Rising Group Health Plan Costs 

Group Health Plan Costs Are Rising: What Employers Can Do Before Their Next Renewal 

Employers are facing increasing pressure as group health plan costs continue to rise. Medical expenses are growing faster than premiums, creating challenges for businesses trying to balance employee benefits with budget considerations. 

According to analysis from Mark Farrah Associates (MFA), the average medical expense ratio (MER) for the employer-group risk segment increased to 89.7% in 2025, up from 88% in 2024. This means insurers are spending nearly 90 cents of every premium dollar on medical expenses before accounting for administrative costs, taxes, and profit. 

The MFA analysis, based on National Association of Insurance Commissioners (NAIC) statutory filings, found that medical expenses grew 8.6% per member per month, while premiums earned increased only 6.6%. 

For employers, this gap is one reason many businesses are seeing higher renewal rates heading into 2026 and 2027. 

However, rising healthcare costs do not mean employers are without options. Reviewing plan design, utilization trends, and alternative strategies can help businesses better manage future increases. 

Why Group Health Plan Costs Are Increasing 

Several factors are contributing to higher healthcare expenses. 

Rising Pharmacy Costs 

Prescription drug costs remain one of the biggest drivers of healthcare spending. 

According to the Milliman Medical Index, employer healthcare costs increased 7.9% per person in 2026, reaching $8,460 annually. 

Pharmacy costs were the fastest-growing category, increasing 14.8%, driven largely by: 

• GLP-1 medications  
• High-cost specialty drugs  
• Increased utilization of expensive therapies  

The Business Group on Health reported that 79% of employers saw increased GLP-1 utilization for obesity treatment in 2025, adding additional pressure to pharmacy spending. 

Higher Outpatient Facility Costs 

Healthcare costs are also being impacted by increased outpatient spending. 

Outpatient facility costs increased 7.5%, and pharmacy and outpatient expenses together accounted for 69% of the overall year-over-year increase in healthcare costs. 

For employers, these trends can directly impact renewal pricing. 

Increased Behavioral Health Utilization 

Healthcare needs continue to change, especially around mental health services. 

The Business Group on Health reported that nearly three-quarters of employers saw increased mental health and substance use disorder treatment utilization among employees. 

While greater access to care is positive, increased utilization can also influence overall healthcare spending. 

What Higher Renewal Rates Mean for Employers 

When medical costs increase faster than premiums, insurers typically adjust future pricing to account for the difference. 

The 2025 employer-group medical expense ratio of 89.7% indicates that insurers have less room to absorb increasing healthcare expenses. 

As a result, employers may see: 

• Higher renewal premiums  
• Increased employee contribution discussions  
• Plan design adjustments  
• Greater focus on cost management strategies  

For many businesses, simply accepting annual increases may no longer be a sustainable long-term strategy. 

How Employers Can Better Manage Rising Healthcare Costs 

While employers cannot control every healthcare trend, they can take steps to better manage their benefit programs. 

1. Review Plan Utilization Data 

Understanding how employees use healthcare benefits is an important first step. 

Employers should review: 

• High-cost claims  
• Prescription utilization  
• Emergency care usage
• Preventive care participation  

Identifying trends can help businesses make more informed decisions. 

2. Evaluate Alternative Funding Options 

Some employers may benefit from exploring alternatives to traditional fully insured plans. 

Options may include: 

• Self-funded health plans  
• Level-funded plans  
• Alternative network arrangements  

These structures may provide more flexibility depending on the organization’s size, risk tolerance, and employee population. 

3. Review Pharmacy Benefit Strategies 

With prescription costs increasing, pharmacy management has become a key area of focus. 

Employers may consider: 

• Pharmacy benefit reviews  
• Specialty drug management strategies  
• Generic medication incentives  
• Cost transparency solutions  

4. Encourage Preventive Care and Wellness Programs 

Helping employees manage health proactively may reduce long-term costs. 

Programs that support: 

• Preventive screenings  
• Chronic condition management  
• Wellness resources  
• Mental health support  

can help employees access care earlier and potentially avoid more expensive treatments later. 

5. Work With an Experienced Advisor 

Healthcare benefits are becoming increasingly complex. 

A benefits advisor can help employers: 

• Understand renewal increases  
• Review plan performance  
• Identify cost-saving opportunities  
• Evaluate alternative strategies  

The goal is not simply reducing premiums. It is creating a sustainable benefits program that supports both employees and the organization. 

Preparing for Future Renewals 

Healthcare costs are expected to remain a challenge for employers. The Business Group on Health projected a median employer healthcare cost trend of 9% for 2026 before plan design changes. 

With continued pressure from pharmacy costs, specialty treatments, and healthcare utilization, businesses should begin renewal conversations early. 

Waiting until renewal arrives may limit the options available. 

Rising group health plan costs are creating challenges for employers across industries. Increasing medical expenses, pharmacy trends, and changing healthcare utilization patterns are putting pressure on benefit budgets. 

However, employers do not have to simply accept higher costs year after year. 

By reviewing utilization, exploring plan options, and working with experienced advisors, businesses can make more informed decisions about their healthcare strategy. 

At Professional Liability Insurance Group, Shayne Bevilacqua helps businesses review their insurance and benefit programs, identify potential cost-saving opportunities, and build strategies that align with their long-term goals. 

If your organization is facing rising renewal costs or wants to understand its options better, reach out to us today for a conversation about how you can prepare for the future.