Why Employers Can’t Seem to Predict Healthcare Costs

Every fall, HR teams and their benefits professionals go through the same exercise: Pull last year’s claims, layer on the consultant’s trend assumption, adjust for plan design changes and land on a number the chief finance officer (CFO) can live with. But data from Business Group on Health’s 2027 Employer Healthcare Strategy Survey found that, over the past three years, actual costs have exceeded employer projections.

According to the nonprofit organization’s research, employers now expect a median 9.2% increase for 2027, and even that may be optimistic. The instinctive response is to build a better forecast, but the number is a symptom. What’s driving it is a set of clinical decisions happening far upstream of any spreadsheet, and that’s where employers actually have leverage.

A better model can help set a more defensible budget, but forecasting is a measurement activity. It describes the care a population will consume and what it will cost, yet it does nothing to change either. If the goal is to bend the trend rather than brace for it, the work must happen where the costs are created — in the care pathway itself.

How Costs Are Downstream of Clinical Decisions

Nearly every dollar on a claims report traces back to where an employee first went for care, what that provider ordered and who guided the next step. For instance, musculoskeletal (MSK) care shows this clearly: 68% of employers in the Business Group of Health’s survey ranked MSK among their top three cost conditions, second only to cancer.

Consider an employee with new low back pain. One version of that episode runs from a primary care visit to a weeks-long wait for physical therapy, a magnetic resonance imaging (MRI), a specialist referral, then even an injection or surgical consult. Months pass and no one owns the outcome.

Another version starts with a provider equipped to diagnose the problem on the first visit and begin targeted conservative treatment immediately. When guideline-adherent conservative care happens early, downstream imaging, injections, surgery and opioid use all drop substantially, and total episode cost falls with them.

While the employee and condition are the same, the claims trajectory is very different.

Cost Shifting Doesn’t Change the Care Pathway

When costs come in over budget, the usual fix is to typically shift more of the burden onto employees through higher deductibles, copayments and premium contributions. That’s largely how employers expect to pull the 2027 trend from 9.2% down to about 8%. That cost shifting only changes who pays, not what gets paid for. The employee with low back pain still follows whatever pathway their first provider sets in motion. The employer just covers a smaller share.

Move From Managing Spend to Improving Resolution

When a condition resolves earlier, the downstream utilization and the cost behind it never show up. The programs and partners in a benefits ecosystem should be evaluated on that basis, and a few questions can help get there:

Where does care begin for the conditions driving your spend? Is that entry point built to diagnose and treat, or just to refer?
Can the vendor show episode resolution rates and downstream impact, or only participation?
After the first encounter, who owns the next step? Is anyone accountable for the result?
Are you measuring total episode cost or just the price of the first visit?

The More Fundamental Question

Healthcare costs will remain volatile, and no model will fully tame them, but the organizations that make real progress will treat the care pathway as the key to bringing down overall cost.

That leads to a simpler question: Are your healthcare benefits actually helping people get better? If the honest answer is unclear, that’s where the next budget cycle should start.

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