2026 Looking Like a Bad Year for Health Insurance Premium Hikes

The summer is when health plans start gathering data and setting premiums for renewals beginning in January of the next year.  January is the single biggest month for renewals by far.  The early indications are that there will be very significant price increases.  Ignore the issues about the (un)Affordable Care Act exchange premiums; special factors are at work in causing likely 20% to 25% rises there, although higher medical costs affect all plans.  It has been apparent for some time that the consolidation in providers and in health plans is leading to higher medical costs and higher premiums.  These increases cause a lot of pain for employers, for employees and for consumers generally.  And it will keep pressure on general inflation, which the Federal Reserve and others watch closely.

PriceWaterhouseCooper released its annual medical trend projection for 2026, 8.5% for group health plans and 7.5% for individual ones.  Group plans tend to have much better benefits.  These increases are in part due to underpricing in 2025 for the actual medical cost rise.  Medical cost trend is the dominant driver of health insurance premiums.  This will be the fourth straight year of medical trend at 8% or higher.  Particular factors noted by PWC are the ongoing increases in drug costs, driven by very expensive specialty drugs and higher utilization.  Congress has to take action to rein in drug pricing, which is high only because of the patent system.  Prices could be half of what they are and the drug makers will still do very well.  Mental health costs have also risen sharply, as most of America appears to have some mental illness and to be on some anti-depressant or anti-anxiety drug.  (PWC Report)

Hospitals are raising prices rapidly, blaming their own labor and other costs, but the reality is that hospitals are very poorly managed, by executives who are grotesquely overpaid, considering that most hospitals are non-profits.  Again, some legislative intervention is needed to increases competition and limit excess compensation and other spending.  Unless and until there is a willingness to take firm steps, ongoing high health inflation will occur.

McKinsey released a white paper on how the high insurance costs are affecting large employers.  It also noted a very large increase in costs for 2026, as much as 10%.  McKinsey believes that large employers in particular are taking a more active role in pushing for better performance from their health benefit vendors.  The reality is that for several decades those large companies have been the innovators in health benefits.  But in the absence of legislative or regulatory changes, there is only so much even a very large employer can do to manage costs.  I would anticipate that we will see a renewed interest in employer-owner health clinics and other mechanisms to directly control the cost of care.   (McKinsey Report)