Sticker Shock: Employers Face Fastest Health Insurance Price Rise in Years

State and local governments are bracing for steep hikes in employee health insurance costs next year, with employer coverage projected to rise by nearly 10 percent. That’s the sharpest increase in at least 15 years, according to The Wall Street Journal.

Analysts point to two main culprits driving costs: soaring demand for expensive weight-loss and diabetes drugs, and potential new tariffs on imported pharmaceuticals.

Employer health insurance costs are expected to jump between 9.2 and 9.5 percent in 2026, according to benefits consultants Aon and WTW. That represents the fastest rate of growth since at least 2011, when average costs were far lower than today’s $25,500 for a family plan.

For governments already grappling with tight budgets and workforce shortages, the timing is especially fraught.

The GLP-1 Effect

A major driver of the increase is the explosive uptake of GLP-1 drugs such as Ozempic, Wegovy and Zepbound. Originally developed for diabetes, these medications have been embraced as powerful weight-loss tools. Their cost can exceed $1,000 per patient per month.

Some employers are scaling back coverage. Mutual of Omaha, for instance, stopped paying for GLP-1 drugs prescribed for weight loss this year after double-digit cost increases. But such restrictions can be politically and legally tricky for public employers, especially as employees and unions push for broader access to obesity care.

Tariffs Could Push Costs Higher

New tariffs on imported pharmaceuticals could also add to cost pressures. Because much of the nation’s drug supply depends on overseas manufacturing, even modest tariffs could affect employer health plans.

Although the exact impact is uncertain, benefits experts warn that even modest tariffs could compound already rising costs from brand-name dugs. As with other tariffs, however, not all costs would automatically be passed on to consumers. Last week, Morningstar, a financial firm, estimated that an average tariff of 15 percent on pharmaceuticals would impact drugmaker profits by at most 4 percent.

Pressure on Public Budgets

For state and local governments — which, collectively, employ 20 million people — the stakes are high. Unlike private firms, governments often face union contracts that limit cost-shifting to workers.

Rising premiums leave governments with reduced resources to address other budget needs. Local leaders may be forced to consider higher employee contributions, reduced plan options or higher deductibles. But these changes risk hurting recruitment and retention at a time when governments are struggling to fill critical roles.