Why Switching Carriers Won't Fix Rising Healthcare Costs

Key Takeaways

• Today's employer healthcare cost increases stem from structural forces, including hospital prices, drug spend, low-quality care, and AI upcoding, that are compounding year over year by anywhere from 6.5 – 9.5%.
• Switching carriers, cutting benefits, and restricting networks shift costs rather than reduce them, because none of the methods address the root cause.
• The most successful lever is steering care to the best-performing doctors already in your network, which lowers total cost by improving the quality of each clinical decision.

Employer healthcare costs are rising faster than at almost any point in the past 15 years. For 2026, Mercer projects a 6.5% increase in health benefit cost per employee, the steepest since 2010, while Aon expects costs to climb 9.5% to more than $17,000 per employee. Finally, PwC puts medical trend at 8.5% for the third year running. General inflation, by comparison, is running near 2.7%. Healthcare costs are becoming a bigger and bigger issue each year.

For many benefits leaders, it’s instinctual before renewal to shop carriers or trim the plan. The problem is that neither of these options moves the number that matters, because neither touches what is actually driving the trend.

Why are employer healthcare costs rising? Key drivers and trends

Rising cost is not a single line item. It is the compounding effect of a few structural forces, most of which a new carrier contract leaves untouched. Any renewal strategy, then, starts with understanding each of these forces.

The four drivers behind employer healthcare costs

Garner’s 2026 healthcare cost crisis report identifies four forces behind the trend. For many, the easy assumption might be an aging, sicker workforce, but the data points somewhere else entirely.

1. Hospital and facility prices. Hospital spending accounted for 40% of the growth in national health spending between 2022 and 2024, making it the single largest contributor, per the Peterson-KFF Health System Tracker. And the pressure is accelerating, with low-cost hospitals now using price transparency data to negotiate annual increases above 10%, nearly four times the rate of their high-cost peers, according to the report.
2. Prescription drugs and GLP-1s. Drug spending is growing faster than any other category. High-cost biologics account for 51% of total pharmacy costs despite making up just 5% of prescription volume, and GLP-1 medications now make up more than 10% of employer pharmacy claims, up from 6.9% in 2023, according to BenefitsPRO.
3. Low-quality care. Where a member gets care matters as much as what it costs. The same procedure with a below-average provider generates more complications and downstream utilization than it would with a top-tier one, and underperforming providers recommend unnecessary surgery over conservative treatment far more often. The report estimates this quality gap alone adds 1.7% to employer spend.
4. AI upcoding. Providers are investing heavily in billing tools that raise the severity of what gets coded, with 89% of provider AI investment flowing to back-office tools designed to maximize revenue. The report puts this at another 1.7% of employer spend.

What the trend means for your renewal

Family premiums reached $26,993 in 2025, a 6% jump and the third straight year of 6% or higher growth, per the KFF 2025 Employer Health Benefits Survey. Total plan cost is climbing just as fast. At a projected 9.5% increase, Aon's 2025 figure of $15,860 per employee exceeds $17,000 in 2026, adding more than $1,100 per employee. For a self-funded employer with 1,000 enrolled employees, that is over $1.1 million in added spend in a single year, before any high-cost claim lands. And those claims are landing more often. Million-dollar-plus claims rose 46% from 2022 to 2026, reports Sun Life, driven by cancer, complex surgeries, and specialty drugs. Because only 21% of high-cost claimants persist from one year to the next, most of that spend comes from members no one saw coming. A carrier change rarely bends that curve, because the same members keep seeing the same providers at the same prices.

Comparing common cost-containment strategies

Employers have plenty of levers to pull, from carrier changes and plan design cuts to network restrictions and provider steerage. What separates them is how quickly they work and whether they actually reduce the cost of care or just move it. For example, benefit cuts and network restrictions shift cost onto employees rather than removing it from the system.

Short-term levers (0–12 months)

Inside a single plan year, employers can reprice the plan through a carrier re-bid, adjust cost-sharing with higher deductibles or contributions, or narrow the network to lower-priced providers. Each has real uses. A re-bid can win a genuine premium concession, especially after several years on the same paper, and cost-sharing changes deliver immediate, predictable budget relief.

The limitation is what these moves leave untouched. None of them changes what a hospital stay costs or how many procedures members receive, so the underlying spend keeps growing and simply gets redistributed, often onto employees.

The faster way to reduce that underlying spend is layering a member incentive tied to provider quality on top of the existing plan. Garner implements in 60 – 90 days with no network changes, and the incentive rewards members for choosing the best-performing doctors already in the plan.

