Rising Healthcare Costs Forcing Employers to Rewrite Their Game Plan

Organizations and their total rewards (TR) professionals plan to overhaul their healthcare benefit strategies and programs in the face of rising costs, according to the results of WTW’s 2025 Best Practices in Healthcare Survey.

The consulting firm’s recent poll of 417 leaders from U.S. organizations that collectively employ 5 million employees found that respondents anticipate gross healthcare costs increasing by an average of 9.1% in 2026 (the highest percentage climb in more than two decades), compared to 8.1% in 2025 and 7% in 2024.

That figure for 2026, which considers the financial impact if employers took no action to lower their costs, is in line with other industry prognostications, including:

Business Group on Health (9%)
Mercer (9%)

WTW survey respondents identified three primary cost drivers for the year ahead:

Pharmaceuticals, primarily specialty drugs and glucagon-like peptide-1 (GLP-1) medications;
High-cost claimants; and,
Chronic conditions, especially musculoskeletal disorders and cancers.

As a result of rising costs, claimants and conditions, 1 in 3 surveyed leaders anticipate making “significant changes” to their healthcare benefit programs within the next three years. WTW estimated such changes could reduce the projected 2026 cost increase to 8%. Given the size of an employer’s total healthcare spend, even small percentage-point shaving can substantially impact the bottom line.

“Fewer employers are absorbing rising costs because it’s becoming too expensive,” said Tim Stawicki, a chief actuary within WTW’s health and benefits business unit. “They’re also avoiding aggressive cost-shifting because it can affect employee health, satisfaction and retention. Instead, employers are looking to bold disruptive changes that control costs and improve health to create a more sustainable path forward.”

WTW stated strategy changes will focus primarily on:

Employer medical costs
Employer pharmacy costs
Plan participant affordability
Employee well-being
Employee experience
Healthcare delivery

According to the study, 59% of survey respondents intend to implement broad cost-savings actions in the next three years, versus 46% in the past three years. These employers are prioritizing:

Changes to program subsidies;
Adoption of alternative plan designs;
Improving vendor or operational efficiency; and/or,
Utilization of more effective steerage or behavioral requirements.

Medical Conditions Spur Need for ‘Revolutionary Approach’

To address the rising impact of chronic conditions, employers generally cited the need to expand clinical programs, especially in areas such as cardiovascular health, musculoskeletal health, digestive health, obesity and oncology. Such programs typically integrate medical and pharmacy benefits, along with care management for specific conditions, to lower employer healthcare spending.

Chronic conditions, which can necessitate expensive therapies and lead to catastrophic medical outcomes and claims, are a particular concern for employers, since the WTW study revealed a small portion of plan participants are driving an inordinate share of the healthcare costs. Among the findings:

5% of plan participants account for 56% of total costs, and just 1% are responsible for 28%.
Claims once considered “high cost” at $50,000 now often start at $100,000, with multimillion-dollar claims increasingly common, driven by advanced treatments (e.g., gene therapy) or complex conditions (e.g., congenital disorders, transplants).

“Employers must take a more revolutionary approach to address both immediate cost pressures and long-term cost trends, especially since healthcare costs appear firmly on an upward trajectory,” said Courtney Stubblefield, a managing director within WTW’s health and benefits business unit. “[At the same time,] innovations in clinical programs, technology and effective uses of AI [artificial intelligence] in healthcare [can work] to address the burden of chronic disease and help people protect their health.”

Analyzing and Auditing Providers and Processes

Frequently cited methods to reduce medical expenses (in particular, those categorized as “unnecessary”) included managing vendor contracts, conducting audits, and preventing overutilization and abuse of services.

Almost half (46%) of those polled are evaluating vendor performance, and 36% have taken medical plans out to bid, with another 50% planning to do so.

In addition to these initiatives, 33% of respondents said their organizations have conducted medical claims audits to increase efficiency, with another 44% planning to do so, and 22% have conducted reviews of prior authorizations or evaluated qualifying payments for out-of-network services, with another 34% planning to do so.

Alternative plan designs, currently used by 41% of respondents’ employers, are becoming a popular, proactive way to address health and rising costs. These plans focus on attributes such as alternative or select providers, price or cost transparency, enhanced navigation, expanded use of member-facing technology, and advanced or high-performance primary care. Almost half (46%) of those surveyed said their organizations are planning or considering implementing these attributes in the next two years, which would result in 87% of employers utilizing such methods.

Pharmacy Benefits Getting Closer Attention

Diminishing Net Promoter Scores (NPS) captured in the survey indicated employers are generally frustrated with the performance of their pharmacy benefit managers (PBMs). As a result, many are re-evaluating their PBMs for increased governance and transparency. Among the action steps:

75% of respondents said they have or will take their PBM out to bid.
58% have recently audited their pharmacy benefits.
49% are using transparent and pass-through contract structures, with another 22% planning or considering doing so.

Employers also are assessing greater use of GLP-1 medications for obesity. While 57% of respondents said their organization currently covers GLP-1s for weight loss, 15% of those organizations are either considering removing coverage or have already done so in the past year. Key tactics under consideration include:

Required participation in a lifestyle management program;
A 30-day fill limit;
Step therapy;
Higher cost sharing; and,
Different coverage or criteria (i.e., body mass index) than the PBM standard.

Notably, 78% of respondents within organizations that do not currently cover GLP-1 said their employers would do so if costs were reduced.

Technology May Hold Promise

AI is beginning to take root within healthcare benefits. While just 21% of respondents said their organizations currently use AI moderately or extensively in their healthcare programs, 80% believe it will fundamentally change the way related benefits are managed, communicated and delivered in the next three years. Respondents generally see the biggest opportunities for AI in healthcare in the areas of:

Navigation and personalized decision support;
Tools to improve the employee experience;
Benefit communications; and,
Healthcare vendor evaluation.

Less ‘Tweak,’ More ‘Commitment to Long-Term Cost Control’

In total, the WTW study pointed out that many organizations are looking deeper at the problem and possible solutions.

“Employers are moving past conventional approaches such as plan design tweaks and stop-loss coverage. Instead, they’re embracing precision-driven clinical strategies — leveraging member and claims data to pinpoint high-cost areas and deploying solutions rooted in clinical effectiveness, cross-functional collaboration and accountability for outcomes,” said Susan Mueller, the firm’s senior director of health equity and well-being. “This evolution reflects a broader commitment to long-term cost control while maintaining robust, competitive benefits that help attract and retain top talent.”

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