The cost of employer health benefits is breaking records.
Renewals were expected to grow by 9%, but employers are seeing numbers closer to 10-11%, with some coming in at over 15%.
If employers did nothing, they’d be staring down the barrel of double-digit health benefit increases. Doing nothing is not an option.
This marks the fourth consecutive year of significant cost creep for employer-sponsored health insurance, after a decade of more modest 3% annual increases.
Payscale’s Compensation Best Practices Report showed a slight decline in organizations offering health insurance to employees: from 84.8% in 2024 to 81.2% in 2025.
While our data finds it’s mostly smaller companies (under 100 employees) who don’t offer health benefits, I still find this trend concerning.
As a Total Rewards leader, I view healthcare as a core benefit. I’m a staunch proponent of holistic health benefits from mental health support to stress management. After all, if we’re not helping the “whole employee,” what’s the point of our profession?
Yet I also understand budgetary realities.
So let’s dig into controlling employer-sponsored health insurance costs sensibly without damaging employee trust.
First, we should understand the drivers of these price increases.
The double-edged sword of rising employer-sponsored health insurance costs
Breaking it down to its most basic, healthcare costs rise because: a) providers are charging more for healthcare or b) people are using more healthcare.
We happen to be seeing both at the same time.
Health insurers are an easy target in the debate about rising costs. But peeling back the curtain, insurance companies are under pressure as well. Provider consolidation has made it easier for them to set reimbursements.
Strong job growth in the healthcare sector has also contributed to higher wages, driving up costs. Recently, we’ve seen a leveling off of wage growth in healthcare, but inflation continues to increase the price of services.
Additionally, new specialty drugs and therapeutics for everything from weight-loss to cancer treatment have done wonders for patients. They’re also more expensive.
On the demand side, employees are using more healthcare. Price pressures are combining with rising healthcare utilization to increase costs.
We’re still seeing the effects of pent-up demand for healthcare from the pandemic. Patients that chose to forgo care during Covid are seeking it now.
Access has also grown with telehealth options, especially for mental health. This is a good thing. Employers should encourage workers to seek mental health treatment. It’s not only about treating the “whole” employee but has positive downstream effects on workforce productivity, reducing stress and burnout.
Of course, positive news about employees addressing their mental health doesn’t change the math. Employers still face increasing health benefits costs.
The hard question: what should they do?
With the price of employer-sponsored health insurance climbing, what are your options for health benefits that don’t break the bank?
How employers are responding to increasing health benefits
According to a survey from Mercer, 59% of companies will cut health benefits costs. Typically, this means shifting more expenses onto employees through increased deductibles and cost-sharing arrangements.
I would strongly advise HR teams with a mandate to curb healthcare costs to work with a Benefits Broker
Benefits Brokers specialize in selecting the best combination of healthcare benefits for your workforce.
The best brokers learn about your business: what you value, what you need, and what you can afford. Then, they go out and do heavy lifting: negotiating with carriers on your behalf to secure the best deal.
While larger employers may already understand the importance of Benefits Brokers, smaller organizations may not avail themselves of this resource and truly “shop” for the best price.
Mercer also found the two highest priorities for employers facing higher benefits cost were: “managing high-cost claims” and “measuring the performance of their current programs.”
The second priority shows exactly why employers lean on Benefits Brokers. As costs increase, HR teams need a partner who can ensure every dollar spent drives actual impact — maximizing value with a health program that performs.
Helping employees during open enrollment in 2026
Many workers will see higher costs for healthcare next year. For some, it will be a double hit: 6% to 7% premium increases coming out of their paychecks and larger copays and deductibles.
As you prepare for open enrollment this year, communicate transparently with employees about any cost hikes. The last thing you want is “sticker shock” when your workforce begins selecting coverage.
If you offer more than one plan, you can also help employees understand the trade-offs between base plans and “bump-up” options. This is especially critical if you changed providers or added options.
For instance, as employer-sponsored healthcare has become more costly, some organizations have added high-performance network plans (or HPN plans) to their roster. These plans definitely require explanation.
If I’m honest, I have misgivings about HPN plans. HPNs reduce healthcare costs for employees by limiting provider networks.
In theory, it sounds like a reasonable exchange: lowering out-of-pocket costs and premiums by reducing the number of in-network providers.
While a third of organizations now offer some type of non-traditional healthcare plan such as HPNs, these plans work best for smaller organizations and those with a limited geographic footprint.
For companies with a national presence or a distributed workforce, network reductions often unnecessarily burden employees with less options. In my experience, workers are more receptive to higher costs (when explained properly) than finding their doctors aren’t in-network.
The savings from certain plans look nice on paper but come at the risk of eroding employee trust in your benefits package.
Taking a Total Rewards view of health benefits
Your Total Rewards offering extends beyond core benefits like healthcare. I consider health benefits foundational, but only part of how employers attract and retain employees.
Your organization may offer other perks from retirement matching to flexible working arrangements to once exotic (but increasingly commonplace) benefits like gym memberships and pet insurance.
My approach to Total Rewards starts with listening. When you truly understand what people need at different life stages, you can design benefits that are both supportive and cost effective.
My non-negotiables: equity and access for everyone. Programs should deliver tangible value without sacrificing financial sustainability.
I’d also be the first to admit it: Total Rewards practitioners like me often do a fantastic job of designing rewards packages but sometimes fall short in communicating them.
Employees might not even consider health insurance as part of their compensation. It’s our job to show them otherwise, especially if we’re asking them to pay more for coverage.
Recent data from the Kaiser Family Foundation (KFF) reveals employer-sponsored health premiums are nearing $27,000 for family coverage, with employees covering a fraction of the cost.
The real question: does your employee with family coverage know you’re contributing so much to their health?
Probably not. Why would they?
This is what makes Total Rewards Statements such a critical piece of the puzzle. Without a dollar amount attached to rewards like health benefits, your employees might dismiss its value.
Payscale simplifies Total Rewards communication with templates you can easily personalize for every employee. Our software allows you easily upload additional benefits data for a complete compensation picture.
Most organizations will ask employees to shoulder a portion of rising healthcare costs this year. Without a clear view of their total compensation, they’ll only see what they’re losing in their paychecks, not what they’re actually gaining.
