How to Reduce Healthcare Costs for Employers in 2026

Your health insurance renewal comes in with another premium increase, and your broker attributes it to “trend” and “market conditions” without explaining what is driving the increase or what you can do about it. 

For many founders, that leaves a bigger question on the table: how do you reduce healthcare costs when the factors behind your renewal seem largely outside your control?

The answer starts with understanding what is driving your healthcare costs and where you have room to lower them.

This article breaks down the main ways employers can reduce healthcare costs, ranks them by how practical they are for companies of different sizes, and explains the tradeoffs involved.

Why Are Employer Healthcare Costs Rising?

Renewal increases are putting more pressure on employer health benefits budgets, with smaller companies facing the most pressure.

Ignition Benefits’ 2026 survey of 503 small and midsize business leaders found that 39% reported a double-digit renewal increase. Among those employers, 64% made at least one business tradeoff to absorb the higher cost, most often by reducing their budget for raises and bonuses.

The pressure is likely to continue, with Mercer projecting a 6.7% increase in total health benefit costs in 2026, bringing the average cost to more than $18,500 per employee.

Four major factors are behind rising healthcare premiums.

1. Pharmacy Spend and GLP-1 Drugs

Prescription drug spending is a major contributor to rising healthcare costs. In the same study, Mercer reported that drug spending among large employers increased by 9.4% in 2025, driven in part by GLP-1 medications, a class of drugs used to treat diabetes and support weight loss. Coverage for GLP-1 drugs among large employers also reached 49%. 

Pharmacy now accounts for roughly a quarter of employer health spending as per Business Group on Health, yet many employers have limited visibility into how specific drug categories affect their overall costs and renewal.

2. Chronic and Complex Conditions

Cancer, musculoskeletal conditions, cardiovascular issues, and diabetes are among the leading drivers of healthcare costs worldwide as per the same Business Group on Health study. Cancer has been the top condition driving healthcare costs for four consecutive years, with costs continuing to rise sharply.

Mental health and substance use disorders are adding to that pressure. In 2026, 73% of employers reported higher utilization of mental health and substance use disorder services, while another 17% expect utilization to increase. Employers are also expanding access through anti-stigma initiatives and virtual care options, which can increase demand for these services.

For smaller groups, these trends can have a bigger impact because a single high-cost claim can significantly affect the group's annual healthcare costs.

3. Hospital and Provider Consolidation

Hospital consolidation gives providers more pricing power, which can push healthcare costs higher for employers. A 2024 study found that hospital mergers that reduced competition led to price increases of more than 5% for hospital services.

Those higher prices can affect businesses beyond their health plans. A separate study from the same research group found that a 1% increase in healthcare prices reduced both payroll and employment by approximately 0.4% at non-healthcare firms.

This means healthcare costs can rise even when a company's workforce and healthcare usage remain stable. Employers have limited control over local provider markets, but they can still compare how different plans and networks set or negotiate healthcare prices when evaluating their coverage.

4. How Your Group Gets Pooled and Rated

If your company counts as a small employer, generally 50 or fewer employees, the Affordable Care Act (ACA) limits how an insurer can price your plan. It can set your premium on only four factors: your employees' ages, geography, family size, and tobacco use. Health status and claims history are off-limits.

That matters when your team has consistently low claims. Your company could have far fewer claims than other groups in the market, but your insurer cannot lower your rate based on that experience. Your premium still reflects the broader small-group market, including the costs of higher-risk groups.

A different funding structure gives your workforce's claims experience a larger role in your costs. For a group with consistently low claims, that could create more room to reduce employer health plan costs.

5 Ways to Reduce Healthcare Costs for Employers

Below are the different levers, ranked by their potential impact on employer healthcare costs. 

Structural levers come first because changing how a plan is funded can have a greater effect on costs than adjusting a copay. Plan design follows. 

Used together, these strategies can reduce employer healthcare costs while preserving meaningful coverage for employees.

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1. Get Your Workforce Risk Score

Insurance carriers assess an employer's workforce based on factors such as age, gender, and location, then use that assessment to price the company's health plan. The problem is that employers rarely see how their workforce is being evaluated. 

