It’s a story we hear every year. Health care costs are too high. Spending on prescription drugs is skyrocketing. Hospitals charge way too much. Employee utilization is out of control. GLP-1 drugs are too expensive. Cancer drugs are too expensive. Specialty drugs cost too much. Then we hear the inevitable…… “Well, there’s nothing we can do. Health care costs just keep climbing.” That’s no longer acceptable. Health care is one of the few areas where employers have repeatedly allowed double-digit annual cost increases without using basic procurement techniques and rigor they would undoubtedly leverage in other areas such as technology, raw materials, logistics, consulting, or nearly any other major business expenditure.
The data is becoming harder to ignore with each passing year. Recently, the Kaiser Family Foundation (“KFF”) reported that the average annual premium for employer-sponsored family health coverage hit $26,993 in 2025. Employees are shouldering an average of $6,850 of the total premium cost. Year-over-year family premiums rose 6% and are now 53% higher than 2015 levels.
Healthcare costs are rising, and they are expected to rise even faster going forward. According to the Business Group on Health’s annual survey, employers project a median healthcare cost increase of 9.2% in 2027 before plan changes and 8% after plan changes. If the trends we are seeing for 2026 and 2027 continue, Health care costs could increase by 76% over the next decade. Employers can keep whining. Or they can start acting like buyers.
1ne. Audit Your PBM Contract—Really Audit It
For many employers, pharmacy has become one of the fastest-growing components of healthcare spending. Business Group on Health reports that pharmacy now represents approximately 25% of employers’ total healthcare spending, with employer drug costs estimated to increase 12% in 2026. Yet too many employers still don’t understand exactly how their pharmacy benefit manager makes money.
Employers should know:
- What rebates are being collected?
- What percentage actually reaches the employer?
- Are there spread-pricing arrangements?
- How are specialty pharmacies compensated?
- Are there administrative fees hidden elsewhere in the contract?
- Who receives manufacturer fees and other payments?
- How is “generic” defined?
- How is “specialty drug” defined?
- Are drugs being selected because they produce the lowest net cost—or the largest rebate?
Employers should consider periodic independent PBM audits and competitive bidding rather than automatically renewing incumbent arrangements. The question shouldn’t be, “How big is our rebate check?” It should be: “What is our total net pharmacy cost?” Those are very different questions.
2wo. Stop Treating Hospital Prices as Untouchable
One of the largest opportunities may be staring you right in the face: hospital prices.
Recently, researchers at RAND found that employers and private insurers paid hospitals roughly 254% of Medicare prices on average for comparable inpatient and outpatient services in 2022.
Let that sink in for a moment. Employers often aggressively negotiate office leases, cloud-computing contracts, and airline travel… yet they may be paying more than twice Medicare’s rate for hospital services. Employers need to see what they are really paying individual health systems.
Pull the claims. See which hospitals are costing you the most money. Compare what you’re actually being charged to what you think you’re being charged. Evaluate price against outcomes. Then direct employees to hospitals that provide better value. Finally, larger employers should explore direct contracting, high-performance networks, and other models that eliminate pieces of the traditional healthcare purchasing system.
3hree. Stop Assuming Your Health Plan Is Negotiating Aggressively for You
Employers need to ask themselves an uncomfortable question: Does my insurer have any financial incentive to lower hospital charges paid to me? Many employers turn over massive segments of their health care purchasing strategy to carriers and consultants. That does not absolve the employer of accountability. Insist on seeing how much you’re paying after negotiated rates, utilization, outcomes and total cost are factored in. Then benchmark them. Ask your carrier to explain why its network provides a good value—instead of just telling you that its discounts are deep. A 50% “discount” off of an insanely inflated hospital charge isn’t necessarily a good deal.
4our. Identify the 20 or 30 Things Actually Driving Your Healthcare Spending
Stop trying to manage healthcare by averages. Drill down into the claims. What conditions are costing the most? What hospitals? What physicians? What drugs? What procedures? What sites of care? Who are the employees or dependents with catastrophic claims?
The latest Business Group on Health survey revealed cancer was the No. 1 cost driver among the 70% of employers that reported it as such in 2026. Musculoskeletal and cardiovascular conditions were also commonly cited as cost drivers.
So instead of spending money on another cookie-cutter “wellness solution,” employers should create strategies targeted at their unique set of cost drivers. If spending on musculoskeletal issues is out of control, tackle musculoskeletal care. If cancer costs are spiraling, look at oncology CoEs and cancer navigation. If specialty drugs are your biggest driver, crack down on specialty pharmacy pricing. Look where the money is going.
5ive. Get Much More Aggressive About Centers of Excellence
Employees understandably assume that the closest hospital or the biggest hospital brand provides the best care. That’s not necessarily true. Employers can identify high-quality providers for expensive procedures and conditions and encourage employees to use them.
That might include:
- Cancer
- Joint replacement
- Spine surgery
- Cardiac procedures
- Transplants
- Bariatric surgery
- Complex maternity care
Employers can make Centers of Excellence significantly more attractive by reducing or eliminating employee cost sharing and, when appropriate, covering travel expenses. Business Group on Health reports that 84% of surveyed employers plan to offer at least one Center of Excellence in 2027. The objective isn’t simply lower prices. It’s avoiding unnecessary procedures, complications, readmissions and poor outcomes.
