How to Reduce Healthcare Costs for Employers in 2026

Last Updated on October 19, 2026 by VantagePoint

A difficult health insurance renewal can leave an employer feeling stuck between three choices: absorb the increase, charge employees more, or reduce benefits. Before making any of those changes, it is worth finding out what is actually driving the renewal.

Employers can reduce health care costs without cutting benefits across the board. The most useful steps are usually more focused: reviewing medical and pharmacy spending, checking vendor terms, helping employees find better-value care, and adjusting contributions or plan design with employee affordability in mind.

What does the 10% health cost spike mean?

A 10% health cost spike refers to the near-double-digit increases many employers are seeing in health plan expenses and insurance renewals. It does not mean every employer will receive the same increase. The actual amount depends on claims, pharmacy spending, provider prices, plan design, location, network and funding arrangement.

The 10% figure describes the pressure in the market, not the increase every company will receive.

Business Group on Health reported that large employers expected a median health care cost increase of 9% for 2026 before plan changes and 7.6% after planned changes. In the small-group market, KFF found a median proposed premium increase of 11% among ACA-compliant plans. 

An employer’s actual renewal may be higher or lower. Location, workforce, carrier, network, claims, pharmacy use, and funding arrangement all affect the result.

Consider a company that spends $1 million a year on its health plan. A 10% increase adds $100,000. That number may look like a fixed cost, but the renewal can include several different problems: higher provider prices, expensive claims, specialty medications, an unsuitable network, or vendor costs that are difficult to see. Each problem calls for a different response.

Cancer remains a major cost driver. Employers are also seeing greater spending on musculoskeletal conditions, cardiovascular care, diabetes, mental health services, specialty drugs, and GLP-1 medications. Hospital prices and the setting where care is delivered can make a large difference as well.

This is why an across-the-board deductible increase should not be the first or only response. It reduces the employer’s cost by asking employees to carry more of it, whether or not their care caused the increase.

How rising costs affect employers and employees

For employers, a larger health plan budget can limit what is available for wages, hiring, and other investments. It also creates more work for HR teams, which must compare plans, test affordability, review vendors, and explain changes before enrollment.

Employees feel the increase differently. Higher payroll deductions reduce take-home pay. Higher deductibles and copays can make prescriptions, tests, or regular treatment harder to afford. A family managing a chronic condition will notice a plan change much more than an employee who rarely uses care.

Employers should therefore compare two numbers, not one:

• What will the company pay under each option?
• What will employees pay through premiums and when they receive care?

A plan can have a lower premium and still be a poor value if employees cannot afford to use it. On the other hand, an expensive program is not valuable simply because it appears in the benefits package. Programs that employees do not use, cannot access, or do not understand should also be reviewed.

Five ways employers can respond before cutting benefits

1. Find out what is driving the renewal

Start with the information available to the plan. Depending on the funding arrangement and group size, this may include medical claims, pharmacy reports, high-cost claim summaries, care settings, specialty-drug spending, rebates, vendor fees, and program participation.

Self-funded employers will generally have more detail. Fully insured small groups may receive only limited or aggregate information, but they can still ask the carrier or adviser to explain the increase and model alternatives.

The goal is to identify the few issues that deserve attention. If imaging costs are unusually high, changing where employees receive scans may help. If pharmacy spending is the main problem, increasing every medical copay misses the cause. If several vendors offer overlapping services, the employer may be paying more without giving employees anything useful.

Ask for the numbers behind the renewal, the assumptions used, and a comparison with the employer’s previous experience. A percentage on a renewal sheet is a starting point, not an explanation.

2. Review contributions and plan design together

Employers often begin with payroll contributions because they are easy to change. The effect can be uneven. A flat monthly increase takes a larger share of income from lower-paid employees, while dependent coverage may already be unaffordable for some families.

Model employee contributions by pay level and coverage tier before deciding. For Applicable Large Employers, generally those with at least 50 full-time employees and full-time equivalents, this review should include the Affordable Care Act affordability test. 

For plan years beginning in 2026, the affordability percentage is 9.96%. The test applies to the employee cost of the lowest-priced self-only option that provides minimum value. 

Plan design deserves the same care. For 2026, the ACA cost-sharing limit for applicable non-grandfathered plans is $10,600 for self-only coverage and $21,200 for other-than-self-only coverage. These are legal ceilings, not recommended deductibles. 

An HSA-qualified plan can lower premiums and give employees tax advantages, but a high deductible may be difficult for someone who cannot afford to fund the account. Employer HSA contributions can help close that gap. In 2026, the HSA contribution limits are $4,400 for self-only coverage and $8,750 for family coverage, including both employer and employee contributions. 

An employer may also compare a group plan paired with a Health Reimbursement Arrangement, an Individual Coverage HRA, level funding, or self-funding. These arrangements are not automatically less expensive. The right choice depends on workforce location, participation, cash flow, risk tolerance, and the employer’s ability to administer the plan correctly.

For more background, see VantagePoint’s guides to tax-favored health plans and ICHRA, QSEHRA, and traditional small-group coverage.

3. Take a closer look at pharmacy spending

Prescription drugs accounted for nearly one-quarter of employer health care spending in 2024, according to Business Group on Health. Employers surveyed expected pharmacy costs to grow by 11% to 12% heading into 2026.

The first step is to understand the plan’s net cost, which is the amount left after rebates and other payments. A large rebate does not necessarily make a drug less expensive. Employers should ask how the pharmacy benefit manager is paid, whether the plan receives rebates, what audit rights are available, and whether the contract provides access to useful data.