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Ignition Benefits uses your census data to generate a Benefits Risk Score before you go to market. That score gives you a benchmark for assessing your renewal premium against your workforce's risk profile. If your risk score is low but your renewal increase is high, you have a stronger basis for challenging the quote and comparing other options.

Catch: The score reflects your workforce's demographics and risk profile. Use it as a diagnostic tool to understand your renewal and evaluate your options. 

2. Run a Full Market Audit at Renewal

A renewal should give you a view of the broader market. Compare your current plan with options from major carriers and across different funding structures. Use your workforce data to assess how each option fits your company.

Ignition’s 2026 survey found that 41% of employers assumed their broker had already shopped the market, while only 6% had ever completed a full review. 

Start 90 to 120 days before renewal and ask your broker to shop your plan across major carriers, including at least one level-funded option. Review the results side by side, including premiums, network differences, plan design changes, and anything employees would notice.

Catch: A full market audit depends on your broker actually running one. Ask which carriers and funding structures they reviewed and request a comparison before deciding on your renewal.

3. Change Your Funding Structure

Moving from a fully insured plan, where the carrier takes on the claims risk, to a level-funded or self-funded plan gives your claims experience a larger role in what you pay. 

With some level-funded arrangements, employers can also receive money back when claims come in below the amount set aside for them. For a healthy team of roughly 25 to 200 employees, that makes funding structure an important factor in overall healthcare costs.

To see whether a different structure makes sense for your company, ask your broker to model a level-funded option alongside your fully insured renewal using your census and available claims data. 

Compare the fixed monthly cost, your maximum claims exposure, and any potential refund if claims come in lower than expected. 

Ignition Benefits' 2026 survey found that companies with level-funded or self-funded plans reported paying about $2,100 less per employee than companies with fully insured plans, with average costs of $5,914 versus $8,005.

Catch: Alternative funding shifts more claims risk to the employer, so the potential savings come with more exposure. Review your claims history and stop-loss coverage, which limits your liability for high-cost claims, before making the switch.

4. Redesign Plan Tiers and Cost Sharing

Offer employees a choice between a High Deductible Health Plan (HDHP), a plan with a lower premium and higher deductible, and a more generous plan with a higher premium and lower deductible. 

Employees who expect lower healthcare costs can choose the HDHP, while those who expect to use more healthcare can choose the generous plan. This gives employers a way to reduce premium costs without moving the entire workforce into a higher-deductible plan.

Add an HDHP as one tier in your plan lineup and pair it with an employer-funded account, such as a Health Savings Account (HSA), to help employees manage the higher deductible. Then estimate how many employees are likely to choose each option and model the potential premium savings. 

The KFF 2025 Employer Health Benefits Survey found that average family premiums for HDHPs were $25,379, compared with $28,272 for comparable Preferred Provider Organization (PPO) plans, a difference of roughly $2,900 per enrolled family.

Catch: The HDHP shifts more costs to employees when they use healthcare. Keep a richer plan available and consider an employer HSA contribution so employees have a meaningful choice without taking on more out-of-pocket costs than they can manage.

5. Attack Pharmacy and GLP-1 Spend

Pharmacy costs account for about a quarter of employer health spending as per Business Group on Health, making them an important area to review. 

On a self-funded plan, employers have more visibility into their pharmacy spending and can review their Pharmacy Benefit Manager (PBM) arrangement. They can also evaluate the formulary, meaning the list of drugs your plan covers and at what tier, and coverage rules for high-cost drugs, including GLP-1 medications.

Ask your PBM for a detailed report of your highest drug costs and how rebates are applied. Review whether your contract provides for the full value of available rebates and whether coverage rules such as prior authorization and step therapy are appropriate for high-cost medications. This strategy is best suited for employers with 50 or more employees on self-funded plans, where detailed pharmacy data can inform these decisions.

Catch: Changes to GLP-1 coverage can affect employees' healthcare decisions and your ability to attract and retain talent. 

Ignition's 2026 survey found that 58% of employers covering GLP-1 drugs could not say how much the coverage added to their renewal, while 16% had worried about or lost talent over the decision. Understand the cost before changing the benefit.