Long-term levers (12–36 months)

Over a longer time period, employers can contract directly with health systems, build centers-of-excellence programs for high-cost procedures, pursue a PBM carve-out for tighter pharmacy contract terms, or move to alternative funding models. Each can produce real savings, and each depends on the same underlying variable, because a direct contract or a center of excellence only pays off if the providers inside it perform well.

That is where quality-based benefit design fits. Employers can restructure benefits around provider performance, adopt first-dollar incentives that remove the cost barrier to seeing the best-performing doctors, and integrate more deeply over time. Garner's first-dollar HSA incentive is one example of aligning member economics with quality from the first visit.

Across both horizons, the evidence favors the quality path. An independent Aon matched-cohort analysis found that Garner-eligible members had 7.4% lower total medical costs, or 5.5% net of fees and incentives, than a comparison group, from directing employees to the top healthcare providers already in their existing network.

The goal of cost containment is not simply to protect the employer's budget. The most durable strategies reduce cost by improving the quality of care employees receive, not by limiting their access to it.

Developing your action roadmap

Turning trend data into a renewal decision takes several steps, and it starts long before the renewal meeting. The employers who bend the curve are the ones who diagnose before they negotiate.

How to diagnose your own cost trend before renewal

Start with your own claims. Segment spend by category, isolate high-cost episodes, and map how much care is flowing to average or below-average providers for consequential decisions like surgery, oncology, and maternity. Pair that internal view with the healthcare transparency data to see where variation, not price alone, is costing you.

Garner can run this same diagnosis on your own claims, scoring the doctors your members actually use rather than relying on industry averages. For finance leaders, it reframes benefits from a fixed expense into one they can actively manage to improve profitability.

Your 90-to-180-day action plan

1. Days 1 to 30: Pull two to three years of claims and quantify the trend by the driver. Identify your top episodes by total cost and complication rate.
2. Days 30 to 90: Model the levers. Compare cost-shifting options against a provider-quality approach, like Garner, using your own data, not industry averages.
3. Days 90 to 180: Select and stage your solution ahead of renewal, confirm it requires no network changes, and set measurable trend targets with your advisor.

How Garner fits into the picture

Every driver points to the same conclusion: The most reliable way to lower cost is to change where care happens, not who administers the plan. That is the problem Garner was built to solve.

Garner applies clinical performance data to identify the best-performing doctors already in an employer's existing network, then uses member incentives to steer care toward them. The doctors who score highest tend to order fewer unnecessary procedures and produce fewer complications, so directing volume their way lowers total cost while improving the care employees receive.

The hard part of any quality strategy is getting members to act on it, and incentives are what make that happen: 46% of members on average use Garner to find a Top Provider. That level of engagement is what turns provider quality steerage into measurable savings.

Garner runs on top of the plan employers already have, not in place of it. The renewal question shifts from how much cost to move onto employees to how much cost to remove by improving the care behind every claim.

Taking control of your healthcare spend

Employer healthcare costs are rising because of identifiable, addressable drivers: hospital prices, drug spend, AI-driven billing, and the quality variation baked into where care goes. Garner pairs provider-performance analytics with member incentives, a low-disruption path to measurable cost reduction.

Explore how Garner's data-driven approach can help control employer healthcare costs and improve financial outcomes, or book a demo to see what it could mean for your next renewal.

FAQs

How much will employer healthcare costs rise in 2027?

Early projections for 2027 point to more of the same. PwC's Health Research Institute forecasts a 9% medical cost trend for the group market, up from 8.5% in 2026 and the highest in nearly two decades.

Full-year employer cost projections from Aon and Mercer usually arrive in the fall, but the early signal is a fourth straight year of elevated trend well above general inflation.

Cost-shifting vs. cost reduction: what's the difference?

Cost-shifting moves healthcare expenses from the employer to employees or another payer, through higher deductibles, premium contributions, and/or narrower networks. The total cost of care stays the same; only who pays changes.

Cost reduction lowers the underlying spend itself, for example, by steering members to higher-performing providers who deliver fewer complications and less downstream utilization. Shifting protects a budget line for one year. Reduction bends the cost curve.

Which strategies work fastest for self-funded employers?

Self-funded employers can act fastest because they control plan design directly and see their own claims. The quickest reduction lever is layering a member incentive tied to provider quality on top of the existing plan rather than re-bidding the carrier.

Garner, for example, can be up and running ahead of renewal, letting a self-funded employer begin steering care toward top-performing doctors without a full plan overhaul.