Healthcare Cost Trends 2026: What Actuaries Need to Know About the Forces Reshaping Medical Spending

For health actuaries setting 2026 and 2027 rates, the data tells an uncomfortable but unambiguous story: medical cost trends are running at levels not seen since the early 2010s, and the convergence of pharmaceutical innovation, pent-up demand, and behavioral health utilization is creating a pricing environment that demands both technical rigor and strategic foresight.

From tracking the major trend surveys released between mid-2025 and early 2026, a clear consensus has emerged. PwC’s Health Research Institute projects an 8.5% medical cost trend for group health insurance in 2026 - the third consecutive year at that elevated level. Aon projects 9.5%, pushing per-employee costs above $17,000. WTW’s Global Medical Trends report pegs U.S. healthcare cost increases at 9.6%. And Business Group on Health’s employer survey forecasts a median 9% increase before plan design changes, settling to 7.6% after mitigation strategies.

These are not abstract forecasting exercises. They represent the assumptions that underwriters and actuaries embed into premium calculations, reserve estimates, and retiree health benefit valuations for hundreds of millions of covered lives. Understanding what’s driving these numbers - and where the structural forces point over the next three to five years - is essential actuarial work.

This analysis examines the five major cost drivers shaping the 2026 healthcare cost landscape, their implications for actuarial practice, and the deflators that may eventually moderate the trajectory.

The 2026 Consensus: Multiple Surveys, One Direction

Rarely do healthcare cost trend surveys converge so tightly. The major reports released for the 2026 plan year tell a remarkably consistent story:

Survey / Source	Projected 2026 Trend	Coverage / Sample
PwC Health Research Institute	8.5% (Group), 7.5% (Individual)	24 health plans, 125M+ Group members
Aon Health Value Initiative	9.5%	1,000+ employers, 7.7M employees, $120B spend
WTW Global Medical Trends	9.6% (U.S.)	Global insurer survey
Business Group on Health	9.0% (7.6% after plan changes)	121 employers, ~7.4M covered lives
Mercer National Survey	6.7% (after cost reductions)	2,010 employers
Segal Health Plan Cost Trend	9.0% median (medical)	80%+ commercially insured market
HUB International	8–10% (combined Med/Rx)	Regional carrier data
International Foundation of Employee Benefit Plans	10.0% median	Employer survey

The gap between the Mercer figure and other surveys reflects methodology: Mercer reports net of employer cost-management actions, while most other surveys report gross trend. Mercer’s pre-mitigation estimate of approximately 9% aligns closely with the broader consensus. What’s significant for actuaries is that these are not survey outliers - they represent a durable shift. Based on patterns we’ve observed in the trend survey data over the past several years, this marks the fourth consecutive year of elevated cost growth following a decade when annual increases averaged approximately 3%.

According to CMS actuaries, national health expenditures grew an estimated 8.2% in 2024 and are projected to increase 7.1% in 2025. For 2026–2027, spending growth is expected to average 5.6% - lower than the employer-reported figures partly because the CMS projection reflects the full payer mix including Medicare and Medicaid, and incorporates anticipated enrollment changes from the expiration of enhanced ACA premium tax credits.

The CMS Office of the Actuary projects that health spending will reach approximately $5.9 trillion in 2026 and account for an estimated 18.6% of GDP, continuing to outpace economic growth. By 2033, CMS projects the health share will reach 20.3%.

Driver #1: Prescription Drug Spending - The GLP-1 Earthquake

Pharmacy costs represent the single most disruptive force in the 2026 trend environment. Employers are forecasting 11–12% increases in pharmacy costs heading into 2026, according to Business Group on Health. Within that figure, GLP-1 receptor agonists - semaglutide (Wegovy, Ozempic) and tirzepatide (Zepbound, Mounjaro) - have rapidly become the defining pricing challenge of the decade.

The scale of disruption is difficult to overstate. GLP-1 drug claims rose from 6.9% of employer pharmacy claims in 2023 to 10.5% in 2025, according to Blue Cross Blue Shield Association analysis. These medications now account for more than 15% of annual pharmacy claims for more than a quarter of employers. Data from WTW’s Rx Collaborative shows that five GLP-1 drugs account for 21% of overall prescription costs after estimated rebates and discounts in Q1 2025, up from just 1% in 2020.

