Employer Health Costs Rise, as Drug Innovation, Behavioral Health, and Hospital Dynamics Converge

Employer-sponsored insurance continues to cover the majority of Americans, but employers are facing mounting cost pressures driven by several converging trends across pharmaceuticals, healthcare services, and provider economics, according to Philip Sclafani, PwC’s pharmaceutical and life sciences lead.

One of the most significant cost inflators on the commercial side is prescription drugs, particularly the rapid growth and uptake of new therapies. GLP-1 medications stand out as a major driver of per-member-per-month (PMPM) costs. Although manufacturers have begun lowering prices through public announcements and negotiated deals, utilization is expanding rapidly as more Americans initiate treatment. This dynamic echoes an earlier era of mass-market primary care drugs: therapies priced under $500 per month but prescribed to tens of millions of patients, resulting in a substantial aggregate cost burden for employers.

Beyond GLP-1s, specialty drugs remain a persistent pressure point. While they account for roughly 2% of prescriptions, they represent about 50% of total drug spending. Growth in rare disease treatments—including cell and gene therapies with multimillion-dollar price tags—is accelerating, shifting what was once an occasional expense into a more regular budget concern. At the same time, continued innovation in areas such as oncology, central nervous system disorders, and depression is adding incremental costs across a broader patient population.

Outside of pharmaceuticals, behavioral and mental health services are another major contributor to rising employer costs. Health plans are projecting annual trend increases of 10% to 20% in this category alone, reflecting higher utilization and expanding access expectations.

Structural healthcare inflation compounds these pressures. Labor and infrastructure account for roughly two-thirds of health system costs, both of which have risen sharply in recent years. Industry consolidation—through hospital mergers and private equity–driven physician group acquisitions—further increases market power and commercial reimbursement rates.

Finally, improvements in hospital revenue cycle management, supported in part by AI, are enabling providers to bill more accurately and efficiently, increasing overall payments from commercial payers and adding yet another layer to employer cost growth.

Sclafani also describes how he sees the interaction between public programs and employer-sponsored coverage affecting overall healthcare affordability; the structural factors that are responsible for employers absorbing fewer healthcare cost increases and shifting more responsibility to employees; and much more.

A transcript of his conversation with PC can be found below.

PC: Much of the recent affordability discussion has focused on the expired ACA subsidies, and employer-sponsored insurance covers the majority of Americans. What cost pressures are employers facing right now, and how are those pressures showing up in premiums, deductibles, and employee cost-sharing?

Sclafani: It's a great topic, and one we look at and break down as much as possible. I think if we think about the top inflators of medical costs, in particular on the commercial and employer- based side, not necessarily in order, but new launches and growth in prescription drugs is definitely a big one.

Within that, GLP-1s specifically, are a huge increase in the PMPM cost. Obviously, the price is coming down. We see that publicly in announcements and the deals. The price per month is coming down, but more and more Americans are being treated. I think years ago, we kind of looked at and said, pharma has moved from big, blockbuster primary care products to specialty drugs.

Specialty drugs are increasing. It's 2% of scripts, but 50% of cost. And that's still true, but you look at GLP-1s, and it is sort of back to the old days of sub-$500 a month drugs that are going to treat tens of millions of Americans, and that's having a significant impact on employer- sponsored healthcare costs, even as the price is coming down.

Within drugs, we also do see more and more rare and specialty—the cell and gene therapies. Ten years ago, we had multi-million dollar drugs that were a curative launch, and there were a handful or one, and now there's a handful and more, and it's starting to add up. On the other end of the small population, high costs, we're seeing a lot there. Then in the middle, we're seeing continued innovation and new treatments in CNS and depression and other areas that are adding some costs. With oncology of course, there's always new mechanisms and things like that. So that's the drug side.

Beyond that, behavioral health, mental health care services, others, have been big. Plans are expecting 10%-20% trend increases on the behavioral health side. The cost of healthcare just sort of structurally, in general—the inflationary impact over the past couple of years—has been a challenge. Labor and infrastructure make up, let's say, two-thirds of health system cost, and that's just increasing more in recent years. You know, some of the industry response there is the consolidation we see.

Hospitals buying other hospitals and health systems, private equity physician consolidation, that also drives up costs, as the cost of just putting those organizations together. They tend to increase market power and what they bill commercial payers, which go down to lawyers. And then the last piece I’ll hit, Nico, I think is an interesting one. This is where we see AI having an impact. But actually hospital revenue cycle management itself is improving, so costs are going up in that providers are getting better at billing payers, or accurately billing them, so they get paid on time and the optimum amounts and things like that. Revenue cycle management, I think, was maybe our third inflator that plan is expected going forward.