Why Your Health Insurance Costs Keep Rising

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

To cover the costs of his family of four, McDonald, 47, a network engineer from Dallas, Texas, is being asked to pay 6.5 percent more for health insurance than last year. His $3,300 deductible, which he pays every 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. Rising health care costs are driving up prices for employer-sponsored health plans. About 154 million Americans under age 65 rely on employer-sponsored insurance. And starting this month through January, employees will be able to choose their plans for next year through an open enrollment process—and that's when they'll know how much more they can expect to pay. One of Mercer's recent surveys found that employers plan to pay an average of 6.5% more for their employees' health care in 2026, the highest increase since 2010. employer survey The health care business group found that respondents forecast health care costs will rise 7.6% in 2026, the highest average increase in more than a decade.

While health care costs typically rise every year, Mercer said the last few years have seen the steepest price increases in recent memory. After a decade in which growth hovered at 3% per year, 2026 will be the fourth year in a row that costs will exceed that mark.

Several factors are driving up costs. People are using health insurance again after years of the pandemic when they stayed away from doctors' offices and hospitals. More and more employees are using GLP-1, which is extremely expensive, to lose weight and stay healthy. And labor costs in hospitals and doctors' offices are rising, says Matthew Ray, associate director of the Health Market Development Program at KFF, a health care research organization.

“A combination of factors is putting pressure on premiums, but 6-7% is a significant increase,” says Ray.

KFF published a survey 1,800 employers on Wednesday, Oct. 22, found that premiums for a family of four on employer-sponsored health insurance were $26,993 in 2025, up 6% from the previous year. (Workers contributed $6,850 of this amount, or 25%). By comparison, workers' wages rose just 4% over the same period.

Much of the increased health insurance costs are due to general inflation in the economy, which takes time to permeate the health care system, said Suneet Patel, senior partner and chief U.S. health actuary at Mercer. Doctors are charging more this year than last, partly due to inflationary pressures.

But another reason costs are rising is that people are using more services and a different mix of services than in the past. Telehealth has helped people get care more conveniently, increasing the number of claims insurers face, and “service distributors” like nurse practitioners and physician assistants are allowing more people to receive care.

“When you think about the rising cost of plans, part of it is because we as a society are using more health care and getting a better mix of services available to us,” he says.

Read more: Telehealth for seniors will soon end

Patel warns employees that depending on what health services their co-workers use, their health insurance costs could rise by more than 6.5%. After all, this is an average, and an employer who has had significant claims – such as employees dealing with serious health issues such as cancer – in the past year may have to raise costs even more, perhaps to 11 or 13%.

Rising costs are forcing some employers to make difficult decisions: If they cover the cost of protecting their employees, they may have to cut other parts of their business. If they pass on price increases to employees, they may face resistance.

“This is a really difficult situation to be in as a health care professional,” says Jim Winkler, chief strategy officer for the Healthcare Business Group. “It creates a lot of organizational conversations: What are we going to do differently?”

Indeed, after most employers receive their first cost quotes from health insurance companies, they begin to negotiate, waiving some benefits or planning cost-cutting options. For example, Mercer estimates that without these negotiations, plan costs would rise 9% in 2026, rather than 6.5%.

Read more: Health insurance is a time suck.

This year, 59% of employers will make changes to their cost-cutting plans, up from 48% in 2025 and 44% in 2024, according to Mercer. This could include ending coverage of GLP-1 drugs or increasing deductibles and out-of-pocket maximums. About 60% of employers offering GLP-1 drugs in 2025 say the cost exceeded expectations, according to a KFF survey.

Healthcare costs amounted to growing faster than wages for more than two decades. A growing body of economic research shows that these rising costs continue to reduce wages for workers and promote inequality. That's because Black and Latino families end up paying a larger and larger share of their compensation toward health insurance premiums than white families, leaving less money in their pockets. Research also shows that the more health care costs rise, the more employers offer fewer jobs because they spend money on healthcare instead.

As workers suffer from rising prices, employers are trying to take even more drastic steps to cut health care costs. Some, for example, refuse to offer health plans to their employees and instead provide them with subsidies and tell them to look for plans in the Affordable Care Act marketplace. This scheme, called the Individual Health Insurance Reimbursement Arrangement, or ICHRA, is only available as of 2019. This is still the preferred option for growing group of employers, especially small businesses.

However, it may be difficult for employers to change too much about health plans because they may lose employees as a result.

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

However, employers are asking 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 to $1,886, according to a KFF survey.

Some consumer advocates worry that rising costs for employer-sponsored health plans will discourage employees who can't afford payroll deductions. This may send them to the Internet, where there appear to be plenty of options for people looking to save on health care, but most of those options are not actually health insurance.

“They might start Googling and finding who knows what—departmental health care plans, defined indemnity plans, things that aren't real health insurance,” says Louise Norris, a health policy analyst. healthinsurance.orgIndependent guide to health insurance. (Shared health ministries are where people participate in cover medical expenses for other participantsbut are not considered health insurance; Defined 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 see is not real health insurance.”

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

Read more: Rising Health Care Costs Is the Real Reason for the Government Shutdown

Indeed, even MacDonald knows he is fortunate to have generous benefits from his employer, although those benefits are becoming increasingly expensive. Like most employees, he pays a small portion of the total cost of his plan. COBRA, which allows laid-off workers to continue using the same health plan, costs $4,000 a month, which is about the same as the cost to an employer of insuring it. He only pays about 5% of this amount. Most employees pay 20% of the cost to the employer.

But now he is faced with another health problem. He had been saving money for decades and had been talking to his wife about retiring early next year. But then he will lose medical care. He planned to get health insurance through the Affordable Care Act marketplace, but without congressional action to generously subsidize premiums. are going to disappear at the end of 2025, which could increase average premium prices will rise by 75%.