From an actuarial perspective, the GLP-1 challenge compounds several pricing difficulties simultaneously:

Utilization is expanding rapidly. In 2024, 44% of large employers (500+ employees) covered GLP-1 drugs approved for weight loss, and that figure jumped to 49% in 2025 according to Mercer. Among the largest firms (5,000+ employees), coverage rates reached 43% in 2025, up from 28% in 2024, per the KFF Employer Health Benefits Survey. Meanwhile, 79% of employers are currently seeing increased utilization of obesity medications, with an additional 15% anticipating future increases.

Unit costs remain exceptionally high. At approximately $1,000 per month per patient before rebates, the per-member cost creates significant exposure, particularly given that an estimated 40% of people under 65 meet clinical criteria for obesity.

Adherence patterns create actuarial uncertainty. Data from Prime Therapeutics shows only 1 in 12 members remain on GLP-1 treatment after three years. BCBSA research found that nearly two-thirds of patients discontinue before the 12-week threshold needed for meaningful weight loss, and more than 40% stop after just four weeks. For actuaries building PMPM projections, the disconnect between initiation rates and sustained utilization complicates both trend assumptions and cost-offset modeling.

The ROI question remains unresolved. The Peterson Health Technology Institute’s December 2025 market trend report states directly that evidence is “unanimous that GLP-1s currently increase total healthcare spending for employers,” as drug costs exceed any reductions in other medical costs over the 3–4 year period typical of employer-sponsored coverage. This challenges actuarial assumptions about downstream savings justifying near-term pharmacy spend.

Employer responses are fragmenting the market. Some employers are tightening restrictions - imposing prior authorization, requiring participation in weight management programs, or limiting eligibility to higher BMI thresholds. Others are exploring direct-to-consumer subsidy models outside the benefit plan. Managing GLP-1 costs is the top pharmacy benefit priority for 77% of large employers, according to Mercer. For actuaries pricing employer group renewals, understanding each sponsor’s specific GLP-1 strategy is now essential to accurate trend assumptions.

The pipeline adds further uncertainty. With potential new oral formulations, expanded FDA indications for cardiovascular disease prevention, and Medicare coverage expansion on the horizon, the actuarial challenge of projecting GLP-1 spend will likely intensify rather than stabilize over the next several renewal cycles.

Driver #2: Hospital and Provider Cost Inflation

While pharmacy spending garners the most headlines, hospital and provider cost inflation continues to be a structural driver of medical trend. According to the Segal survey, hospital price inflation is projected at 5% for 2026, with physician price inflation at 2.1%.

Several forces are converging to sustain provider-side cost pressure:

Healthcare labor costs remain elevated. Hospital workforce expansion has enabled greater patient throughput, contributing to higher utilization volumes. However, the wage increases necessary to recruit and retain clinical staff - particularly nurses and allied health professionals - continue flowing through to commercial plan reimbursement rates.

Provider consolidation strengthens negotiating leverage. The continuing consolidation of providers into fewer, larger health systems has improved their ability to negotiate reimbursement levels with insurers, as Mercer’s analysis notes. For actuaries modeling provider trend, this means unit cost assumptions may need upward revision in markets experiencing significant merger activity.

Post-pandemic utilization catch-up persists. McKinsey has estimated that deferred care created a “catch-up wave” resulting in a 5–10% increase in outpatient utilization compared to pre-pandemic levels, a pattern expected to continue through 2026. Patients returning to the system often present with more advanced conditions, driving higher per-episode costs.

Revenue cycle intensification affects commercial payers disproportionately. PwC’s medical cost trend report notes that many hospitals are intensifying revenue cycle management activities, increasing inpatient admissions, and pushing more costs onto commercial health plans - a dynamic familiar to actuaries who model cost-shifting from public to private payers.

For actuaries, the interplay between unit cost and utilization is critical. As Mercer’s U.S. Chief Actuary for Health and Benefits, Sunit Patel, has noted, both components of trend - price and utilization - are rising simultaneously, creating a compounding effect that makes the current environment particularly challenging to manage through traditional plan design levers alone.

Driver #3: Behavioral Health - The Quiet Cost Surge

Mental health utilization has quietly emerged as one of the most significant cost drivers in the 2026 trend environment, with implications that extend well beyond the behavioral health benefit category itself.

The Segal survey identifies increased utilization of mental health services as the single largest contributor to healthcare cost increases. The data tells a striking story: 30% of Americans used mental health services in 2024, compared to 22% in 2019. Among Gen Alpha, 37% see a mental health provider - the largest share of any generation - increasingly for ADHD and autism treatment in addition to anxiety and depression.

The PwC medical trend report underscores the magnitude of the shift: inpatient behavioral health claims jumped nearly 80%, and outpatient claims rose almost 40%. One in three actuarial leaders surveyed cited behavioral health as a top driver of rising costs, projecting a 10–20% trend for this segment in 2026.

