What Rising Employer Healthcare Costs Mean For 2027 Benefits Strategy

Key Takeaways

• Research Garner shared in the session attributes the expected 9% cost trend to four structural drivers rather than to employees getting sicker
• Benefits leaders from SAP, ADM, and US Foods are managing cost through provider quality, engagement, and utilization instead of benefit cuts
• The panel expects the next phase of cost management to be structural, from transparent PBMs to employer purchasing consortiums

To hear the full conversation, watch the webinar.

Employers are expecting a 9% healthcare cost increase in 2026, one of the highest spikes in more than a decade, and early surveys point to a similar number for 2027. Based on Garner’s previous research, we already know what’s driving these cost increases. But, for many employers, the question has become “What can I actually do to fight back against cost drivers?”. That question anchored our recent webinar on the healthcare cost crisis, where I sat down with three benefits leaders who have spent their careers managing rising employer healthcare costs. I had been looking forward to this one, because these are people who have lived this problem in a way most of us have only read about. Across three very different industries, they landed on the same conclusion: The cost problem is structural, and the employers handling it best have stopped trying to cut their way out.

The 9% trend has little to do with sicker employees

When Garner's clinical and data science teams adjust for the aging of the population, they see no significant increase in the prevalence of chronic conditions like cancer or diabetes. In fact, the average patient is about as healthy as they were a decade ago. What has changed is the system around that patient. The research I presented breaks the trend into four structural drivers stacked on top of about 2% baseline inflation:

• Low-quality care (1.7 points)
• Hospital price increases (2 points)
• AI-assisted upcoding (1.7 points)
• Rising pharmacy costs (1.8 points)

If the trend were just inflation, a 2% increase would be manageable, and this would be a different conversation. Those four drivers are the reason healthcare has become unaffordable, and all four are likely to continue for years. The audience already sensed as much. In a live poll of employers and benefit advisors, 65% named rising medical and pharmacy costs as their biggest concern heading into 2027 planning.

Why the pressure feels different this time

Healthcare has been expensive for decades, and for most of that time, employers simply absorbed the increases. Joe Toniolo (former Senior Director, Health & Welfare Plans at US Foods), who watched the pattern repeat for more than 30 years, argues that the era of quiet acceptance is over. Industry disruptors keep shining a light on hospital prices and drug costs, government reporting requirements keep expanding, and what he called “the F word, fiduciary responsibility” has made it risky for plan sponsors to look away. He also sees fraud, waste, and abuse showing up in claims faster than administrators recover it. The pressure that used to sit inside the benefits team now lands in the CFO’s office. As he put it, “pressure is being put on us benefit geeks to find that magic bullet.”

Molly Strader Fruit (VP, Total Rewards & HR Operations at ADM) has sat on both sides of that conversation. As ADM's former corporate controller, she reviewed benefits spend from the finance chair. Now that she owns the strategy, her core argument to finance is that people are an investment rather than a commodity cost. “It’s really thinking of it more like an investment,” she said in the session, “and I just can’t cut my way there to savings.” Trimming benefits to offset trend weakens retention at the exact moment employees expect more from their employers.

General Motors shows where that pressure can lead. In 2008, the automaker restructured and took a government bailout after pension expenses reached 9 – 9.5% of total revenue. On the current trajectory, US employer spending on medical and pharmacy benefits will hit that same share of revenue by 2030 or 2031. Milt Ezzard (VP, Global Benefits at SAP) already runs his program with that defensive posture. Because a small number of high-cost claimants drive the majority of spend, he anchors every budget conversation to the $2 million claim rather than the six-figure program fee, writes ROI guarantees into vendor contracts, and holds consulting partners accountable for validating the results. “I’m really never saving anything,” he told the audience. “I’m avoiding cost is what I’m doing.” The win is cost avoidance, achieved while staying competitive for talent.

Quality became the cost strategy

ADM steered toward provider quality, but not to cut costs. Strader Fruit described it as a talent decision first, a way to give colleagues the best available care, with savings arriving as the consequence. Her rule of thumb applies at home and at work. “I tell my husband this, buy quality first,” she said, “because if you don’t buy quality first, you’re going to spend and spend and spend again in order to eventually buy the quality that you wanted anyway.” She is equally clear that it is a long game, one that rewards employers who stick with the strategy past year one.