6ix. Attack Site-of-Care Costs
Prices can vary wildly based on where a drug, infusion, scan or procedure is delivered. Treatment received in a hospital outpatient department, for example, can cost significantly more than the same treatment provided in a physician office, freestanding infusion center or sometimes even the patient’s home. Employers should pinpoint specific procedures and treatments with wide site-of-care price variations and structure benefits to steer employees toward low-cost, clinically suitable alternatives. That’s healthcare purchasing 101: If you can safely get something for $2,000, don’t pay $5,000.
7even. Stop Adding Vendors Without Proving They Save Money
Benefits departments at employers have built up a ridiculous vendor zoo over the years. Mental health platforms. Diabetes programs. Weight-management programs. Navigation companies. Second opinion services. Musculoskeletal vendors. Virtual primary care. Cancer navigation. Fertility benefits. Sleep programs. Wellness apps. Some are great. Some probably save money. But many will just charge another per-member-per-month fee.
Every vendor should be held to objective performance metrics. Employers should be asking vendors: Did you reduce total medical spending or materially improve outcomes? I’m not talking about engagement. App downloads. Or employee satisfaction surveys. I’m talking about outcomes. If a vendor can’t back up their value with hard numbers, employers should consider cutting them loose. Seriously. 58% of employers surveyed by Business Group on Health say they’ve already cut underperforming vendors.
8ight. Treat GLP-1 Drugs as a Healthcare Strategy, Not Just a Pharmacy Problem
GLP-1 drugs provide a perfect example of why benefit silos fail. The pharmacy benefit will experience significant drug spending. The medical plan has the potential to see decreased spending on diabetes complications, cardiovascular events and other obesity-related conditions.
Covering the drugs with no plan in place could be incredibly costly. Refusing coverage could also be short-sighted. Employers need eligibility criteria, clinical management, negotiated pricing, outcome tracking and longitudinal analysis of total medical spend. What’s interesting is employers are starting to rethink their strategy: Business Group on Health found GLP-1 obesity coverage among employers they surveyed decreased from 72% in 2025 to 60% in 2026.
Instead of asking: “How much are we spending on GLP-1s?” Employers should be asking: “What is happening to the total healthcare cost and health outcomes of employees receiving them?”
9ine. Make Primary Care Easy—and Valuable
Workers shouldn’t have to wait three weeks just to see a primary-care doctor and then give up and visit urgent care or the ER. Employers can look at enhanced primary-care models, virtual PC, near-site clinics and other ways to increase access. But remember: employers should track outcomes. Did visits to the ER decrease? Were chronic diseases caught earlier? Did patients take their medications as directed? Did visits to specialists become more appropriate? Did overall cost go down? Primary care should be the front door to the health system, not just another disjointed benefit.
10en. Put Healthcare Spending on the CFO’s Dashboard
This may require the largest shift in thinking for many employers. Historically, healthcare benefits have been treated as solely an HR issue. At current spending levels, that approach is no longer feasible.
Consider that a business with 10,000 employees can have annual healthcare costs in the tens or even hundreds of millions of dollars when you include dependents. That should be on the CFO’s radar. Track healthcare spend like any other significant business expenditure. Create benchmarks (KPIs) for: PMM cost. Medical trend. Pharmacy trend. Specialty drug usage. Hospital price variation. ER visits. Preventable admissions. Cancer cases. Musculoskeletal cases. High-cost claimants. Vendor ROI. Employee out-of-pocket costs. Then hold management accountable by reviewing them frequently.
Stop Passing Every Increase to Employees
Wait, there’s one more tactic employers have turned to for years: Raise deductibles. Raise copays. Increase employee premium contributions. Problem solved. Not so fast. Employees are healthcare consumers navigating a system they don’t understand, with hidden prices and life-altering clinical decisions. Transferring more expenses to employees may lower your costs in the short-term, but it also leads to employees skipping needed care. That’s cost shifting – not cost management.
Employers Have More Power Than They Think
Many employers act like victims in the healthcare arena. They’re not victims. Employers provide health insurance for most Americans. Employers spend hundreds of billions of dollars on hospitals, health insurers, PBMs, pharmaceutical companies, consultants, and healthcare vendors. That’s leverage.
Recent data shows that some employers are starting to use their leverage. In a recent Business Group on Health survey, 71% of employers said they used the RFP process to negotiate lower prices, 60% said they were increasing their focus on prevention and primary care, and 58% said they had cut contracts with poor-performing vendors.
More employers should feel empowered to do those things. Demand transparent contracts. Audit your PBMs. Benchmark your hospitals. Measure health outcomes. Reduce your vendors. Pay providers that deliver high value. Question consultants. Analyze your claims data. Manage your specialty pharmacy. And don’t settle for 8%, 9%, or 10% annual healthcare inflation. Employers will never be able to fully control healthcare costs. But there is a big difference between being unable to control healthcare inflation and not trying your hardest to control it.
Before you accept next year’s healthcare increase, ask yourself this: What have we done to earn a different result?
