The New Reality of Managing Health Benefits
For years, employers managed healthcare costs by trying to stay one step ahead of inflation by tweaking plan design and contributions, negotiating rates, and relying on carriers to manage risk. That approach doesn’t work anymore.
Today, rising costs are no longer driven by inflation alone. Employers are now facing a healthcare system that operates like a sophisticated business that is increasingly focused on profitability, not affordability, not risk management, and not improving patient health.
Consolidation across the healthcare system, fueled in large part by private equity investment, has fundamentally changed how care is delivered and priced. Practices, such as claim upcoding and the use of legislative loopholes, including the No Surprises Act (NSA) and Independent Dispute Resolution (IDR) process, are contributing to unprecedented cost escalation.
At the same time, PBMs and insurance carriers are structurally designed to prioritize shareholder value over member health. New “solutions” continue to enter the market, but too often they are simply new ways to generate revenue. Neither industry has consistently shown that improving outcomes comes before earnings.
The result is clear: the cost structure has changed.
A Structural Shift
EPIC is projecting health plan trend to be between 7.5%–9.5% again this year. Unfortunately, this trend is the floor for the renewal increase.
More of total spend is concentrated in a small number of catastrophic cases. Million-dollar claims are no longer rare. Claims exceeding $5 million are showing up with increasing frequency. Cancer treatments, specialty drugs, and emerging gene and cell therapies are redefining what “high cost” really means.
These dynamics affect both fully insured and self funded employers. Loss ratios are running above historical norms, leading to a hardening insurance market. For employers, that shows up as higher rates, stricter underwriting, and less flexibility at renewal.
From Passive Sponsorship to Active Cost Management
In response, more employers are embracing strategies that once felt too disruptive.
A critical part of this shift is taking a hard look at inefficiencies and waste that have built up within health plans over time. Employers are digging into where dollars are being spent without delivering real value which may be overlapping condition management solutions, misaligned incentives, unmanaged site‑of‑care utilization, or programs that sound promising but fail to reduce risk or trend.
Instead of adding more solutions, the focus is shifting to making sure the right ones are in place and that every dollar spent has a purpose.
Key strategies include:
- Steering members to providers that deliver the best outcomes at the lowest cost, even when that means disrupting members
- Exploring less traditional carriers, TPAs, and PBMs
- Implementing alternative network structures and pricing models
- Eliminating programs that are not meaningfully impacting trend or reducing risk
If medical costs are the pressure point, pharmacy is the battlefield.
Prescription drug spend continues to outpace medical trend. GLP‑1 drugs alone have reshaped pharmacy budgets, with expanded indications and new oral formulations creating even greater exposure.
Employers are responding by:
- Exploring non‑traditional PBMs and direct‑to‑manufacturer models
- Increasing scrutiny of PBM contracts
- Demanding transparency, pass-through pricing, and audit rights
- Applying more aggressive utilization management
- Redesigning cost sharing strategies
The New Playbook: Employers in the Driver’s Seat
The takeaway is unmistakable.
Healthcare costs are being driven by forces well beyond inflation, consolidation, profit seeking behavior, and deep misalignment across the system. Waiting for carriers, PBMs, or legislation to fix the problem is no longer a viable strategy.
The employers who will succeed in this environment are those who:
- Accept that the old playbook no longer works
- Are willing to disrupt long-standing industry norms
- Treat healthcare spend with the same discipline as any other material business risk
- Embrace active governance and accountability
The landscape of benefits has changed. The playbook must too.
Our 2026 Employee Benefits Market Insights report outlines five trends that are already shaping employer-sponsored health plans, and where employers may face the most pressure on cost, risk, and compliance in the year ahead.
