To control healthcare spending, you need to understand it first. Healthcare costs continue to rise, creating challenges for both employers and employees. A recent UnitedHealthcare Briefing, drawing on data from the 2026 Health Trends Report, highlights the key factors driving spending increases and offers strategies employers can use to help manage costs.
U.S. Healthcare Spending Is Outpacing Inflation
Inflation has been high in recent years, but the increases in U.S. medical costs have been higher. Between 2016 and 2025, medical costs for commercial group plans increased at an annual rate that ranged from just over 5% to more than 8%. In 2026, costs are expected to increase by more than 8% again.
This is similar to what the Milliman 2026 Medical Index shows. According to Becker’s Hospital Review, the report shows that the average American with employer coverage is expected to spend $8,460 on healthcare this year, a 7.9% increase compared to 2025.
For some workers, costs are simply too high. The Seattle Times reports that more healthy workers are opting out of coverage to save money. Meanwhile, HR Executive reports that some major employers are cutting benefits.
Hospital Care and Catastrophic Claims Are Major Cost Drivers
The UHC Briefing points to hospital care and catastrophic claims as the main factors driving rising medical costs. Catastrophic claims costs increased by 12.9%, and 30% of net spend is allocated to hospital services.
A number of chronic conditions are contributing to rising costs, including:
- Cancer
- Musculoskeletal disorders
- Circulatory conditions
- Digestive health
- Nervous system health
- Behavioral health
In most categories, both prevalence and costs are up, and the increase in costs outpaces the increase in prevalence. For example, between 2019 and 2025, digestive health conditions increased by 13% in terms of prevalence, but costs increased by 37%. For musculoskeletal disorders, prevalence increased by just 3%, while costs increased by 20%. For cancer, prevalence increased by 13%, while costs increased by 47%.
Ironically, better treatment options are partially to blame. New treatments can improve outcomes, but they can also be expensive. According to the Institute for Health Metrics and Evaluation, in the last two decades, medical spending has increased by $234,000 per person as medical care improvements have increased lifespans.
For employers, these trends show that rising healthcare costs are not solely the result of increased utilization. More expensive treatments and longer life expectancies are creating higher costs even when workforce health risks remain relatively stable.
Prescription Drug Costs Continue to Rise
Pharmacy spending is another major driver of healthcare cost increases. The UHC Briefing reveals that $1 out of every $4 employer healthcare dollars is spent on pharmaceuticals. Although GLP-1 usage is driving some of the increases, UHC says the biggest culprit is expensive specialty medications, which drive 55% of total pharmacy benefit spend.
This may be changing. Milliman’s 2026 Medical Index found that pharmacy is now the fastest-rising category of healthcare spending, with an increase of nearly 15% per person. Around 69% of this year’s cost growth can be attributed to pharmacy spending, and GLP-1 medications are playing a growing role.
Now that the weight loss medication is available as a pill, even more people may seek medication. According to AAMC, the new pill form was launched on January 5, 2026, and within just three weeks, around 170,000 people already had a prescription. A 2025 Gallup poll found that 12.4% of respondents were taking GLP-1 drugs, which works out to about 30 million people.
For employers evaluating their benefit strategies, prescription drug management is becoming increasingly important as demand for expensive medications increases and pharmacy spending represents a growing share of total healthcare costs.
How Can Employers Rein in Costs?
The causes are complex, but the impact of rising healthcare costs is simple. Many employers and employees can no longer afford rising rates.
In the UHC Briefing, Dr. Rhonda Randall, Chief Medical Officer at UnitedHealthcare Employer & Individual, gave tips on how to take action. The recommendations include:
- Add clinical and care management programs. Providers can benefit from support in keeping up with changing guidelines, and members experiencing complex health conditions can benefit from guidance.
- Use integrated benefits to support cross-benefit management of care. Some treatments could be covered either under medical or pharmacy benefits, with significant impacts on costs, so coordination is key.
- Encourage employees with less severe healthcare needs to use self-help resources. The site of service can also make a difference for procedures, such as using an ambulatory surgery center instead of a hospital.
But what if these tactics are implemented, and it’s still not enough? Healthcare costs have reached crisis levels.
While many of the factors driving healthcare inflation are beyond an employer’s control, organizations still have options.
Direct Partnership Plan models can help employers gain greater transparency, put employers back in control of benefits and give employees access to quality care at a more affordable price.
Learn how Health2Business helps employers rethink healthcare benefits and control costs.