Cost-Cutting Moves That Backfire

Some of the fastest ways to reduce benefits spend on paper can cost you more later on. Avoid these three:

1. Shifting more premium onto employees. Increasing the employee share of premiums reduces the employer's immediate spend, but employees already face significant healthcare costs.

The Commonwealth Fund's 2024 survey found that 23% of insured adults were underinsured, and 66% of them received coverage through an employer. Among those who were underinsured, 57% skipped needed care because of cost. Increasing their share further can make coverage harder to afford and increase dissatisfaction with the benefits package.

2. Reducing coverage to lower the premium. Removing plan options, narrowing the provider network, or increasing cost sharing can reduce premiums. It can also make the plan less useful to employees who need care. For companies competing for specialized talent, a weaker benefits package can make recruiting and retention harder.

3. Betting on wellness-program savings. Some employers invest in wellness programs, such as health screenings and fitness challenges. They expect them to reduce healthcare spending. But research has consistently shown that they do not produce measurable medical savings.

One 3-year study published in Health Affairs found that a workplace wellness program did not reduce employees' medical spending. The program still had a cost, leaving the employer with another benefits expense without a measurable reduction in healthcare spending.

If you offer a wellness program, evaluate it based on employee value and engagement rather than assuming it will lower your healthcare costs.

Which Strategies Fit Your Company Size

Here is how to lower healthcare costs for teams at each stage.

Under 25 Employees

Your options are more limited at this size. Start by getting a clear view of your workforce risk and making sure your renewal is tested against the broader market. Full self-funding usually carries too much claims risk for a small group. 

First move: Run a full market audit at renewal, then revisit alternative funding as your team grows.

25 to 50 Employees

Alternative funding becomes more practical for groups with consistently low claims. You can compare level-funded plans alongside your fully insured renewal, review your workforce risk, and evaluate changes to plan design. 

First move: Compare your fully insured renewal with a level-funded option built around your workforce data. If you're also considering a PEO, review PEO options for small business before making a decision.

50 to 200 Employees

With a larger workforce, you have more data to evaluate funding, pharmacy spending, and plan design. Self-funding, PBM and GLP-1 management, full market audits, and moving benefits out of a PEO all become options worth evaluating.

First move: If you're on a PEO, compare your current benefits arrangement with what you could get by moving to a standalone plan. 

What Your Benefits Broker Should Be Doing About It

Your broker should help you understand your renewal, test it against the broader market, and show you which options fit your workforce. That means looking beyond the first renewal quote and evaluating carriers, plan designs, and funding structures that could work for your workforce.

You also have the right to understand how your broker is compensated. Federal law requires brokers to disclose their compensation in writing before entering into or renewing certain group health plan arrangements. That disclosure is provided as part of the renewal process.

Ask these 3 questions to your current broker and look for specific answers:

1. Did you take my plan to the full market this year?
   A useful answer should tell you which carriers and funding structures were reviewed.
   
   
2. What is my workforce risk score, and how does it compare with my renewal rate?
   A useful answer should show you the score and explain what it means for your renewal.
   
   
3. Have you modeled a level-funded or self-funded option for us?
   A useful answer should show the projected costs, potential exposure, and key tradeoffs.

If your broker cannot provide clear answers or does not review the broader market, it may be worth comparing other brokers. Switching brokers typically involves a Broker of Record (BOR) letter, which appoints the new broker to manage your benefits while your existing coverage stays in place.

This is where Ignition Benefits fits. It runs a full market audit at every renewal, shares your Benefits Risk Score before quotes arrive, and evaluates alternative funding structures alongside your renewal. 

Find Out What You Are Overpaying Before the Next Renewal

The first step is knowing whether your current renewal reflects what your workforce actually needs. You can get a clearer answer in 14-21 days.

Start with a 15-minute intake call and share your census and current plan. Ignition then runs a full market audit, calculates your Benefits Risk Score, and builds a Benefits Analysis Report comparing your current coverage with other available options. A second 15-minute call walks you through the results and what to do next.

Start the process about 90 days before your renewal so you have time to review your options and make a decision before your current plan renews.

Find out if you’re overpaying on healthcare costs. 

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