Huge surges annually in employer healthcare costs continue to drive an affordability crisis.
I have been writing a great deal lately about the coming coverage crisis in America.
Much of the attention — understandably — has been focused on the Affordable Care Act (ACA) Exchanges and the expiration of the enhanced premium subsidies. Roughly 24 million Americans are enrolled in Exchange coverage, and the loss of enhanced subsidies will have a profound impact on affordability and enrollment.
I have argued that this is bad policy. While I support reforms to the enhanced subsidies, including requiring everyone to contribute something toward coverage and instituting much stronger fraud and enrollment controls, allowing affordability to deteriorate dramatically makes little sense.
But there is a much bigger healthcare affordability story developing. It affects the more than 164 million Americans who receive health insurance through an employer. That makes employment-based insurance, by an enormous margin, the largest source of health coverage in America.
And the latest cost numbers are downright frightening.
Another round of alarming employer cost projections
In my Newsfeed, I recently highlighted several surveys showing enormous healthcare cost increases coming for employers in 2027. The bad news keeps piling up.
Marsh, formerly Mercer, now projects that employer health benefit costs will increase an average of 8.2% in 2027 even after employers make benefit and cost-management changes. Without those interventions, Marsh estimates costs would rise an astounding 11%.
Think about that for a moment. An 8.2% increase is not the unmanaged healthcare trend. It is what employers expect to experience after they do things to reduce the increase.
Marsh says it would be the largest employer health benefit cost increase since 2003 and the fifth consecutive year of elevated growth.
And Marsh is hardly an outlier. Aon projects employer healthcare costs will increase 9.5% in 2027, pushing average costs to more than $19,000 per employee. Aon calls this the fourth consecutive year of increases approaching double digits.
The Business Group on Health is telling essentially the same story. Its latest survey finds employers projecting a median 9.2% healthcare cost trend for 2027, which employers expect to reduce to about 8% through plan changes.
Even more disturbing, the Business Group calculates that, including projected 2026 and 2027 trends before plan changes, healthcare costs could rise a cumulative 76% over just 10 years — roughly twice the rate of general inflation over a comparable period.
Last, a survey from WTW forecasts an 11.1% increase. It says this would be the highest in two decades.
The numbers are remarkably consistent. We are not looking at a bad forecast from one consulting firm. We are looking at a systemic problem.
This has been building for years
Healthcare costs did not suddenly appear. Aon reports cost increases of 8.5% in 2024, 9% in 2025 and 9.5% in 2026, with another 9.5% projected for 2027.
The Business Group on Health says actual employer healthcare trends were 6.8% in 2023 and 7.5% in 2024. It projected 9% before plan changes for 2026.
Then there is Milliman. Its Medical Index has been tracking the total cost of healthcare for a hypothetical family of four with employer-sponsored insurance for two decades. In 2025, that cost reached $35,119 — nearly three times what it was when Milliman began the index in 2005.
In 2026, Milliman projects the number will rise again to $37,824 for a family of four. For an average individual, the estimated cost is $8,460, an increase of 7.9% in just one year. Milliman says that is its largest increase in more than a decade outside the unusual COVID-era fluctuations.
At some point, we need to stop calling these isolated annual increases. This is a clear trend. And it is an unsustainable one.
Uwe Reinhardt warned us about this
The late Princeton healthcare economist Uwe Reinhardt wrote a seminal book appropriately titled Priced Out: The Economic and Ethical Costs of American Health Care. That work inspired me to write The Healthcare Labyrinth.
The title increasingly describes exactly what is happening. Reinhardt spent decades explaining the fundamental contradiction of American healthcare: we spend vastly more than other developed countries, yet that enormous expenditure does not automatically translate into affordable healthcare for American families. Priced Out argued that the issue ultimately was not simply an economic question but also a question about what kind of healthcare system we are willing to tolerate.
I fear we are now watching his warning play out. We are quite literally pricing people out of healthcare. And I intentionally say healthcare, not health insurance. There is an important distinction. Someone can technically have health insurance and still be unable to afford to use it. That is the underinsurance crisis.
Employers have actually shielded workers — to a point
I think it is important to be fair to American businesses. Employers have absorbed an enormous portion of healthcare inflation over the years. Aon estimates employers now absorb more than 80% of their health plan costs. KFF tells a similar story. In 2025, average employer-sponsored family premiums reached $26,993. Employees contributed an average of $6,850 toward those premiums, meaning employers were picking up roughly $20,000 of the premium cost. That is an enormous employer contribution.
It is fashionable in some healthcare policy circles to simply blame businesses when workers’ benefits become less generous. But businesses have been trying to hold the line. But they cannot indefinitely absorb healthcare inflation running at 8%, 9%, 10% or 11% annually. Eventually something has to give. And slowly but surely, something has.
The cost shift to workers
Even where employers continue paying most of the premium, workers are increasingly exposed through premium contributions, deductibles, copays, coinsurance, narrower benefits and other plan-design changes. KFF reports that the average worker contribution toward family coverage reached $6,850 in 2025, up about 37% over the previous decade.
And then there are deductibles. The average deductible among workers with single coverage who have a general annual deductible reached $1,886 in 2025. That is up 43% over 10 years. About 34% of covered workers now have a deductible of $2,000 or more for single coverage.
