Why Your Health Insurance Costs Keep Rising

Jacob McDonald knows he is lucky to have a good health insurance plan thanks to his employer, a technology company. But when his company recently began sending emails informing employees of their health care options in 2026 through open enrollment, he was disappointed to learn that once again, costs were rising.

To support his family of four, McDonald, 47, a network engineer based in Dallas, Texas, is being asked to pay 6.5 percent more than last year for health insurance. His $3,300 deductible, which he meets each year because one of his children has a chronic illness, will also increase by $100 next year.

“I expected to pay more, but this is the biggest increase I can remember,” he says.

He’s not wrong. Skyrocketing health care costs are driving up the price of employer-sponsored health plans. About 154 million Americans under age 65 rely on employer-sponsored coverage. And starting this month and running through January, employees will be able to choose their plans for next year during the open enrollment process, and that’s when they’ll get an idea of ​​how much extra they can expect to pay. A recent survey by Mercer found that employers expect to pay an average of 6.5% more for their employees’ health care in 2026, the largest increase since 2010. Another employer survey by the Business Group on Health found that respondents expected health care costs to increase by 7.6% in 2026, on average, the highest increasing for more than a decade.

While health care costs generally rise each year, recent years have seen the largest price increases in some time, according to Mercer. After a decade in which growth hovered around 3% per year, 2026 is the fourth year in a row that costs have exceeded that mark.

A few factors explain the rising costs. People are using their health insurance again, after a few years of the pandemic during which they stayed away from doctors’ offices and hospitals. More and more people are using GLP-1, which is extremely expensive, to lose weight and stay healthy. And labor costs at hospitals and doctors’ offices are rising, says Matthew Rae, associate director of the health care market program at KFF, a health care research organization.

“A combination of factors is putting pressure on premiums, but 6 to 7 percent is a significant increase,” says Rae.

KFF released a survey of 1,800 employers on Wednesday (Oct. 22) that found premiums for a family of four with employer-sponsored health coverage totaled $26,993 in 2025, a 6% increase from the previous year. (Workers contributed $6,850 of that cost, or 25%.) By comparison, workers’ wages increased by only 4% during the same period.

Much of the increase in health insurance costs comes from overall inflation in the economy, which takes some time to filter through to the health care system, says Sunit Patel, senior associate and chief U.S. health actuary at Mercer. Doctors are charging more this year than last year, in part because of these inflationary pressures.

But another reason costs are increasing is that people are using more services and a different mix of services than in the past. Telehealth has helped bring more convenient care to people, increasing the number of claims insurers face, and “advanced service providers” like nurse practitioners and physician assistants are making it possible for more people to get care.

“When you think about rising plan costs, part of the reason is that we, as a society, are using more health care services and we have a better mix of services available to us,” he says.

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Patel warns employees that depending on the health services their colleagues use, their health insurance costs can increase by more than 6.5%. That figure, after all, is an average, and an employer that has had significant claims — such as employees facing serious health issues like cancer — over the past year might have to increase its costs even more, to 11 or 13 percent, for example.

Rising costs are forcing some employers to make difficult decisions: If they absorb the expense to protect their employees, they may have to make cuts in other areas of their business. If they pass price increases on to employees, they could face retaliation.

“It’s a really tough place to be as a benefits professional,” says Jim Winkler, director of strategy for the Business Group on Health. “It creates a ton of organizational conversations: What are we going to do differently? »

Indeed, once most employers get initial quotes on costs from health insurance companies, they begin to negotiate, eliminating certain benefits or planning choices to reduce costs. Without these negotiations, for example, Mercer estimates that plan costs would increase by 9% in 2026 instead of 6.5%.

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This year, according to Mercer, 59% of employers will make changes to their plans to reduce costs, up from 48% in 2025 and 44% in 2024. That could include no longer covering GLP-1 drugs or increasing deductibles and out-of-pocket maximums. According to the KFF survey, about 60% of employers offering GLP-1 drugs in 2025 say the cost exceeded expectations.

Health care costs have been rising faster than wages for more than two decades. A growing body of economic research suggests that these rising costs continue to depress workers’ wages and contribute to inequality. That’s because black and Latino families end up paying an increasingly larger share of their compensation for health insurance premiums than white families, leaving less money in their pockets. Research also suggests that as health care costs rise, employers provide fewer jobs because they spend money on health care instead.

As workers are strained by rising prices, employers are trying to take even more drastic steps to reduce health care costs. Some, for example, refuse to offer health care plans to their employees and instead give them subsidies and tell them to go find plans on the Affordable Care Act marketplace. This arrangement, called an Individually Covered Health Reimbursement Arrangement, or ICHRA, has only been available since 2019. It is still the preferred option for a growing group of employers, particularly small businesses.

Still, it can be difficult for employers to change their health care plans too much because they risk losing employees.

“The job market isn’t as good as it was a few years ago, but it’s still pretty good,” says KFF’s Rae. “You can’t just forgo employer benefits and send people to the wolves and still be a competitive employer.”

However, employers ask their employees to contribute more. The average deductible paid by employees has increased 17% over the past five years and 43% over the past 10 years, and now stands at $1,886, according to the KFF survey.

Some consumer advocates worry that the rising costs of employer-sponsored health plans will drive away employees who can’t afford the deductions from their paychecks. That might send them to the Internet, where there seem to be plenty of options for people wanting to save money on health care, but most of those options aren’t actually health insurance.

“They might start Googling and find who knows what: departmental health care sharing plans, fixed compensation plans, things that are not real health insurance,” says Louise Norris, health policy analyst for healthinsurance.org, an independent guide to health insurance. (Healthcare sharing ministries occur when people participate to cover other members’ health care expenses, but are not considered health insurance; fixed indemnity plans give patients small amounts of money to cover health care costs, but are also not health insurance.) “People may not realize that what they are seeing is not real health insurance. »

For most people, even with increased costs, a health insurance plan through their employer is the best deal they will find if they want comprehensive coverage.

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Indeed, even McDonald knows that he is lucky to receive generous benefits from his employer, even if those benefits become more and more expensive. Like most employees, he pays only a small fraction of the total cost of his plan. COBRA, which allows laid-off workers to keep their same health care plan, costs $4,000 a month, which is about what it costs her employer to cover it. He only pays about 5% of that. Most employees pay 20% of the cost to employers.

But he now faces another health problem. He has been saving money for decades and has discussed with his wife the possibility of retiring early next year. But then he would lose his health care. He had planned to obtain health insurance through the Affordable Care Act marketplace, but without action from Congress, generous premium subsidies will disappear at the end of 2025, which could raise average premium prices by 75%.