CEOs and CFOs take notice when key business input costs increase annually by double digits. They pay even more attention when the quality of the business input is poor and volatility around input cost escalates. Effective boards intervene when a key input cost threatens margins or competitiveness.
Employer-sponsored health insurance now fits that description. The costs of employer-sponsored health insurance are increasing at the most rapid rate in two decades and quality of care in the United States is lower than in other developed countries. Boards must be certain that management is fully engaged in efforts to control both cost and volatility while improving the quality of healthcare received by health plan beneficiaries.
Health insurance is now the second largest employee expense after salaries for most businesses, and the WTW 2025 Best Practices in Healthcare survey shows that employer health insurance premiums will increase by an average of 9.1% in 2026. This describes only a portion of the pain employers are feeling due to healthcare costs. Over one half of companies (51%) reported they were significantly over budget in 2024, with healthcare costs on average 4.5% above budget. Many employers will see double-digit annual increases in their healthcare costs over the next three years.
A family health insurance plan in the U.S. now costs an average of $26,993, of which employers generally pay about 80%. The employee share of health insurance premiums is about $6,850. Aggregated deductibles have risen to $5,092, so many employees feel burdened by higher premiums for health plans they feel provide them with little coverage. Increasing employer health insurance costs have crowded out other compensation spending, leading to lower employee earnings, decreased contributions to retirement plans and decreased offering of retiree health plans.
The Centers for Medicare and Medicaid Services Office of the Actuary estimates that private health insurance will cost about $1.2 trillion dollars in 2026 and is on track to cost $2.2 trillion in 2032. Yet, employers are not likely to stop offering health insurance. Eight of nine employers (88%) report they believe they will still be offering employer-sponsored health insurance in a decade, and over one third of employees (36%) report their health benefit is a top reason why they stay at their current jobs.
Cost alone doesn’t tell the full story: Employers face rising costs even as the healthcare they purchase underperforms. Despite spending far more than peer countries, U.S. employers buy coverage that delivers lower life expectancy, higher mortality, and worse patient experience and access. Employees in the United States face higher out-of-pocket costs than workers in all countries other than Switzerland and two thirds (66.5%) of those with personal bankruptcies cite medical expenses as a cause. The Commonwealth Fund ranks the United States last for access and patient experience among the health systems of 10 developed countries.
The United States has a complex healthcare finance ecosystem with many intermediaries, including carriers (medical insurance companies) and pharmacy benefit managers (PBMs). Intermediaries generally claim to improve coordination and lower costs, but costs in private plans have risen substantially faster than costs in government-sponsored plans since 2008. Medical carriers and pharmacy benefit managers charge additional fees for various services, and in recent years have added other sources of revenue, such as charges for “shared savings” and “spread pricing.” Carrier, PBM and broker revenue can be tied to a share of total premiums or spending, so these intermediaries can earn more when employer health plan costs rise.
Many of the services offered by carriers, PBMs and third parties make unrealistic promises to lower total medical costs, and healthcare purchasers should treat these with deserved skepticism. Vendors that provide programs to plan members with specific conditions, such as metabolic or musculoskeletal disease, often improve the quality of care and outcomes, but don’t always lower the total cost of care. The purchaser of healthcare services is generally in human resources, where a small staff may be ill-equipped to evaluate all available options and hold health plans and other vendors fully accountable. Brokers and consultants help employers navigate this thicket, but employers sponsoring health plans should be vigilant about potential conflicts of interest.
Provider consolidation compounds these pressures. There has long been limited competition among medical providers in rural areas and competition continues to shrink in most metropolitan areas, too. An increasing portion of hospitals are affiliated with ever-larger healthcare delivery systems and an increasing portion of physician practices are owned by health systems, private equity or insurers.
Consolidated providers have the leverage to demand and receive higher rates, even though healthcare unit costs in the United States are already generally the highest in the world. Insurers may pay higher fees to provider groups that they own.
There are other factors that will also accelerate employer insurance costs.
- Average premiums for Affordable Care Act plans doubled following the expiration of enhanced subsidies.
