Employer-Sponsored Health Insurance Costs Surge, Placing Greater Financial Burden on Workers

Rising healthcare costs are placing a significant financial strain not only on individuals purchasing insurance independently but also on employers and their workforce. With further increases anticipated for 2027 plan years, affordability concerns are intensifying ahead of the midterm elections.

Polls indicate that healthcare costs and overall affordability rank among the top issues for likely voters. While public focus often centers on rising premiums and declining enrollment in Affordable Care Act (ACA) plans—which cover approximately 19 million individuals—employer-sponsored plans are exerting similar financial pressure on over 150 million Americans who obtain coverage through their workplaces.

According to an annual survey released on October 22 by KFF, a health information nonprofit, one of the most significant shifts this year is the rising share of costs borne by workers. Employee contributions toward family coverage climbed by an average of 9%, reaching $7,471 annually. This acceleration surpasses the 7.6% increase observed between 2024 and 2025.

Employers also encountered higher financial demands, with the average premium for family coverage rising by 5% to reach $28,303, according to the survey.

In response to these rising costs—following a 6% increase the prior year—44% of large employers with at least 200 employees reported shifting more of the financial burden onto workers.

Matthew Rae, associate director of the Program on the Health Care Marketplace at KFF, noted that when utilization or prices increase, employers have limited options to curb premium hikes.

To mitigate costs, employers reported implementing various strategies over the past year, including raising deductibles, switching insurers, introducing preauthorization requirements for certain services, or restricting the network of available providers, according to the KFF report.

The survey found that worker earnings grew by an average of 3.7% this year, outpacing the overall inflation rate of 2.7%, though still failing to match the growth in health plan contributions.

Employees at smaller companies with fewer than 200 staff members faced higher healthcare expenses compared to their peers at larger organizations.

For instance, individual annual deductibles at large companies averaged $1,772, whereas small workplaces reported an average of $2,624.

Overall, the proportion of premiums contributed by employees across all companies increased slightly, accounting for 27% of family coverage costs and 18% of individual coverage costs, with employers covering the remainder.

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Driving Up Costs

Other industry groups have recently released projections regarding the financial outlook for employers in the coming year.

For example, consulting firm AON projected a 9.5% increase in employer costs for next year, marking the fourth consecutive year of substantial rises. Similarly, Marsh estimated an 8.2% increase, the highest since 2003. Reports attribute these rising costs to increased service utilization, soaring prescription drug prices, and rapidly escalating hospital rates.

According to other reports, including one from the Business Group on Health, artificial intelligence is also driving up costs. The report indicated that hospital systems and medical providers are utilizing AI to maximize billing from both insurers and patients.

The group predicted a median premium increase of 9.2% for next year, though employers could mitigate this through benefit adjustments.

Jim Winkler, chief strategy officer for the Business Group on Health, stated that while employers historically absorbed the majority of cost increases, this dynamic is shifting. “When open enrollment begins, most employees will notice increases in both their paycheck deductions and out-of-pocket expenses,” he remarked.

Looking ahead, Winkler suggested that employers should take proactive measures to prevent further increases in 2028. One proposed strategy involves offering lower copayments for specific providers based on cost and quality, akin to “tiered networks.” Although only 4% of companies currently utilize this approach, Winkler believes it could be more effective today, as digital tools make it easier for consumers to identify providers with the lowest copayments.

Elizabeth Mitchell, president and CEO of the Purchaser Business Group on Health, argues that the healthcare industry—including hospitals, pharmaceutical companies, and insurers—plays an overlooked role in driving up costs.

Mitchell questioned why employers are being held responsible for cost containment. “The industry is doing absolutely nothing to control costs, as demonstrated by their relentless growth,” she asserted.

Meanwhile, some businesses are leveraging newly available pricing data under federal regulations to contract directly with hospitals and providers, and to invest in primary care.

Mitchell and other experts advocate for congressional intervention. For instance, health policy researchers at Georgetown University suggest implementing annual deductible caps, establishing hospital price controls, and extending Medicare-negotiated drug prices to the private sector.

Keeping Costs Flat

Not all companies experienced cost increases this year.

For example, Phifer Inc., a Tuscaloosa-based manufacturer of insect screens and precision woven fabrics, maintained flat health costs this year. This stability is likely due to the company’s recent focus on providing zero-cost primary care to employees through on-site clinics and direct contracts with medical offices, according to Russell DuBose, the company’s vice president of human resources.

While only 7% of surveyed companies reported having an on-site clinic, 24% indicated they had one located on-site or in close proximity.

DuBose explained that employees receive prompt access to primary care physicians, facilitating early disease prevention and early intervention. The company also directly contracts with various specialists.

“We guide plan members toward the highest-quality providers we can identify,” DuBose said. “By doing so, we achieve more reasonable pricing.”

Like many employers, Phifer Inc. is self-insured, meaning it covers its own medical claims and purchases stop-loss insurance to protect against exceptionally high bills. However, DuBose noted that the cost of this coverage has also risen significantly.

DuBose frequently receives inquiries from other employers regarding the company’s cost-control strategy. He observed that employers are now more nervous than in previous years, concerned about the ongoing rise in healthcare costs and their potential implications.

“The concern is whether the rising cost of healthcare could become the next job killer,” he stated.

Additional findings from the annual KFF report include:

• Twenty-nine percent of surveyed companies reported that covering GLP-1 medications, a novel class of weight-loss drugs, had a “significant” impact on their drug expenditures.
• Approximately 29% of large companies expressed difficulty accessing pricing transparency or comparing provider costs.
• About 9% of companies with 50 or more employees import prescription drugs from outside the U.S. to reduce expenses.

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