For actuaries, this trend intersects with medical cost in important ways. A Milliman study examining 21 million lives found that 57% of the top 10% of high-cost members had a mental health or substance abuse diagnosis. This behavioral health subgroup contributed to 44% of all health care spending - despite representing less than 6% of the total population. Critically, the majority of these costs were driven by individuals with mild to moderate conditions who were receiving little or no specialty behavioral treatment.

This matters for actuarial modeling because it suggests that untreated behavioral health needs are a significant driver of medical cost, not just behavioral health cost. Actuaries pricing employer-sponsored plans increasingly need to account for the whole-person cost impact of behavioral health trends, including their influence on emergency department utilization, inpatient admissions, and chronic disease management.

On the regulatory front, strengthened enforcement of the Mental Health Parity and Addiction Equity Act (MHPAEA) in 2025–2026 will require payers to demonstrate equal access and justify treatment limitations for behavioral health, potentially expanding covered services and further driving utilization growth.

Employer-sponsored plan responses reflect the complexity. More than 75% of large employers will offer digital stress management or resiliency resources in 2026, according to Mercer. However, the fundamental challenge - dramatically increased demand meeting a structurally constrained behavioral health provider workforce - suggests this cost driver will persist for the foreseeable future.

Driver #4: Oncology - Rising Incidence, Escalating Treatment Costs

Cancer has been the top condition driving employer healthcare costs for four consecutive years, according to Business Group on Health. In the 2026 trend environment, oncology costs are accelerating due to a convergence of epidemiological and pharmaceutical forces.

The scale of spending is substantial. The American Cancer Society projects cancer-related healthcare costs of $222 billion in 2025, representing a 21% increase over the $183 billion spent in 2015. The United States spent $99 billion on anticancer therapies alone in 2023, with 95% of therapies launched that year costing more than $100,000 annually.

Employer data confirms the trend. Among surveyed employers, 86% report increased cancer care spending compared to the prior year, with median year-over-year increases of 11%. WTW’s Global Medical Trends report found that cancer is named as the fastest-growing and most expensive diagnosis for insurers in nearly every region, cited by 57% of insurers globally. Notably, three-quarters of insurers observed an increase in cancer incidence among individuals under age 40.

For actuaries, several dynamics complicate oncology cost projection:

Shifting incidence patterns. The American Cancer Society reports that cancer rates in women under 50 are now 82% higher than in men - a significant demographic shift. Early-onset colorectal cancer is increasing among working-age adults, changing the cost profile of employer-sponsored populations that historically skewed younger and healthier.

Treatment innovation drives unit cost. Cell and gene therapies (CGTs), immunotherapies such as CAR-T, and precision medicine approaches deliver improved outcomes but at substantially higher per-course costs. New cancer drugs costing more than $200,000 per year now account for 44% of drug launches, compared to 7% in 2017. The median annual cost of cancer treatment across all tumor types is approximately $196,000.

Stop-loss implications for self-insured employers. Rising maximum individual claim amounts are creating pressure on medical stop-loss markets, which in turn affects the actuarial pricing of ASO arrangements and excess-loss coverage.

Employers are responding with centers of excellence (COEs) for oncology - approximately half of employers will offer a cancer COE in 2026, with another 23% considering doing so by 2028. For actuaries, quantifying the cost impact of navigation programs, expert second opinions, and precision medicine protocols on overall plan performance is becoming an increasingly important element of renewal analysis.

Driver #5: Federal Policy Uncertainty and Market Disruption

The 2026 healthcare cost environment is being shaped by significant federal policy developments that create both actuarial modeling challenges and potential market disruption.

ACA enhanced premium tax credit expiration. Under current law, the temporarily enhanced Marketplace premium tax credits established by the Inflation Reduction Act are set to expire in 2026. CMS actuaries project that private health insurance enrollment will decline by 2.2% in 2026, largely reflecting a 12.3% decrease in direct-purchase insurance enrollment. The Congressional Budget Office has projected millions more people becoming uninsured as a result.

For actuaries, the enrollment implications are significant. ACA-market risk pools are expected to deteriorate in 2026, as the American Academy of Actuaries’ issue brief notes, potentially leading to higher premiums for remaining enrollees and creating adverse selection dynamics. The Academy’s analysis, released in July 2025, provides a detailed framework for understanding how subsidy expiration affects the rate development process.

Medicaid contraction. Potential reductions in federal Medicaid spending through the legislative process could shift previously covered populations into other coverage channels, affecting the risk profiles of both individual market and employer-sponsored populations.

