Employer Health Costs Rise as Workers Face Higher Premiums and Deductibles

Employers and workers are sharing more of the pressure from rising health costs. Workers’ average annual contribution for family coverage climbed 9% this year to $7,471, while the average total family premium reached $28,303, up 5%, a KFF survey released Oct. 22 found. Forecasts from several employer health groups point to another steep increase in 2027.

The shift matters to household budgets and company compensation costs alike. More than 150 million Americans under age 65 get health coverage through work, and employers have limited ways to absorb continuing increases without changing plan terms or asking workers to pay more. Workers’ earnings rose an average of 3.7% this year, compared with overall inflation of 2.7%.

Workers take on more of the bill

The 9% rise in workers’ family contributions was larger than the 7.6% increase from 2024 to 2025. Employers’ average family premium rose 5%, following a 6% increase the year before. Among employers with at least 200 workers, 44% said they increased the amount employees pay toward coverage.

Across companies of all sizes, employees’ share of the total premium edged up only slightly. Workers paid 27% of family premiums and 18% of individual premiums, with employers covering the rest. Those averages can obscure a sharper burden at smaller workplaces: employees at companies with fewer than 200 workers faced an average annual deductible of $2,624 for individual coverage, compared with $1,772 at larger companies.

Deductibles determine how much a person pays for covered care before insurance begins contributing. Raising them can restrain an employer’s plan costs while shifting more expense onto workers when they need treatment. Other steps employers reported taking over the past year included changing insurers, requiring preapproval for some services and narrowing the choice of providers.

“When we start to see higher use or higher prices, there are only a limited number of things employers can do” to slow premium increases, said Matthew Rae, associate director of KFF’s Program on the Health Care Marketplace. The options can change how costs are divided, but don’t necessarily address the prices charged across the health system.

2027 projections point to continued pressure

Employer cost forecasts vary, but each cited a substantial increase for next year. Aon projected employers could pay 9.5% more in 2027, marking a fourth consecutive year of large increases. Marsh estimated an 8.2% increase, which it described as the highest since 2003. Business Group on Health put the median expected premium increase at 9.2%, while noting that employers could reduce it through benefit changes.

The cited drivers include greater use of medical services, higher prescription drug prices and rising hospital prices. Business Group on Health also pointed to artificial intelligence: hospitals and other medical providers can use the technology to maximize billing to insurers and patients, the group said. That adds another source of cost pressure as employers try to understand what their plans are paying and how charges compare among providers.

“Until recently, employers absorbed the lion’s share of cost increases, but that’s starting to change a bit,” said Jim Winkler, the group’s chief strategy officer. At enrollment time, he expects many workers to see higher paycheck deductions and out-of-pocket costs.

For 2028, Winkler said, employers could revisit tiered provider networks, which set lower copayments for certain providers based on price or quality. Only 4% of companies in the KFF survey said they continued to use this approach. Winkler said apps that display providers’ copayments could make it easier for workers to compare options.

Purchasers look for ways to control prices

Elizabeth Mitchell, president and CEO of the Purchaser Business Group on Health, said attention often falls on what employers are doing to manage costs, even though hospitals, drugmakers and insurers also shape the price of care. Businesses are using newly available pricing information to negotiate directly with some hospitals and other providers, and to invest in primary care.

One employer in the survey, Phifer Inc., reported flat health costs this year. The Tuscaloosa, Alabama, manufacturer of insect screens and precision-woven products has focused on providing workers with primary care at no cost through on-site clinics and direct contracts with doctors’ offices, said Russell DuBose, the company’s vice president of human resources.

Only 7% of companies surveyed had an on-site clinic, while 24% had one either on-site or nearby. DuBose said quick access to a primary care doctor can support prevention and help identify health problems earlier. Phifer also contracts directly with specialists and guides plan members toward providers it considers the best available. “When we do that, we’re paying a more reasonable price,” he said.

Phifer is self-insured, meaning it pays its workers’ medical bills itself and buys stop-loss insurance to help cover exceptionally high claims. DuBose said that coverage has also become more expensive. He said other employers have increasingly contacted him about the company’s approach, amid concern that rising health costs could affect their ability to sustain jobs.

Drug spending and price visibility remain concerns

The KFF survey found that 29% of companies said coverage for GLP-1 weight-loss drugs had a significant effect on their drug costs. About 29% of large employers reported difficulty obtaining information about what their plans paid for medical care or comparing provider prices. Among companies with at least 50 workers, about 9% bought prescription drugs from outside the United States to save money.

These findings show why cost control is difficult: employers face rising charges, uneven access to price information and choices that can shift expenses between companies and workers. The next round of plan changes will reveal how much of the projected increase employers absorb and how much appears in premiums, deductibles and other costs workers pay directly.