For decades, employer-sponsored plans have grown more expensive much faster than inflation and wages. What was once a predictable benefit is now one of the fastest-rising costs for employers, and an increasing financial burden for employees.
In this article, we'll explain what's driving the rise in insurance premiums and what employers can offer instead of group coverage.
In this blog post, you'll learn:
Group health insurance premiums rise faster than inflation. According to KFF1, the average employer-sponsored family premium increased by 6% in 2025, while overall inflation remained under 3%. Family coverage was about $27,000 per year, with employers covering most, but not all, of the out-of-pocket costs.
Over the long term, the trend is even more striking. A study published in the Journal of the American Medical Association (JAMA) Network Open2 found that from 1999 to 2024:
In other words, healthcare costs have grown roughly three times faster than wages and five times faster than inflation.
For applicable large employers (ALEs) with 50 or more full-time equivalent (FTE) employees, insurance companies evaluate several factors when setting large group plan premiums.
Common pricing considerations include:
There isn’t just one reason premiums keep rising. Costs build up across the healthcare system and eventually flow down to employers and employees. Here are five key reasons health insurance premiums continue to increase.
In 2024, hospital expenses grew by 5.1%, with labor costs accounting for the bulk of the increase. Due to workforce shortages, hospital systems boost wages to retain staff. Data collected by the American Hospital Association3 (AHA) shows advertised nurse salaries have risen 26.6% faster than inflation over the past four years. Rising healthcare wages are reflected as higher healthcare costs, which insurers pass on to employers in the form of higher premiums.
After the COVID-19 pandemic, the demand for telehealth and mental health services increased. According to research from the RAND Corporation and Castlight Health4, mental health spending rose by 53% between March 2020 and August 2022 among people with employer-sponsored insurance. Over that same period, the number of people using mental health services increased by 39%. Increased utilization increases total claims paid by insurance companies. This, in turn, leads to higher premiums.
Speaking of utilization, a KFF poll5 found that one in eight adults is taking GLP-1 drugs6 for weight loss. These high-cost specialty medications now represent a disproportionate share of total healthcare spending. These prescription drug costs are built directly into premium increases.
With the rising popularity of GLP-1 drugs in mind, President Donald Trump imposed tariffs7 on imported pharmaceuticals and medical supplies. Insurers cite these tariffs as a potential impact on healthcare costs. This adds to the trickle-down effect.
Traditional group insurance pricing is based on the health and claims experience of a relatively small population. A single high-cost claimant can significantly affect renewal rates, leading to unpredictable premium increases.
Imagine an employer with 40 employees enrolled in a traditional group health plan. For years, claims have remained stable, and premiums have increased predictably. Then, one employee experiences a serious medical event that results in substantial claims.
At renewal, the insurer prices the plan based on the group’s recent claims experience. Despite most employees having low healthcare utilization, the claims from a single high-cost individual significantly increase the group’s overall risk. The result is a steep, unexpected premium increase for the entire workforce.
In response to these pressures, a growing number of employers are replacing traditional group health insurance with an individual coverage health reimbursement arrangement (ICHRA). According to the HRA Council, there was a 34% increase in ICHRA adoption among ALEs between 2024 and 2025.
Introduced in 2020, an ICHRA allows employers to provide employees with tax-free contributions they can use to purchase individual health insurance, instead of sponsoring a traditional group plan.
Here's how ICHRA addresses cost concerns:
ICHRA works best when it’s implemented by a partner with real experience at scale. As the nation's largest ICHRA provider, Remodel Health specializes in helping large employers replace traditional group health insurance with benefit strategies that are compliant, cost-effective, and employee-friendly.
That scale matters. It means we have proven processes, reliable automatic premium payments, and teams ready to solve your biggest challenges. From plan design and compliance to employee education and ongoing support, Remodel Health guides organizations through every step of the transition.
If rising premiums are putting pressure on your organization, it may be time to stop managing increases and switch to our ICHRA+ platform. We offer a safer path forward.
As healthcare costs continue to rise faster than inflation, many employers are realizing their health benefit strategies need to change. For employers seeking predictable budgets, employee choice, and long-term sustainability, ICHRA is emerging as a powerful alternative to traditional group coverage.