The situation is even worse for employees of smaller companies. Workers at firms with 10 to 199 employees face an average deductible of $2,631, compared with $1,670 at larger employers. More than half of covered workers at smaller firms have deductibles of at least $2,000.
And nearly three-quarters of covered workers have an out-of-pocket maximum exceeding $3,000 for single coverage. One in five face maximum exposure above $6,000.
This is how the underinsurance problem grows.
We need to talk much more about the underinsured crisis
I talk a lot about the uninsured in The Healthcare Labyrinth. But I increasingly believe underinsurance may be one of America’s most underappreciated healthcare problems. A person with a $2,000 or $3,000 deductible who lives paycheck to paycheck may technically be insured. But what happens when that person needs an MRI? What happens when the specialist requires hundreds of dollars of cost sharing?
What happens when a family suddenly faces several thousand dollars in medical bills? Too often, people delay care. They skip care. They don’t fill prescriptions. They don’t get diagnostic tests. They wait until their condition becomes more serious.
The Commonwealth Fund found that 23% of insured working-age adults were underinsured in 2024 because their out-of-pocket costs or deductibles were high relative to their incomes. Most strikingly, 66% of the underinsured had employer coverage. Among underinsured adults, 57% reported foregoing care because of cost and 44% reported medical debt.
Read those numbers again. These people have insurance. Yet more than half of the underinsured skipped needed healthcare because they couldn’t afford it. That is why I continue to argue that policymakers cannot simply celebrate insurance coverage numbers. Coverage is important. Affordability is equally important. If people cannot afford to use their coverage, we have not solved the healthcare access problem.
Employers are running out of places to go
The 2027 employer surveys suggest businesses are reaching a breaking point. Employers can negotiate harder. They can change health plans. They can adopt centers of excellence. They can increase primary care. They, too, can implement disease-management programs, scrutinize pharmacy benefit managers and formularies, and impose prior authorization. They can increase deductibles and employee contributions as well as reduce benefits.
But none of those things changes the underlying reality: the healthcare system itself costs too much. Indeed, Business Group on Health says pharmacy now represents about 25% of employer healthcare spending, with employer drug costs expected to increase 12% in 2026. Cancer remains the leading condition driving employer healthcare spending, while musculoskeletal and cardiovascular disease remain major contributors.
We are also beginning to see difficult coverage decisions. Only 60% of employers surveyed by Business Group on Health now cover GLP-1 drugs for obesity, down from 72% in 2025. Employers are being forced to make increasingly difficult decisions about what they can afford.
This is much bigger than the Exchange subsidy debate
The enhanced Exchange subsidy debate is enormously important. But we cannot lose sight of the scale of the employer market. More than 164 million Americans had employment-based insurance in 2024. o, when healthcare costs rise 8%, 9% or 10% in the employer market, we are talking about an affordability challenge affecting a population many times larger than the Exchange population.
And the two issues are connected. They are symptoms of the same disease. We have spent too much time in American healthcare policy debating who pays the bill rather than why the bill is so high in the first place.
Should government pay more? Should employers pay more? Should employees pay more? Should taxpayers pay more? Those are financing questions. They do not fundamentally solve the cost problem. At some point, the answer cannot simply be to move an unaffordable bill from one pocket to another.
We need healthcare reform
This is why I continue to advocate comprehensive healthcare reform. We need price reform, including site-neutral payment reform and greater scrutiny of excessive commercial healthcare prices. We need to address the impact of provider consolidation, where hospitals acquire physician practices and healthcare services suddenly become much more expensive without necessarily becoming any better. The same holds true for payer consolidation and anti-free market behaviors. We need far greater transparency and accountability in prescription drug pricing and the PBM system.
We need to move away from a healthcare system obsessed with treating illness after it occurs and toward one centered on primary care, prevention, chronic disease management and keeping people healthy.
We need technology that allows us to identify risk earlier and manage people continuously rather than waiting for the next expensive encounter.
And we need a healthcare system that rewards value rather than simply generating more healthcare services at ever-higher prices.
None of this means denying people care. Quite the opposite. The purpose of healthcare reform should be to make healthcare more accessible because it is more affordable. Because the American healthcare affordability crisis is no longer confined to people without insurance. It increasingly includes middle-class Americans who have jobs. They have insurance cards. Their employers may be spending $15,000, $20,000 or more every year providing them with healthcare benefits. The workers themselves may be spending thousands more on premiums and then face thousands of dollars of deductibles and cost sharing when they actually need care.
That is an extraordinary amount of money. And still, for too many Americans, healthcare does not feel affordable. That should tell us something profound. We cannot continue allowing healthcare costs to grow two or three times faster than the rest of the economy and assume employers, taxpayers and families will somehow absorb the increases forever.
They won’t. Eventually, employers reduce benefits. Workers pay more. People become underinsured. Some become uninsured. Others delay care. And ultimately health outcomes suffer.
Uwe Reinhardt warned us about being Priced Out. Increasingly, that is exactly what is happening. The latest employer surveys are not simply another set of depressing healthcare statistics. They are a warning that the American healthcare financing system is approaching its limits.
#healthcare #coverage #uninsured #underinsured
— Marc S. Ryan
