How Employer Healthcare Costs Outpaced Inflation - And What Comes Next

Employer-sponsored health insurance has risen far faster than the general cost of living over the last decade. Average annual family premiums increased 47% between 2013 and 2023, according to the KFF 2023 Employer Health Benefits Survey¹. Over roughly the same period, consumer prices rose about 26%, according to the U.S. Bureau of Labor Statistics Consumer Price Index².

A Decade of Runaway Healthcare Costs

Budgets are stretched, benefit designs are thinning, and frustration is growing among employers and employees as more compensation is consumed by health coverage rather than take-home pay or new investment.

The Compounding Effect on Employers and Wages

Employers absorb most of the increase in healthcare costs to stay competitive in the labor market.

Average per-employee cost for employer-sponsored health insurance reached $16,501 in 2024, with employers expecting further increases in 2025, according to Mercer’s National Survey of Employer-Sponsored Health Plans³.

Over just the last five years, the average premium for family coverage has increased 22% compared with a 27% increase in workers’ wages and 21% inflation, according to the KFF Employer Health Benefits Survey¹.

As healthcare takes a larger share of total compensation, fewer dollars remain for raises, hiring, and new initiatives, effectively acting as a quiet tax on wages and growth.

Why Premiums Keep Rising Faster Than Inflation

Several structural forces keep healthcare inflation persistently higher than general inflation.

1. Provider Pricing Power

Hospital and provider consolidation has increased pricing power for large health systems, allowing them to negotiate higher commercial rates without consistent gains in quality or outcomes, according to the KFF issue brief on consolidation in health care provider markets⁶.

2. Prescription Costs and Specialty Drugs

Specialty drugs, used by a small share of patients with complex conditions, now account for at least half of total pharmaceutical spending in recent years, according to CarelonRx’s analysis of specialty drug growth⁸.

Specialty drug spending continues to grow at high single- to low double-digit rates annually, with one recent report showing a 9.6% specialty drug trend in 2024 after a 14.4% increase in 2023, according to PSG’s specialty drug trend analysis⁹.

3. Chronic Conditions and Preventable Utilization

Chronic diseases such as heart disease, diabetes, and cancer are the leading drivers of U.S. health spending and affect more than half of the population, with roughly 6 in 10 Americans living with at least one chronic condition, according to the National Institute for Health Care Management Foundation¹⁰ and the CDC’s chronic disease fast facts⁷.

Because many of these conditions are long-term and preventable, they generate recurring claims that climb over time if not managed effectively.

4. Administrative and Network Markup

Beyond medical claims, employers pay substantial administrative, broker, and network access fees that add a meaningful layer of cost to total premiums, as highlighted in the Business Group on Health 2024 Large Employer Health Care Strategy Survey⁴.

These costs are often bundled into carrier charges, making them less visible but still material for budgeting and strategy.

The Hidden Inflation Gap

Healthcare costs ratchet upward even when general inflation cools, because renewals are priced off prior claims experience and contractual rate increases.

In 2023, average annual premiums for employer-sponsored family coverage increased 7%, while inflation rose 5.8% and wages 5.2%, according to the KFF Employer Health Benefits Survey¹.

Once higher costs are embedded in rates, they rarely move down, creating a long-term gap between healthcare inflation and the broader economy.

How Employers Are Responding

Most organizations rely on a mix of defensive and strategic responses to manage rising costs while staying competitive on benefits.

• Higher Deductibles and Cost Sharing
  Many employers have gradually raised deductibles and other forms of cost sharing, contributing to a steady increase in out-of-pocket exposure for workers; for example, the share of workers with deductibles of $2,000 or more for single coverage has grown significantly over the past decade, according to the KFF Employer Health Benefits Survey¹.
• Narrow Networks and Reference Pricing
  Employers are using narrower networks, high-performance provider arrangements, and alternative contracting strategies to gain leverage over hospital and physician pricing, a trend described in the Business Group on Health 2024 Large Employer Health Care Strategy Survey⁴.
• Onsite and Near-Site Clinics
  Adoption of onsite and near-site clinics has been growing, particularly among larger employers seeking to shift from reactive claims management to proactive, relationship-based primary care, according to survey findings summarized by Business Group on Health⁴.
• Data-Driven Self-Funding
  Mid-sized and large employers increasingly use self-funded or level-funded arrangements to gain greater cost transparency and control over plan design, with roughly two-thirds of covered workers now in self-funded plans, according to the KFF Employer Health Benefits Survey¹.

Forecast — What Comes Next

Healthcare inflation is widely expected to continue outpacing general inflation over the next several years, driven by deferred care, specialty and biologic drug utilization, and the need for competitive benefits.

The 2025 Global Medical Trends Survey projects a global average medical cost increase of 10.4% in 2025, marking the third consecutive year of double-digit growth, with North America’s medical costs expected to rise by 8.7%, according to WTW’s 2025 Global Medical Trends Survey⁵.

At the same time, employers anticipate continued pressure from high-cost therapies such as GLP-1 medications and gene and cell therapies, as highlighted in recent research from Mercer’s 2024 survey of employer health plans³.

The Bottom Line — There’s a Better Way

A decade of runaway healthcare costs is not inevitable.

The current system often rewards volume over value and complexity over transparency, but employers now have tools to realign incentives and reset the cost curve.

• Self-Funding Models can return unspent premium dollars, reduce taxes on premiums, and give employers direct visibility into the drivers of claim costs, as documented in employer benchmarking from KFF’s Employer Health Benefits Survey¹.
• Employer-Sponsored Clinics can reduce downstream claims by making preventive, relationship-based primary care easier to access, a strategy increasingly highlighted in large-employer survey results from the Business Group on Health 2024 survey⁴.
• Data Transparency enables smarter plan design, targeted chronic disease management, and predictive interventions that address risk earlier, drawing on both medical and pharmacy data as outlined in research from Mercer’s National Survey of Employer-Sponsored Health Plans³.

By moving from passively absorbing medical trend to actively shaping a prevention-focused, data-driven healthcare strategy, employers can begin to bend their own cost curve while improving the experience and outcomes for employees and their families.

Sources

• KFF. “2023 Employer Health Benefits Survey.” 2023.
• U.S. Bureau of Labor Statistics. “Consumer Price Index (CPI).” 2024.
• Mercer. “National Survey of Employer-Sponsored Health Plans.” 2024.
• Business Group on Health. “2024 Large Employer Health Care Strategy Survey.” 2023.
• WTW. “2025 Global Medical Trends Survey.” 2024.
• KFF. “Ten Things to Know About Consolidation in Health Care Provider Markets.” 2023.
• Centers for Disease Control and Prevention. “Fast Facts: Health and Economic Costs of Chronic Conditions.” 2024.
• CarelonRx. “Specialty Drug Growth Is Here to Stay.” 2025.
• Pharmacy Solutions Group (PSG). “Annual Spending on Specialty Drugs Continues to Increase but at a Slower Pace.” 2024.
• National Institute for Health Care Management (NIHCM) Foundation. “The Growing Burden of Chronic Diseases.” 2024.