Garner's data supports her instinct. Low-quality care, outdated care, and the readmissions, complications, and revisions that follow bad outcomes account for about two points of the annual trend. Getting members to the best-performing doctors prevents those costs from occurring in the first place.

Toniolo offered the longest-running evidence on the panel. From 2018 through roughly 2024, US Foods held its average annual trend under 3%, about a third of what employers are bracing for today. He credits the mix rather than any single move. US Foods started layering in point solutions in 2017, eventually running about 14, watched per-member costs in totality, and cut the one vendor that stopped delivering the reporting he asked for. His parting words to that vendor were blunt. “You’re not providing me reporting. You’re not doing what I’m asking you. So you’re out.”

Engagement decides whether any of it pays off

Every panelist has watched a well-designed program fail because nobody used it. Ezzard starts with trust, as employees greet most benefits pitches with a fair question about what is in it for the company. SAP's answer is to offer highly valued benefits before anyone asks for them, small signals that the organization is thinking ahead on employees’ behalf. Done right, he said, employees start to think “my employer really is interested in supporting me because I didn’t have to beg for this product.”

And they applied the same thinking to their service model. Instead of routing members to a hundred rotating customer care associates, SAP moved to a pod of eight people who handle the same families every time, seeing their authorizations, answering their claims questions, and suggesting higher-quality providers along the way. And Ezzard pushes communication past the employee entirely. Spouses and partners share in the family's care decisions, but they are never in the workplace, so a company newsletter never reaches them.

Toniolo faced a different problem at US Foods, where a workforce spread across about 170 locations spends the day on trucks and in warehouses. Nobody remembers page 20 of an enrollment guide by February. His approach was to make help findable at the moment of need, through educated local HR teams and an open website with no login in the way. “You can’t make them drink the water,” he said, “but darn it, we gotta make sure they have the water to drink when they’re ready.”

Strader Fruit sees the same barrier as benefits fatigue. ADM colleagues know programs exist but not how to enroll or what happens once they do, so she is consolidating point solutions, cutting the number of choices, and judging every offering on utilization per dollar spent. 

When an audience question asked whether engagement takes carrots or sticks, Strader Fruit answered “definitely carrots.” ADM is working with Garner to offer a bigger one, possibly as soon as next year, helping cover costs when members choose best-performing doctors.

The next moves are structural

Asked what more employers should be talking about heading into 2027 and 2028, each panelist pointed past plan design. Strader Fruit wants a franker conversation about what health insurance is actually for. “I would love if people would start talking about what the fundamental purpose of health insurance is and how to use it responsibly,” she said. She sees it as preventive and catastrophic protection, and believes years of treating it as a payment card for every interaction helped drive costs to where they are. 

Toniolo urged employers to stop fearing the PBM decision. US Foods moved from one of the big three to a transparent PBM and found the transition far easier than the industry’s reputation suggests. “They’re going to continue to do what they do until we all move,” he warned. His test is simple: Ask where your consultant's revenue comes from, and if any of it comes from PBMs, find another consultant.

Ezzard aimed highest. Employers fund roughly two-thirds of American healthcare by his count in the session, yet almost none of them buy like it. If employers pooled their purchasing power through consortiums, they could negotiate contracts and direct pharmaceutical deals on terms that only the largest companies reach today. “It’s really difficult unless you’re a Boeing or some mega, mega employer to do that on your own,” he said. “If consortiums could be built to build that power of leverage, I think that would move a needle for us.”

The playbook for 2027 starts with steering, not cutting

Moderating the discussion, what struck me most was how little the three of them disagreed. Three industries, three workforces, and one shared answer to rising employer healthcare costs. Treat benefits as an investment, steer members toward the best-performing doctors already in the network, earn enough trust that people actually engage, and push on the structural levers everyone else avoids. The webinar also covers how the panelists vet vendors that overpromise and the point solutions they have walked away from. Watch the full session to hear it in the panelists' own words.