Rising Health Benefit Costs: Paths for Employers in 2027

If your latest benefits renewal came back higher than expected, you're not alone. Rising health benefit costs are one of the biggest budget pressures employers face heading into 2027, and many are asking how to keep offering coverage that their team values without letting costs take over.

The good news is that a traditional group plan is no longer the only option. Businesses can choose from several paths, each with its own mix of cost, flexibility, and coverage.

Below, we cover what's driving the increases, the options available, and how to identify an approach that works for your business and employees.

How much are health benefit costs rising in 2027?

Health benefit costs are growing faster than wages and inflation, and 2027 is expected to bring one of the largest increases in more than two decades.

According to KFF, the average family premium for employer-sponsored coverage reached $28,303 in 2026, up 5% from 2025, while wages and inflation grew 3.7% and 2.7%, respectively. Looking ahead, the numbers climb further:

• Employer costs overall: According to Mercer, employers expect total health benefit costs per employee to rise 8.2% in 2027, the highest increase since 2003.
• Small group plans: Insurers selling small group plans (typically businesses with up to 50 employees) are proposing a median 14% premium increase for 2027, up from 11% for 2026, according to a Peterson-KFF analysis.

Employees feel it too. KFF also found that workers at companies with fewer than 200 employees contribute an average of $9,687 a year toward family coverage, compared to $6,840 at larger companies.

Why are health insurance costs going up?

Several forces are pushing costs up at once, most of them being outside any one business's control.

• Higher prices and more care: Care costs more, and people are using more of it. Small group insurers estimate a median 10.8% rise in underlying medical costs for 2027.
• Specialty and weight-loss drugs: Mercer estimates that GLP-1 drugs used for weight management account for about one percentage point of 2027 cost growth on their own.
• A shrinking risk pool: Fully insured small group enrollment fell 41% between 2013 and 2024 as many healthier groups left, which raises average costs for the groups that remain.
• Changes in the individual market: Enhanced ACA marketplace subsidies expired at the end of 2025, so more employees are looking to their employer for help with coverage. Read more in our post on navigating your health benefits strategy amid ACA marketplace uncertainty.

Together, these trends mean many employers will see substantial increases at renewal, even if nothing about their team has changed.

What health benefit options can businesses consider?

Most options fall along a spectrum of cost and risk. On one end, the insurance carrier carries most of the risk in exchange for a higher premium. Further along, costs and requirements often come down, while the employer or employee takes on more responsibility or more limited coverage. Here are the main paths in plain terms:

• Traditional group coverage: You pay a set premium and the carrier takes on the risk. It's familiar and a strong recruiting tool, but usually the most expensive option, with stricter requirements to qualify.
• Level-funded and self-funded plans: The employer takes on more financial risk in exchange for more control and potential savings. Level-funded plans often appeal to healthier groups, while self-funding tends to fit larger organizations.
• Essential or entry-level coverage: Lower-cost plans focused on everyday needs like preventive care, with fewer requirements to get started. They are less comprehensive than major medical plans, so clear communication about coverage matters.
• High-deductible plan with an HSA: Lower premiums, but employees pay more out of pocket before coverage begins. A paired health savings account (HSA) lets them set aside tax-advantaged money for medical costs.
• Health reimbursement arrangements (HRAs): Instead of a group plan, you give employees a set, tax-advantaged allowance to buy their own individual coverage. Your budget stays predictable and employees get more choice, though they may need help shopping for a plan.

Many businesses also layer in dental, vision, or expanded coverage options. The best fit depends on your budget, your team, and how much risk and administration you want to take on.

How do you balance employee needs with cost containment?

The goal isn't to find the cheapest plan. It's to find the coverage your team will value and use, at a cost your business can sustain.

Shifting more cost to employees through higher contributions or deductibles can help in the short term, but it has limits. When coverage feels unaffordable, fewer employees enroll and the benefit loses its recruiting power.

In our recent customer survey, 87% of businesses said they offer benefits to support recruitment and retention, yet nearly half reported under 50% employee participation. That gap signals a plan out of balance with the people it serves. Answering a few key questions can help you find that balance:

• What does your team need? Consider ages, families, and whether employees mostly need everyday care or broader protection.
• What can you contribute consistently? A predictable contribution is often easier to plan around than one that swings with every renewal.
• Will employees understand their coverage? A lower-cost plan can still deliver real value when employees know how it works and how to use it.
• Who will manage it? Enrollment, employee questions, and plan changes take time, especially without a dedicated HR team.

How do you choose the right health benefits path for your business?

Look at three areas together. Each points toward where your business may fit on the cost and risk spectrum.

• Strategy: What you offer today, what you've tried before, and what you want benefits to accomplish for hiring and retention.
• Operations: Where you operate, whether you have HR support, and how much time your team spends managing benefits now.
• Workforce: How many people you employ, where they live, their ages and pay levels, and whether you have full-time, part-time, or contract workers.

It may be time to explore other options if your renewal jumped, enrollment is low or falling, employees are asking for help with coverage, or if you're losing candidates to employers that offer benefits. This isn't a one-time decision. What works for a 12-person team may need to change at 40, so revisit your strategy as you grow.

Why Meridio might be a good fit

Meridio helps businesses understand their options, weigh tradeoffs, and find a benefits path that fits their goals, budget, and people.

We review options across the market and identify plans that help solve the challenges small and mid-size employers bring us most: large renewals, rising costs, and requirements that have made coverage hard to offer. That means plan options with different levels of coverage, so you can match what you offer to both your team needs and budget.

Just as important is health benefits support. Our benefits specialists help you compare options, and our dedicated support teams help with enrollment, employee questions, and any other items that arise throughout the year.

If rising costs have you rethinking your approach for 2027, talk with our team about your benefits options. Want to go deeper first? Download our guide, Health Benefit Strategies for Businesses, for a closer look at each path available to you.