Every year, PwC’s Health Research Institute, a leading healthcare research organization, surveys actuaries at major U.S. health plans to project where medical costs are headed. Their latest report, Medical Cost Trend: Behind the Numbers 2027, delivers an unwelcome forecast for both plan sponsors and participants: Commercial healthcare costs are expected to reach their highest level in 17 years, with group medical cost trend projected at 9% in 2027 and the individual market projected at 8.5%.
PwC’s annual medical trend report projects that the commercial healthcare cost trend is expected to rise to 9% in 2027, the highest figure in 17 years. It’s driven in part by increased adoption of artificial intelligence (AI) billing tools by providers. The medical cost trend is the expected increase in health care costs by health plans.
For employers, a 9% trend demands a proactive benefit strategy. Plan sponsors should evaluate plan design features, such as high-performance networks, centers of excellence, pharmacy carve-outs and tighter utilization management, before compounding cost pressures from AI-driven coding, behavioral health utilization and potential Medicaid cost-shifting narrow their options.
This projection is an uptick from the 8.5% that has held steady over the past several years. The increase marks the continuation of a sustained run of elevated cost growth. The U.S. healthcare system is heading into another year of powerful inflationary forces.
For this annual report, PwC health researchers surveyed and interviewed actuaries of 27 U.S. health plans, covering more than 103 million employer-sponsored members and 8 million Affordable Care Act (ACA) marketplace members.
This article explores the key drivers behind these projections and what organizations can do to stay ahead of the curve.
For employers and their workers, the implications of these healthcare projections are tangible. Premiums are likely to rise again, deductibles and out-of-pocket costs may follow, and the pressure on benefit budgets shows no sign of easing.
Key Inflators
PwC’s report identified five inflators:
1. Tools enabled with artificial intelligence (AI) help providers capture more revenue.
AI-enabled documentation and coding tools allow providers to capture greater specificity and reimbursable severity without proportionate increases in care intensity. Nearly 70% of surveyed health plans named it a top-three trend inflator for healthcare costs.
2. Inflation and provider consolidation drive reimbursement rates.
Provider reimbursement pressure remains elevated due to inflationary pressures across provider underlying cost structures, reinforced by market consolidation that limits market alternatives.
3. Pharmacy costs continue to increase.
Pharmacy costs are rising faster than overall medical trend, driven largely by specialty drugs and the rapid expansion of glucagon-like peptide-1 (GLP-1) therapies. Managing this growth is becoming increasingly complex, as more high-cost treatments enter categories with few substitutes and larger eligible populations, making traditional formulary controls insufficient on their own. Self-funded employers are feeling the pressure most acutely, facing harder tradeoffs around benefit design, coverage strategy, and affordability for their workforce.
4. Behavioral health utilization keeps growing as mental health claims rise.
Utilization of behavioral health services has surged dramatically. Claims for inpatient behavioral health services rose nearly 80% between January 2023 and December 2024. Outpatient claims climbed nearly 40% over the same period. Moreover, 1 in 3 health plan actuaries surveyed by PwC named behavioral health as a top-three cost inflator, with many projecting trend rates in the 10%-20% range for that category alone.
5. The No Surprises Act arbitration process adds a new source of out-of-network reimbursement.
The No Surprises Act Independent Dispute Resolution arbitration process has become a durable reimbursement inflator, with 2.6 million cases filed in 2025 and providers winning 88% of disputes.
What’s Keeping Costs Down
Not everything is pushing costs higher. Two factors are helping slow the climb. First, biosimilars, lower-cost alternatives to expensive brand-name biologic drugs, continue to gain ground. Actuaries have ranked them as the top cost deflator three years running, and adoption is accelerating.
Second, health plans are becoming more deliberate about managing the total cost of care by using tools such as prior authorization, claims reviews and AI to identify unnecessary spending before it occurs. Even though 3 out of 4 actuaries named this a top deflator, the results only materialize when cost control becomes a day-to-day priority rather than a one-time initiative.
The Future of Healthcare Costs
Healthcare costs are on track to hit $9 trillion annually by 2035, and the pressure is already reshaping how coverage is priced and structured across the market. Health plans are adjusting benefits and networks, employers are rethinking vendors and funding models, and more costs are shifting directly to consumers through higher deductibles and narrower coverage, raising real concerns about affordability and access.
The broader message is that 2027 should be treated as a turning point. If costs stay on their current trajectory, employers will likely scale back benefits and begin mirroring the cost-control approaches used by government health plans. Every part of the healthcare system will need to adapt. Where possible, leaders are encouraged to collaborate rather than work in silos, with transparency and consumer education seen as key tools to improve outcomes and reduce administrative burden.
What This Means for Employers
Employers don’t have to be passive bystanders in this dynamic. While health plans do much of the heavy lifting, employers can take action to influence how their benefits are structured and managed. However, the report warns that the opportunity for payers to get ahead of rising costs with tangible savings is closing fast.
The PwC report identified the following five actions and strategies that employers can take to prepare for 2027:
- Start with payment integrity. As AI-powered documentation and coding tools become more common, health plans are experiencing higher per-claim payments and greater variability in coding intensity. Payers can adapt by reviewing high-dollar claims before they’re paid, monitoring provider-level changes in severity coding over time and unifying contract terms, payment policies and claims edits. The objective should be to pay the right amount, not simply deny more claims.
- Manage utilization with precision, not just restriction. Reviewing the return on prior-authorization requirements, rewarding providers that deliver results, and focusing on services where cost and outcome variation are greatest can allow plan sponsors to manage utilization in ways that yield the greatest impact.
- Review pharmacy management. GLP-1s, specialty drugs and medical-benefit therapies are all driving pharmacy costs. Standard plan formulary strategies and distribution models may not address the changing prescription drug market. Plans can consider governance structures tailored to specific drug classes; clear GLP-1 access policies tied to clinical indication; and expanded access to deflators, such as biosimilars, with the potential for real savings.
- Use network and reimbursement strategy. Plans that use transparency data alongside their own claims history can identify high-cost outliers and refocus plan design and reimbursement strategies on costs while steering members toward lower-cost care settings.
- Make care management more rigorous and results-focused. Plans that define explicit reduction targets for each lever, hold vendors accountable for outcomes, and reduce spend on programs that don’t empirically deliver savings or desired outcomes can reduce unnecessary costs. Stop investing in programs that can’t demonstrate avoided utilization or measurable savings.
Learn More
These projected increases are a reminder that benefits strategy works best as a year-round conversation, not just a renewal-time exercise. Employers who stay close to what’s driving their costs will be better positioned to manage the road ahead.
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ADDITIONAL RESOURCE: Health care costs projected to surge 9% in 2027 >
This article is not intended to be exhaustive nor should any discussion or opinions be construed as professional advice. © 2026 Zywave, Inc. All rights reserved.