Inflation Reduction Act drug pricing provisions. The IRA’s Medicare drug price negotiation program will have its first negotiated prices take effect in 2026, creating potential downstream effects on commercial pricing. The $2,000 annual cap on Medicare Part D out-of-pocket spending, effective 2025, is already influencing beneficiary cost-sharing patterns and may affect prescription drug utilization trends in employer-sponsored populations through Medicare-eligible retiree coverage.

Tariff and trade policy. Survey participants in the Segal and PwC studies flagged potential tariffs on imported pharmaceuticals as an emerging factor that could further elevate drug costs, though the magnitude remains uncertain.

For health actuaries engaged in rate development, the challenge is incorporating policy-driven uncertainty into assumptions when the legislative landscape remains fluid. The CMS actuaries have cautioned that their projections “reflect current law” and that “future legislative and regulatory health policy changes could have a significant impact” on coverage, spending, and cost-sharing dynamics.

Deflators on the Horizon: What Might Moderate the Trajectory

While the near-term trend environment is dominated by inflationary forces, several potential deflators merit actuarial attention:

Biosimilars. For the third consecutive year, biosimilar adoption is cited by health plan actuaries as a leading cost deflator in the PwC survey. As more biosimilars enter the market - particularly for high-cost specialty drugs - competitive dynamics may moderate pharmaceutical trend. However, the pace of adoption and the magnitude of savings remain modest relative to the scale of new specialty drug spending.

AI and technology. Investment in healthcare AI is generating short-term cost increases but holds longer-term promise for moderating trend. WTW’s analysis notes that “new technologies hold the promise of reducing healthcare cost trends in the longer term.” Applications in claims review, fraud detection, care management triage, and administrative automation could yield savings. The SOA Research Institute is actively investigating AI’s potential for predicting high-cost claims and improving actuarial modeling accuracy through its Health Care Cost Trends Strategic Research Program. PwC projects a 20–30% reduction in payer administrative costs through 2035 from AI-driven automation.

Value-based care models. Employer adoption of non-traditional medical plans - high-performance networks, reference-based pricing, and direct primary care arrangements - continues to grow. Mercer reports that 35% of large employers will offer some type of non-traditional plan in 2026. These models, when properly designed, can moderate trend by steering members to higher-value providers and reducing low-value utilization.

Price transparency. CMS price transparency rules, now in their third year of enforcement, are gradually creating competitive dynamics that could moderate unit cost growth. PwC’s health plan actuaries have cited price transparency as a top emerging trend to watch.

Implications for Actuarial Practice

The 2026 healthcare cost environment has direct implications across multiple domains of health actuarial practice:

Trend assumption setting. The SOA’s Getzen Model of Long-Run Medical Cost Trends, updated for 2026–2036 in December 2025, provides a benchmark framework for long-run projections. The model estimates long-run medical cost increases at approximately 5.0% per year, eventually declining to match per capita income growth. However, near-term trends are running well above the long-run equilibrium, requiring actuaries to carefully calibrate the glide path from current elevated levels to normalized rates.

Employer renewal pricing. The divergence between gross and net trend - approximately 9% before plan changes versus 6.5–7.6% after - means that the specific mix of employer cost-management strategies matters enormously for group-level pricing accuracy. Actuaries must model the impact of GLP-1 coverage decisions, plan design changes, PBM renegotiations, and network strategies individually rather than relying on average adjustment factors.

Reserve adequacy. Rapidly changing utilization patterns - particularly in pharmacy, behavioral health, and oncology - create IBNR estimation challenges. Actuaries should evaluate whether historical development patterns remain appropriate when the underlying mix of services is shifting significantly.

Retiree health benefit valuation. For actuaries estimating retiree health benefit liabilities under FASB and GASB standards, the interaction of near-term elevated trends with the IRA’s Medicare drug provisions requires careful assumption integration. The Getzen Model is specifically designed for this purpose and should be consulted for long-run projections.

ACA market pricing. Health actuaries involved in individual market rate development face the compounding challenge of elevated medical trend combined with potential risk pool deterioration from subsidy expiration. The American Academy of Actuaries’ premium rate development framework provides essential guidance for navigating this complexity.

Predictive analytics evolution. The SOA’s research agenda on using AI to predict high-cost claims reflects a growing recognition that traditional actuarial models may need augmentation. The “5/50 rule” - where 5% of the population drives 50% of healthcare costs - creates an opportunity for AI-enhanced risk identification that can improve both pricing accuracy and care management targeting.