The Growing Gap in Corporate Health Spending
Corporate health budgets are missing the mark. A new survey from the Business Group on Health reveals that employers across the United States are consistently failing to predict their future health care costs. Companies surveyed now expect a median 9.2% increase in expenses for 2027 if they make no changes to their current plans.
This pattern of missed forecasts has persisted for three years. Last year, actual costs exceeded initial company predictions by 2 percentage points. This 8.8% spike stands as the most significant error in estimation recorded by the group outside of the early pandemic period. Ellen Kelsay, president and CEO of the Business Group on Health, notes that these errors impact more than just accounting. They constrain business growth and lower the amount available for wages or capital investment.
Drivers of Unpredictable Market Volatility
Several factors contribute to this persistent forecasting failure. Rising prices for high-cost medications are a primary culprit. Specifically, spending on GLP-1 drugs for weight loss, as well as complex cell and gene therapies, is surging. Many employers find that the speed at which these new treatments enter the market outpaces their ability to build them into annual projections.
Consolidation within the provider market also plays a part. Larger hospital systems have more leverage to command higher prices. Furthermore, the implementation of the No Surprises Act has resulted in an uptick in billing disputes undergoing arbitration. These administrative hurdles add costs that firms struggle to track in real-time. Chronic disease management remains a heavy burden on corporate balance sheets, as the prevalence of long-term care needs continues to climb.
The Rising Cost of Major Medical Conditions
Cancer stands out as the single largest driver of health spending for the fifth consecutive year. Data from the survey shows that 70% of respondents identified cancer as their primary cost driver, a significant jump from 58% just one year ago. More than 90% of companies place cancer within their top three most expensive conditions.
Maternity care costs are also rising. Employers point to a higher frequency of high-risk pregnancies that necessitate extended neonatal intensive care stays. Changes in how OB-GYN providers bill for their services, which are expected to take effect in the coming year, will likely add further pressure to company budgets. These specific medical trends are forcing a fundamental reassessment of how businesses manage their role in the health care system.
Potential Shifts in Benefit Strategy
Companies are looking for ways to contain these expenditures. One common approach involves a transition to new-generation pharmacy benefit managers that promise higher levels of transparency. A third of those surveyed expect to have these systems in place by next year, while nearly half are considering the switch for 2028 or 2029.
Many firms are also restricting access to expensive drugs. Coverage for obesity-related GLP-1 medications fell from 72% to 60% over the last year. Most employers who continue to offer this coverage now require biometric verification to ensure medical necessity. Other strategies include steering patients toward lower-cost options like biosimilars or incentivizing the use of higher-performing health systems. Health care costs have climbed 76% over the last decade, a rate that dwarfs general inflation. As Kelsay points out, this trend represents an existential reckoning for businesses as they navigate their long-term role in providing employee benefits.