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Key cost takeaways
Health plans expect the cost of treating patients to climb in 2027 as five inflators increase medical cost trend to 9%:
AI-enabled tools help providers capture more revenue.
Inflation and provider consolidation drive up reimbursement rates.
Pharmacy costs continue to increase.
Behavioral health utilization keeps growing as mental health claims rise.
The No Surprises Act arbitration process adds a new source of out-of-network reimbursement.
Together, these dynamics signal the urgency to find counterbalances to medical cost inflators in a healthcare system under constant affordability pressure.
Note: Inflators are ranked based on PwC’s synthesis of health plan survey and interview responses, ordered by the greatest expected upward variance from historical medical cost trend.
For the fifth year, health plan actuaries we surveyed anticipate medical cost trends for the Group and Individual markets to remain elevated. Based on their input and our analysis, the Group medical cost trend is projected to be 9% in 2027. The Individual market trend is projected to be 8.5%. The study also supports a restatement of the Group and Individual trends up for 2026 from 8.5% and 7.5% to 9.0% and 8.5%, respectively.
This trend is without the impact of expiration of enhanced subsidies in the ACA Individual market
Many of the forces driving the trend, including pharmaceutical innovation, expanded behavioral health access, and improved clinical documentation, can improve patient outcomes. The challenge for healthcare leaders is establishing that spending growth is matched by measurable value and affordability.
With medical cost trend nearing double digits, payers face the big squeeze.
Historical cost trend deflators—biosimilars, generic drugs, and site-of-care optimization—continue to play a role, but health plans are already incorporating those into their baseline cost assumptions. The external deflators are not enough to materially impact the rising cost trend.
The 2027 deflators come down to what payers can directly control, such as benefit design, formulary design, cost of care initiatives, and network choices where they exist.
Health plan claims and payment integrity, along with utilization management, can deliver near-term savings by reducing spending on services delivered outside the plan’s contracted network or care setting. Meanwhile, Rx management should prioritize governance of high-cost drug classes and medical-benefit therapies within the next plan year.
Over the longer term, network design and reimbursement remain the most critical levers for resetting the cost baseline. Quality and care management, in turn, can achieve the greatest impact when focused on areas where intervention impacts utilization, outcomes, or adherence.
For self-funded employers, this same framework holds. Large employers can drive greater discipline by linking vendor oversight, carrier performance, and benefit strategy directly to claims experience, trend reduction, and total cost of care.
Where is healthcare headed?
Left unchecked, healthcare spending will grow to $9 trillion annually by 2035.
The sustained elevation of commercial medical cost trend is changing how insurance is priced, funded, and managed in the private market. Plans are adjusting prices, benefits, networks, and using more carveouts. Employers are revisiting vendors, benefits, and funding. ASO contracts continue to grow while captive insurance is being used to handle big claims. Employer-funded Individual Coverage Health Reimbursement Arrangements (ICHRAs) are expanding individual market participation as the consumer activism of 15 years ago emerges again with high inflation.
At the same time, a growing share of cost is shifting directly to consumers through higher deductibles, increased cost-sharing, and more limited coverage choices. As healthcare affordability erodes, some individuals could be priced out of health coverage.
A rallying cry: the future depends on the entire healthcare system
All healthcare leaders should read the 2027 medical cost trend as a watershed moment to reflect on what will happen in the next few years as employers will likely not be able to sustain the same benefits and will likely mimic the actions of government health plans. As health plans engineer their programs to bring costs to a sustainable level, every sector is encouraged to adapt to changes in how care is funded and delivered. Whenever possible, in the interest of patient care, industry leaders should seek collaboration. Transparency, consumer education and clarity on benefits and policy could improve patients’ health and reduce the administrative burden across the health economy.
Despite current cost challenges, we remain optimistic about the future of healthcare, the promise of long-term change and the opportunity for rebuilding—not around what exists today, but around the next wave of innovation, technology, science, and simplified care models that can transform the cost trend for the future.
Inflators Five inflators drive commercial medical cost trend for 2027
AI-powered tools for providers
As providers seek accurate reimbursement for appropriate care from payers, they’re using AI-enabled documentation and coding tools that enable them to record greater specificity and reimbursable severity. As a result, payers see higher paid amounts per claim. Cost management success depends on pairing disciplined contracting with advanced capabilities in coding-intensity surveillance, severity-shift monitoring, and payment integrity to distinguish changes rooted in documentation from shifts in patient complexity.
Self-funded employers should partner closely with administrative vendors to implement strong monitoring and payment integrity measures that can help control spending and provide more accuracy.