- Cuts to Medicaid eligibility in 2027 will strain hospital finances further, and many rural hospitals are at risk of closing.
- Many in hospital finance “war rooms” are counting on commercial rate increases to offset these large cuts in revenue.
Some employers are considering converting to a “defined contribution” plan and offering subsidies for employees to purchase health plans on the individual market through individual coverage health reimbursement arrangements (ICHRAs). However, this approach depends on the stability of premiums in the individual markets and the potential loss of millions of disproportionately healthy members could lead to further rate spikes in coming years. We found only 7% of companies had reviewed ICHRAs as a possible solution in 2025 and only 1% expressed significant interest in continuing to investigate ICHRA feasibility.
American companies also face increased legal risks in their employer-sponsored health plans. Self-insured health insurance plans are governed by the Employee Retirement Income Security Act (ERISA), which requires that plan assets be used “solely for the benefit of beneficiaries.” Plaintiff attorneys have filed multiple class action suits accusing employers of not using due diligence in monitoring their healthcare vendors. Two prominent legal scholars have written that fiduciary responsibility lawsuits could force employers to more closely monitor their medical carriers and pharmacy benefit managers and help control runaways costs. However, plaintiffs’ lawyers have so far had a difficult time proving their clients had standing to pursue these claims.
Diligent boards can ascertain that corporate executives have access to the right data to evaluate the needs of the employer-sponsored health insurance population. This includes data on enrollment in plan, utilization and spending. Executives can also regularly assess quality using standardized metrics, such as a healthcare effectiveness data and information set. A WTW survey showed employers use an average of 14 different vendors to deliver healthcare services. Executives should review enrollment and outcomes of these programs on a regular basis.
No two companies are alike, and adjusted benchmarks are important to create context. Astute executives expect to review basic utilization and cost statistics with adjustment for age, gender and industry. Some benefit managers make the mistake of pursuing random changes from year to year, so a multiyear dashboard can direct attention to the areas where a company can take effective action to control its medical costs.
Companies will need to make difficult decisions about their employer-sponsored health insurance plans in the coming years. These decisions should be consistent with overall corporate strategy, mission and culture, and must be compliant with relevant rules and regulations. Health insurance costs must be financially sustainable to maintain company competitiveness.
Health insurance is a major expense for companies, and boards’ attention to healthcare purchasing will help focus management on most prudent purchasing. Healthcare is a strategic purchase, not merely a fringe benefit. As health costs rise faster than revenue or wages, boards can work with management to ensure that their health plans support corporate strategy and fulfill the company’s fiduciary obligations. Boards can strengthen their company’s competitiveness through diligent oversight of healthcare.
Action Steps for Boards
- Educate directors about the impact of healthcare expenses on the company and its employees
- Establish a regular cadence of management team reporting on medical quality, cost trends as well as program utilization and engagement
- Review regular procurements by management to obtain the highest value and accountability from health plans, pharmacy benefit managers and other vendors in the healthcare space
- Insist on a strategic plan to address the challenge of healthcare costs consistent with fiduciary responsibilities, business objectives, culture and overall strategy
Questions for directors to ask management about employee healthcare
- When was the last time the company did a procurement for a health plan carrier and pharmacy benefit manager?
- Are all intermediary fees clearly contractually outlined? Are they reported separately from medical claims?
- Are vendor-reported cost savings audited independently?
- Do contracts with intermediaries include performance guarantees, and are these audited regularly?
- Is management regularly tracking plan member engagement and satisfaction with healthcare programs?
Key health insurance reporting metrics for CEOs, CFOs and boards
Participation
- Portion of full-time employees who are covered
- Portion of spouses and dependents enrolled in company coverage
- Actuarial value of the plan (portion of total medical claims costs covered by the plan)
Utilization
- Hospital days per thousand
- Emergency department visits per thousand
- Low-risk Cesarean section rate
Spending
- Medical-surgical spending
- Drug spending
- High-cost claimant spending
This article was originally published by Directors & Boards on March 11, 2026.
