What’s Driving Higher Health Insurance Costs in 2027?

If you’re renewing employee benefits for 2027, higher health insurance costs may already be on your mind. The International Foundation of Employee Benefit Plans (IFEBP) expects employer medical plan costs to rise by a median of 10%, while PwC projects a 9% increase in 2027 medical costs—the highest in 17 years.

So, why do costs keep going up? A few different factors are at play. High-cost claims and prescription drugs are big drivers, but the cost of providing and paying for care is also rising.

Here, we’ll look at what’s driving these higher costs and what it could mean for your benefits in 2027.

1. High-Cost Claims Put More Pressure on Health Plans

High-cost medical claims are one of the biggest reasons health insurance costs are rising. When an employee faces a serious illness or medical event, they may need extensive care that comes with a high price tag. That’s why 32% of employers point to catastrophic health claims as a key reason they expect to spend more in 2027.

Cancer is a major contributor. For five years in a row, employers have ranked it as the top condition driving healthcare costs. Treatment can involve hospital care, surgery, expensive medications, and ongoing follow-up, all of which can make a single claim costly. If you run a smaller business, even a few large claims can have a noticeable impact on what your health plan spends.

2. Prescription Drugs Are Taking Up More of Your Healthcare Budget

Prescription drugs are adding to the increase in healthcare costs, too. New medications are giving patients more ways to manage serious and chronic conditions, but some of the newest treatments can be especially expensive. According to IFEBP, 21% of employers named specialty and costly drugs as a key factor behind what they expect to spend in 2027.

GLP-1s lead the list, followed by treatments for autoimmune and inflammatory conditions and cancer. As more people use these medications and new specialty therapies become available, prescription drug costs continue to grow. Pharmacy spending now accounts for 25% of employer healthcare, making it an increasingly important part of a benefits budget.

3. Inflation Is Making Healthcare More Expensive

Hospitals and medical practices are paying more to operate, just like many other businesses today. As the cost of staff, supplies, equipment, and other essentials goes up, so does the cost of providing care. Insurers often pay more as a result, which can contribute to higher health insurance costs for your business.

That’s one reason PwC expects inflation and provider consolidation to push healthcare costs higher in 2027. In 2024 alone, hospital and physician spending totaled roughly $2.74 trillion. By February 2026, hospital prices had already risen 7.59% year over year. Those increases can add up quickly across a healthcare system, where spending is already significant.

4. AI Is Changing How Providers Document and Bill for Care

AI is also changing how healthcare providers document and bill for care, which can affect what you pay for health coverage.

AI tools can review medical records and capture details about a patient’s condition that providers may not have documented before. More detailed records can then lead to higher payments from insurers. In fact, PwC found that 70% of health plans rank AI-enabled provider tools among their top three factors driving costs higher in 2027.

That doesn’t necessarily mean patients are getting more care—providers can simply document the care in greater detail, which can change how much insurers pay. BCBSA research estimates that AI-enabled coding practices may be associated with about $2.3 billion in inpatient and outpatient spending nationwide.

5. An Aging Population Adds Longer-Term Healthcare Pressure

The U.S. population is getting older, which is putting more pressure on the healthcare system. Adults 65 and older made up 18.9% of the U.S. population in 2025, and that share is expected to keep growing.

Healthcare needs often increase with age, especially for chronic and complex conditions. The latest healthcare spending by age shows that adults 65 and older spent almost 2.5 times more on healthcare than working-age adults. As the population ages, greater demand can push healthcare costs higher and affect what you pay for employee benefits.

How to Prepare for Higher Healthcare Costs

While you can’t control what makes healthcare more expensive, you can make informed decisions about your benefits strategy. Start by finding out why your renewal is going up. Once you know what’s driving the increase, you can make better decisions for your business and employees.