Specialty drugs deserve their own review because a small number of prescriptions can account for a large share of spending. The review may include biosimilars, specialty pharmacy arrangements, infusion locations, and clinically appropriate alternatives. Any change should protect continuity of care for employees already in treatment.

GLP-1 medications also require a clear policy. Employers should decide which FDA-approved uses the plan covers, whether prior authorization applies, what clinical support is available, and how continued coverage will be handled. Leaving coverage unrestricted can be expensive. Excluding it completely may also have consequences for employees who need treatment. The policy should match the employer’s budget, employee needs, and medical guidance.

4. Help employees reach better-value care

The price of a scan, procedure, or prescription can vary considerably depending on where it’s provided. Employers may be able to reduce spending by directing employees to high-quality providers and more appropriate care settings.

Options may include primary care, telehealth, centers of excellence, tiered networks, or site-of-care programs. A narrower network can reduce costs, but only if employees can still reach the doctors, hospitals, and specialists they need. Review employee locations and common care needs before making a network change.

Preventive care and condition management also matter. A general wellness campaign is unlikely to solve a difficult renewal by itself. Support aimed at the conditions already affecting the workforce may be more useful, such as cancer screening, musculoskeletal care, diabetes support, maternity care, or help navigating mental health services.

Employees need simple instructions. Tell them which services cost less, how to compare providers, and who can help when they have a question. A navigation tool has little value if employees do not know it exists or cannot use it when they need care.

5. Review vendors, contracts, and administration

Health plans often collect programs over time. An employer may have separate vendors for telehealth, navigation, mental health, condition management, and employee support, with some services appearing more than once.

List each program, its cost, how many employees use it, and what result it is expected to produce. Removing a low-use or duplicative service may preserve money for benefits employees rely on. Vendor guarantees should also be checked against actual performance.

Contract review is part of this work. Employers covered by the Employee Retirement Income Security Act, or ERISA, have fiduciary responsibilities when selecting and monitoring plan service providers. Hiring a carrier, broker, administrator, or pharmacy benefit manager does not remove the need for oversight. The Department of Labor recommends reviewing fees, services, conflicts, and performance and keeping records of the process. 

Employers should also confirm who is handling required filings and attestations. Most group health plans must complete the annual Gag Clause Prohibition Compliance Attestation by December 31. Prescription Drug Data Collection, known as RxDC, is another annual responsibility. A vendor may submit on the plan’s behalf, but the employer should know who is filing and obtain confirmation. 

Mental health parity requirements also remain in effect. Although federal agencies paused enforcement of new portions of the 2024 final rule, the underlying law and the requirement to document comparative analyses of certain treatment limitations continue to apply. Prior authorization, network standards, and other restrictions should not make mental health or substance-use care harder to obtain than comparable medical care.

State insurance, pharmacy, privacy, and benefit laws may add requirements, particularly for fully insured plans and employers with employees in several states. Plan-specific questions should be reviewed with qualified legal or tax counsel.

A practical renewal checklist

Employers do not need to solve every issue at once. The following questions can keep the review focused:

1. What are the three largest medical and pharmacy cost drivers?
2. Which proposed changes address those drivers directly?
3. What will the company and employees pay under each option?
4. Can employees still reach necessary providers, prescriptions, and treatment?
5. Have affordability, plan documents, notices, vendor duties, and state requirements been checked?
6. Who will administer the change and answer employee questions?
7. How will the employer measure whether the decision worked?

Document the information reviewed, the options considered, and why the final decision was made. This creates a useful record for fiduciary oversight and gives the company a better starting point at the next renewal.

How VantagePoint Can Help You Take Control of Rising Benefit Costs

A 10% increase in health insurance costs doesn’t have to mean a 10% increase in what your company spends or higher out-of-pocket expenses for your employees.

Too often, employers approach renewal season believing their only choices are to absorb higher premiums, shift more costs to employees, or reduce benefits. There may be better options.

VantagePoint helps employers uncover opportunities to control healthcare spending through smarter plan design, alternative funding strategies, and tax-advantaged benefit arrangements. We evaluate the financial impact of different approaches while helping ensure that changes are compliant, properly administered, and clearly communicated to employees.

Before accepting your next renewal, find out what other options may be available.

Frequently asked questions

Is every employer facing a 10% health insurance increase?

No. The figure describes near-double-digit market pressure. An employer’s actual increase depends on its carrier, location, workforce, claims, network, pharmacy spending, and funding arrangement.

How can an employer reduce health care costs without cutting benefits?

Begin with the causes of the increase. Review medical and pharmacy data, vendor contracts, care settings, funding options, and programs that are underused or duplicative before broadly increasing deductibles or employee contributions.

Can an employer increase employee health insurance contributions in 2026?

Generally, yes, but the change must follow the plan’s terms and applicable notice, affordability, nondiscrimination, bargaining, and state-law requirements. Applicable Large Employers should test the lowest-cost self-only option under the 2026 ACA affordability standard.

What are the 2026 HSA contribution limits?

The limits are $4,400 for self-only coverage and $8,750 for family coverage. Employer and employee contributions both count toward the limit. Eligible individuals age 55 or older may contribute an additional $1,000.

Should employers cover GLP-1 medications?

There is no single answer for every plan. Employers should consider covered conditions, clinical criteria, employee needs, total cost, prior authorization, support programs, and how continued coverage will be managed.

This article provides general information and is not legal, tax, or medical advice. Requirements vary by employer size, funding arrangement, plan year, location, and workforce. Confirm current federal and state requirements and obtain professional advice for plan-specific decisions.