How Public Policy Shifts Are Reshaping Employer Healthcare Costs

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: As employer health plan costs continue to rise, how do you see the interaction between public programs and employer-sponsored coverage impacting overall healthcare affordability?

Sclafani: Traditionally, they operate as very separate markets. The commercial, private, employer-sponsored market negotiates with pharma for the prescription side and hospitals, health systems and others. And then we look at even Medicare, Medicaid, or the Veterans Administration, and DOD—they all have their own drug pricing and medical cost schedules and things like that.

That's still true, but we are seeing a lot more blending together structurally and things spilling over. So when we think about the One Big, Beautiful Bill that passed, that cuts back on Medicaid expenditures, and we're still sort of going through the debate on what's going to happen with the ACA subsidies, but as of now, there wouldn't be the ACA subsidies that were put in place during the pandemic, which projections lead to a couple million, I think two million less insured lives is the last I saw.

That’s a direct impact in reduced government spending, but it doesn't mean reduced cost of care. Those patients will still need care and may show up at hospitals and ERs, and either have to pay out of pocket or show up as uncompensated care. That has to come through somewhere. If the hospitals are treating the patients not getting the government reimbursement, it will show up in their next negotiations and fee schedules with private employer-based commercial plans. We see that there.

We also do see more spillover on the drug side. In terms of drug pricing, it has just become so very public with the most-favored nations agreements and participation in TrumpRx and the GENEROUS Model. It's impossible for commercial plans not to see those public prices of what's being offered, and puts more pressure on pharma companies to offer those similar discounts, or increased discounts and rebates on the commercial business. I would say we're at probably the most dynamic time in US healthcare in my career, at least in drug pricing too, and seeing more crossover between those channels.