Employers can expect a significant rise in the cost of providing health benefits next year, according to fresh projections from financial consulting firm Mercer. The firm estimates that annual employer health benefit spending will increase by 8.2 per cent in 2027 — the largest year-over-year jump since 2003 — citing a mix of market consolidation, higher-priced clinical treatments and administrative changes that are amplifying billed claims.
Drivers behind the projected rise
Mercer points to several structural trends it says are pushing costs upward. Chief among them is the concentration of hospitals and physician groups into larger systems and networks, which the firm says gives providers greater leverage when negotiating prices with private insurers. In addition, when public health funding lags behind inflation, providers may look to private payors to recover lost revenue.
“The consolidation of providers into fewer, larger health systems and provider groups gives them considerable bargaining power when negotiating prices with insurers, contributing to higher charges,”
The firm also highlights technological changes in administrative processing. Adoption of artificial intelligence–enabled software to support claims submission has, Mercer says, led to more claims being submitted and a higher proportion of complex, higher-level claims — a development that can increase overall billings to employer plans.
Policy and legal effects
Mercer further notes that legislation regulating surprise billing has had unintended cost effects. The U.S. No Surprises Act of 2022, which restricts unexpected out-of-network charges for emergency care, has produced more disputes and administrative resolution work than anticipated — a factor that, according to the consultancy, has helped push up costs borne by private plans.
Those legal and market dynamics are echoed by other industry forecasters. Global insurance broker Aon has projected that employer health costs could rise by 9.5 per cent in 2027 under similar pressures, a scenario Aon estimated would translate to roughly an additional $19,000 in annual cost per employee on average for employers in its model.
Employer responses and consequences
Employers surveyed by Mercer told the firm they are paying close attention to strategies for managing high-cost claims and assessing the performance of health plans. Typical tactics include:
- Targeted management of high-cost or specialty drug claims
- Intensified measurement of plan performance and value
- Negotiations with insurers and providers to contain unit costs
For employers, particularly those offering comprehensive benefits, a steep increase in plan costs can force difficult decisions: raising employee premiums or co-payments, reducing covered services, shifting to narrower networks, or absorbing higher costs to retain talent. For workers and their families, the immediate risk is higher out-of-pocket spending or reduced benefit value.
Context for Canadian employers
While Mercer's analysis focuses on broader market forces and cites U.S. policy such as the No Surprises Act, the underlying issues — provider market power, rising therapeutic prices, and shifts in administrative technology — are relevant in Canada as well. Employer-sponsored supplemental and extended health plans in Canada, which cover prescription drugs, paramedical care and other services outside provincial plans, could face similar pressure points if global drug pricing and consolidation trends continue.
| Metric | Projected change for 2027 |
|---|---|
| Mercer employer health benefit costs | +8.2% |
| Aon projection (comparator) | +9.5% (≈ $19,000 per employee) |
Analysts caution that rising employer costs do not occur in a vacuum. They interact with labour markets, recruitment pressures and public health financing decisions. If governments do not adjust public plan reimbursements to reflect inflation and new treatment costs, private plans may be asked to fill more of the gap — intensifying cost pressures on employers and employees alike.
Employers, insurers and policymakers will be watching upcoming benefit renewals closely. The scale of the increase projected by Mercer — the biggest since the early 2000s — raises questions about affordability and access to employer-sponsored care at a time when many organisations are already juggling tight budgets and labour challenges.
As firms and plan sponsors prepare for contract negotiations and renewals for 2027, observers say transparent measurement of plan performance and targeted management of high-cost claims will be central to efforts to mitigate the financial hit while maintaining access to essential services for workers.
