CPI report health care inflation rises

Health-care inflation is fueling higher coverage costs, setting the stage for what could be the largest increase in health-care spending by large employers in 15 years.

Medical care costs in August rose 4.2% on an annualized basis, according to the Labor Department’s Consumer Price Index, compared to an overall inflation rate of 2.9%. The cost of doctors’ visits climbed 3.5%, while hospital and outpatient services jumped 5.3%.

Those price increases are contributing to higher health insurance costs for 2026. Consumers who don’t qualify for government subsidies to buy health coverage on the Affordable Care Act exchanges could face double-digit premium increases for next year, according to early filings from insurers.

Workers with employer health coverage could also have to pay higher premium and out-of-pocket costs next year.

Large employers are projecting their overall health coverage costs will rise an average of 9% in 2026, according to several business group surveys, which would be the highest level of health-care inflation since 2010.

More than half of companies surveyed by benefits consulting firm Mercer earlier this year said they are considering passing on some of those increases to workers, but the Business Group on Health says most large employers in its survey are looking for other ways to cut costs.

“Employers have shied away in every way possible, from passing on costs to employees. This year, we see the first indication that they may look to pass some of that on to employees, but again, only as a last resort. They’re going to try and pull as many other levers as possible,” said Ellen Kelsay, BGH president and CEO.

Prescription drug prices rose 0.9% in August, according to the Consumer Price Index, which considers a range of widely-used generic and brand-name drugs.

But for large employers, expensive drugs are the major drivers of higher health spending.  

Companies surveyed by BGH are projecting a 12% increase in pharmaceutical costs next year, on top of an 11% hike this year fueled by cancer drugs and diabetes and obesity treatments like Novo Nordisk’s Wegovy and Ely Lilly’s Zepbound.

“Cancers have been for the fourth year in a row, the top condition driving healthcare costs — cancers at younger ages, later stage diagnoses,” said Kelsay, who added that pricy weight loss drugs are are a close second.

“When it comes to the treatment of obesity, that has been the space that has been the most frothy for the past two to three years and has been what has fueled a lot of this pharmaceutical spending,” she said.

Nearly two-thirds of employers with 20,000 workers or more offer access to weight loss drugs known as GLP-1s, according to Mercer. Less than half of small employers surveyed plan to offer access in 2026.  

With growing demand for the drugs, more companies are tightening eligibility requirements and beginning to explore more affordable ways to provide access for their employees, including the cash-pay market.

A telehealth executive whose firm offers compounded GLP-1s told CNBC that some large employers are quietly letting workers know they can use health savings accounts to buy the medications for less in the cash market.

“They are worried about how much [the drugs] cost, but that doesn’t mean they don’t think their employees shouldn’t have access to them. They just don’t want to have to pay for it,” said the executive, who spoke on condition of anonymity because of the confidential nature of the discussions.

Health account data shows more workers are turning to direct-to-consumer options, including Eli Lilly’s Lilly Direct and Novo Nordisk’s Novocare online pharmacies, both of which offer their weight loss drugs at roughly half the list prices of more than $1000.

GLP-1 purchases are now the top category of cash-pay spending in pre-tax flexible spending and health savings accounts, for expenses not covered by insurance, according to the CEO of health payments processor Paytient.

“We see a tripling from last year to this year of usage at GLP-1 oriented providers. These are places like Lilly Direct, like Ro, like Hims & Hers, and that’s a growing segment,” said Paytient founder and CEO Brian Whorley.  

But employers worry that the cash-pay trend leaves lower-income workers out of the equation because they can’t afford the out-of-pocket costs. That is prompting discussions about how their companies can obtain cash-pay prices to help boost more equitable access for employees.

Self-insured employers have contracted directly with so-called Centers of Excellence for specialty medical care such as cancer treatment and joint replacements. But they can’t currently do the same for many drugs. Under agreements with pharmacy benefit management firms, or PBMs, both the drugmakers and employers would violate their contracts by using a direct cash-pay process. 

But employers are increasingly pressing PBMs for better options, says BGH’s Kelsay. They are beginning to consider new types of benefit managers, which are proposing new payment models for drugs in the development pipeline.

“There are some new entities — some startups in this space — that are building out products and solutions where they are going on behalf of a pooled group of employers to negotiate with manufacturers on certain cell and gene therapies,” she said. 

Paytient’s Whorley calls the challenge of making GLP-1s more affordable a stress test moment for employers and PBMs.

“They’re at a perfect sort of Venn Diagram of clinically effective drugs that change people’s lives, that increasingly will force a choice,” when it comes to financing, Whorley said. “If we get this right, it can provide a blueprint for all the drugs like GLP-1s that will … present challenges for health plans.”