Are Rising Costs Totally Out of Control?

Employer-sponsored healthcare is no longer just a benefit issue. It is a business issue. According to PwC, a multinational processional services network, healthcare costs are expected to rise to 9% in 2027 – the highest in 17 years. There is evidence that healthcare costs are among the top concerns and largest operating expenses for small businesses that offer benefits.

Healthcare isn’t becoming more expensive because ONE thing is broken. It’s becoming more expensive because several long-term trends are converging.

​Six factors are driving rising healthcare costs for employers who offer health benefits:

• Hospital and facility costs – Hospital services represent the single biggest contributor to rising healthcare costs, with medical inflation outpacing general inflation.
• Chronic disease – The silent driver of healthcare spending is heart disease, diabetes, respiratory disease, behavioral health, obesity and musculoskeletal.
• Specialty drugs – The cost of GLP-1 medications and the next wave of specialty therapies will have an even greater long-term impact on employer-sponsored health plans.
• Increased utilization – Healthcare spending rises when both price and volume increases.
• Technology – Healthcare is becoming more predictive, personalized, preventive, connected, and patient-centered which can lead to increased healthcare and costs. While these innovations can greatly improve care, they often increase costs.
• Aging workforce – As careers extend, employers are financing more years of complex, higher-utilization healthcare before Medicare eligibility.

Annual renewal pressure is the accumulated result of multiple costs layers – not one event or one claim as listed above. As a result, employers face higher employer contributions; higher employee deductions; higher deductibles and out-of-pocket costs; and reduced benefit flexibility. The impact reaches beyond the “premium”.

Many employers are left feeling stuck between sacrificing quality of care or offering affordable solutions to their employees.

As healthcare costs are projected to continue to climb, employers can no longer rely on traditional strategies alone to manage their health plans. Innovative alternatives are no longer a nice option to have; they have become an essential necessity.

At the same time there are reasons to be optimistic about the future of employer-sponsored healthcare:

1. Price transparency is (finally) arriving
For years, employers purchased healthcare with very limited visibility into actual costs. Today, transparency regulations and technology are making it increasingly possible to understand:

• What providers charge
• Variations in hospital pricing
• Prescription drug costs
• Their own claim data!

This allows employers and covered members to make more informed purchasing decisions about their healthcare.

2. Better healthcare consumers
Not so long ago, most employers primarily focused on annual premium renewals. Today, they're evaluating:

• Network & claims pricing performance
• Pharmacy strategy
• Vendor effectiveness

Benefit leaders are becoming significantly more sophisticated in managing healthcare costs.

3. Alternative payment models are growing
Health plans now have access to smarter payment models that were once considered niche, but have become vital to the future of healthcare, providing viable alternatives to the traditional PPO models.

• Reference-Based Pricing (RBP)
• Direct provider contracting
• Value-based care
• Centers of Excellence
• Bundled payments

These approaches seek to align payment with value and fairness.

4. Self-funding and level-funding models are expanding
Historically, smaller employers had little choice but to fully insure and accept annual renewals.

Today, more employers are adopting alternative funding structures such as:

• Self-funded arrangements
• Level-funded plans

These models provide:

• Claims visibility
• Greater plan design control
• Access to savings when claims perform well
• Flexibility to implement innovative cost-management strategies

5. Workforce Health Is Becoming a Strategic Asset
Employers are increasingly viewing healthcare as an investment rather than merely an expense. Healthy employees can contribute to:

• Higher productivity
• Lower absenteeism
• Better retention
• Improved recruitment

This shift encourages a longer-term approach focused on outcomes rather than simply cost shifting.

Today employers can influence:

• How care is delivered
• Where care is delivered
• What providers are paid
• How employees engage with care
• How pharmacy spend is managed
• Which vendors participate in the ecosystem

The challenge is significant, but so is the opportunity to create a healthcare experience that is smarter, more connected, and ultimately more sustainable for all.

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Allied National

​As "The Small Business Champion", we specialize in health benefit solutions crafted for small and midsize businesses seeking to deliver high-quality, affordable health benefits to their workforce. Our flexible level-funded health plans empower hardworking American businesses to access best-in-class benefits, maintain greater plan control without the inflated costs and unnecessary complexity often associated with traditional insurance models.

Beyond serving brokers and employers, Allied National provides health plan administration services and supports numerous innovative organizations seeking to build and scale differentiated health benefit solutions of their own. Our proprietary level-funded platform enables partners to bring modern health plans to market with confidence.