnesses.
In fact, pharmaceuticals are a major driver of increased healthcare costs, accounting for 24% of all employer healthcare spending in 2024, up from 21% just three years ago. Employers expect an 11% to 12% increase in pharmacy costs in 2026, the Business Group survey found.
And it is the weight loss drugs that are driving pharmaceutical spending. About 80% of respondents to the Business Group survey said they’ve seen an increase in the use of GLP-1 drugs, which can cost up to $1000 a month. Another 15% said they anticipate future increases.
That’s not surprising. About 12% of U.S. adults say they have already been prescribed a GLP-1 drug, according to a 2024 poll by KFF, and about 40% of the adult population is obese. Consequently, an estimated 137 million U.S. adults are medically eligible for a GLP-1 drug, which is likely to soon make the medicines the most prescribed pharmaceuticals.
“There is the question of whether all the people on these medications are the appropriate population,” Kelsay said. Currently, 99% of employers surveyed cover GLP-1 drugs for diabetes and 73% cover them for obesity. She expects that “the number of companies covering GLP-1s for conditions other than diabetes will stagnate as employers try to stabilize healthcare costs.”
There have been reports that covering the cost of GLP-1 weight loss drugs could pay off for employers down the road by alleviating the number of health conditions associated with obesity, but Kelsay is not so sure. “This is a costly drug with indications for a large number of conditions and a growing number of patients.” she said. “That presents a very real cost challenge near term for the employers.”
It’s not just obesity that is expensive. Employers regularly cite the sky-high price tag of cancer treatments as another significant cost driver. The average cost of cancer care is about $150,000 per patient and represents 16% of total healthcare spending by employers. A 2024 survey found that the majority of employers expect annual cancer spending to rise 30% over the next year.
Meanwhile, large employers and insurers are facing off with more and more hospitals over artificial intelligence-assisted “documentation improvement” systems that can scan health records and physician notes and find diagnoses that may have been missed, and thus not billed for. The result: AI can increase the number of conditions per patient, raising reimbursements.
In a recent earnings call, Cigna CEO David Cordani said the insurer is well aware that “sophisticated provider billing systems” powered by artificial intelligence have led to higher hospital billings. As a result, Cigna is expanding its own use of AI. “Some of those capabilities help us to counteract, address and proactively engage very differently” with hospital AI systems, Cordani said.
Then there are the tariffs that President Trump has been threatening for months. He recently told CNBC’s Squawk Box that he will initially impose a “small tariff” on imported pharmaceuticals, but in a year to 18 months he will raise that rate to 150% and then 250%.
A new KFF report looked at the impact of the expected tariffs on small businesses and predicted that their insurers, which must make assumptions about future costs well in advance, will likely incorporate these potential cost increases into their proposed rates for the upcoming plan year, rather than waiting for a final White House decision. “This dynamic could translate into higher employee benefit costs for small businesses as these tariffs take effect,” the KFF authors said.
In the Business Group survey, 12% of employers said they would immediately increase employee contributions to health insurance if pressed to lower cost growth. A Mercer survey from July found that 51% of companies with 500 or more employees said they are likely or very likely to shift more costs onto staff through higher premiums, deductibles, or out of pocket maximums.
Such increases can come with a lot of negatives. The National Bureau of Economic Research estimates that every 10% increase in corporate health insurance costs reduces the chances of being employed by 1.6% and reduces wages by 2.3%. NBER researchers warn that rising health insurance costs not only reduces take-home pay, and hence consumer spending, but can increase the number of people who are uninsured, “leaving them more vulnerable to health, mortality, disability and other significant risks in the long-run.”