An annual survey of businesses sponsoring employee health coverage is warning of expensive premium hikes in 2026, with an expected average jump of 9.0 percent before cost-cutting changes are implemented. Employers believe they can hold the premium rise to 7.6 percent with plan adjustments, although some of what is being discussed, such as tighter provider networks, might generate opposition among workers.
While another year of rapidly rising premiums is certainly not what American businesses were hoping for, they should not be surprised. Indeed, the outlook for 2026 fits a pattern going back many years, as documented in a separate recurring report produced by Milliman, the benefits consulting and actuarial firm.
Twenty years ago, Milliman created an index to track annual cost growth for a typical household enrolled in employer-sponsored insurance (ESI). The latest release, reflecting 2025 data, shows cost escalation well in excess of general inflation and wage increases over the entire period.
The MMI assesses the cost experience of a fixed-in-time household (two adults and two children of specified ages) enrolled in a standard preferred provider organization paying national average rates for covered services (the firm’s website also allows users to examine cost trends for other household configurations). The MMI looks at pricing for those services needed by average patients in the examined household. The PPO is assumed to cover 85 percent of the total costs of covered claims.
In 2005, the average cost of care for the MMI’s household was $12,214. Twenty years later, it had reached $35,119—a 188 percent increase.
On an annual basis, the MMI has escalated at an average nominal rate of 6.1 percent while average consumer price inflation over this period was 2.5 percent. Thus, real growth in health costs was, on average, 3.6 percent annually across two decades.
There is some variability in growth rates across provider settings and products. Real cost growth for inpatient facilities (primarily hospitals) has gone up at an annual average rate of 2.5 percent. For pharmaceuticals, the rate has been 3.7 percent, and for outpatient services, 4.5 percent. (In this base case, the MMI excludes drug rebates because of their insignificance twenty years ago; including them does not change the basic story of rapidly rising overall costs).
The MMI estimates workers pay for 42 percent of ESI through premiums (27 percent) and cost-sharing (15 percent), with employers paying for the rest of the bill through their contributions.
However, this first-approximation division of the financial burden is misleading in that it implies the employer share does not get passed onto workers. Both economic theory and empirical evidence say otherwise. A recent study estimated that every 1.0 percent increase in health care prices produces a 0.4 percent reduction in total spending on labor costs at firms outside of the health sector.
Cost growth in health care since 2005 (188 percent) has far exceeded price inflation for bread (73 percent), electricity (80 percent), and gasoline (42 percent).
The cumulative effect of persistent hyperinflation in health care bills is a strong preference among voters for better cost control by the government. With health care seen as an unavoidable expense, many households have been forced to curtail consumption of other goods and services.
If steady medical care price increases translated into better quality and convenience, inflated bills might trigger less resentment. But there is strong evidence that much of the national health care bill is wasteful and not tied to improvements in care or patient health.
Proponents of full government control of the health sector want to address the problem by extending Medicare’s regulated rates to the commercial market. Absent a viable alternative, that plan will gain momentum.
A better way to control costs without compromising quality would be to change the rules governing the marketplace.
Consumers can perform the same disciplining role in health care that they do in other markets if they have the information they need to make economizing decisions and incentives to do so. The push for price transparency in Congress is a good start, but it needs to be expanded in two ways to be effective.
First, Congress should require all providers to participate in pricing disclosure for a list of high-volume procedures which are amenable to scheduling and patient discretion. The pricing posted for these interventions must include all needed services to successfully care for the patient. So, for instance, there should be “all-in” pricing for joint replacement and other common surgeries.
Second, consumers must benefit in all cases when they choose lower-priced care. That will require changing insurance rules to allow the benefits from price shopping to accrue to the consumer rather than the insurer.
These changes will not eliminate the cost problem entirely, but they would bring more discipline to a market that is long overdue for it.