Elevated provider reimbursement pressure
Provider reimbursement pressure is fueled by fundamental underlying inflationary forces that are amplified by provider market consolidation that weakens payer negotiating leverage. Higher hospital and care costs, concentrated provider markets, and provider-led revenue optimization contribute to higher reimbursement expectations across the healthcare system.
For health plans, maintaining rate assumptions demands disciplined contracting paired with enhanced visibility into contract performance and targeted safeguards against reimbursement drift after agreements are in place.
Large self-funded employers should control not only negotiated rates but also the realized yield over time.
Rising pharmacy trend
Pharmacy costs continue to outpace overall medical trend. Pharmaceutical innovation continues to improve outcomes for many patients, driven by advances in specialty drugs and expanding GLP-1 indications, but the rapid adoption of high-cost therapies is contributing to healthcare spending growth.
Health plan management of pharmacy trend will require more than traditional formulary controls as more high-cost therapies enter categories with limited substitutes and broader eligible populations, and considerations for revisiting preventive health programs that could stem the growth of annuity drugs. Growing uncertainty around PBM transformation, transparency, and pricing reform adds another layer of complexity.
Self-funded employers face higher budget pressure and more difficult tradeoffs around benefit design, coverage strategy, PBM contracting, and workforce affordability.
Behavioral health demand
Behavioral health continues to outpace broader medical trend, with utilization increasing 10% from 2023 to 2024, and surging 62% since 2018. Unlike other inflators, growth is being driven by sustained utilization rather than unit cost and rising intensity. Behavioral health access and effective management can influence medical trend and affordability.
Implications for self-funded employers extend beyond claims to absence, productivity, disability, and overall workforce health. Employers should evaluate behavioral health vendors on their ability to improve access, redirect care to more efficient settings, and produce a measurable impact on total cost of care.
Provider reimbursement arbitration through Independent Dispute Resolution
The No Surprises Act's Independent Dispute Resolution (IDR) arbitration process has become a reimbursement inflator, with providers winning 88% of disputes with payers in 2.6 million cases filed in 2025.
Payers can respond by pursuing more direct control over out-of-network expenditures through refined reimbursement policies, targeted contracting provisions, and network strategies designed to reduce dependence on nonparticipating providers.
Similarly, self-funded employers face heightened claim volatility, increased stop-loss risk, and less predictable out-of-network costs. Effectively managing exposure requires vigilant monitoring of dispute trends and service-category concentration, stronger documentation of qualifying payment amounts, and more robust eligibility-stage defenses throughout the IDR process.
One critical deflator
Rising trend is triggering fast, targeted payer cost-of-care response
The window for payers to get ahead of cost inflators is narrowing. Health plans should prioritize five cost-of-care actions now.
Start with payment integrity. As AI-enabled documentation and coding tools become more widespread, health plans are seeing higher paid amounts per claim and greater variation in coding intensity. Payers should respond by assessing high-dollar claims before payment is made, tracking provider-level severity drift, and integrating contract terms, payment policy, and claims edits into a single accuracy engine. The goal should be more accurate payments, not more denials of claims.
Manage utilization in a more targeted way and not simply restrictive way. Retire low-yield prior authorization requirements, reward high-performing providers, and concentrate clinical review on the services where cost and variation are highest.
Focus on critical Pharmacy management. GLP-1s, specialty drugs, and medical-benefit therapies are contributing to pharmacy trend. Plans need class-specific governance, disciplined GLP-1 access policies by indication, accelerated biosimilar conversion for real savings, and tighter alignment between pharmacy, utilization management, and site-of-care programs.
Use network and reimbursement strategy. Plans should use price transparency along with their own claims experience to identify high-cost outliers, reset value-based contracts around specific cost drivers, and direct members to lower-cost sites of care.
Make care management more disciplined and event-driven. Plans should set explicit trend-deflation targets by lever, hold vendors to outcomes that matter, and stop funding programs that cannot demonstrate avoided utilization or measurable savings.
Health plans that do not move quickly may find costs compounding faster than their ability to respond.
Trends to watch
What does medical cost trend mean?
Medical cost trend is defined as the projected percentage increase in the cost to treat patients from one year to the next, assuming benefits remain the same. This report estimates the projected increase in per capita costs of medical services and prescription medications that affect insurers’ Group and Individual plans. Insurance companies use the cost trend projection to calculate health plan premiums for the coming year. For example, a 5% trend means that a plan that costs $10,000 per member this year would cost $10,500 next year.
Behind the numbers full report
Read more on medical cost trend inflators and deflators and what you can do about them.
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