What You Should Know:
– The U.S. healthcare system is entering 2026 with medical cost trends reminiscent of 15 years ago, facing persistent inflationary forces and significant federal policy changes, according to a new report from PwC.
– The report, “Medical Cost Trend: Behind the Numbers 2026,” projects the Group medical cost trend to remain at 8.5% in 2026 (the same level as 2025) and the Individual market trend at 7.5%. Pharmacy costs are a particular concern, projected 2.5 points higher than the medical trend.
PwC’s health researchers surveyed and interviewed actuaries at 24 U.S. health plans, covering over 125 million employer-sponsored members and 12 million Affordable Care Act (ACA) marketplace members, to generate these projections. All previously projected trends for 2024 and 2025 have been restated higher, signaling a sustained challenge.
Key Inflators of Medical Costs
Several factors are driving the upward trend in medical costs:
- Hospital Costs: Hospitals and health systems continue to face elevated prices for everything from wages to supplies. Hospital year-end operating margins averaged just 2.1% in 2024, significantly below 2019 levels (7.0%), and declined further in Q1 2025. Many hospitals are coping by leveraging Revenue Cycle Management (RCM) strategies to maximize revenue capture, leading to increased inpatient admissions and higher care severity that ultimately shifts costs to commercial payers.
- Surges in Behavioral Health Spending: Utilization of behavioral health (BH) services is soaring, with inpatient claims up nearly 80% and outpatient claims up almost 40% between January 2023 and December 2024. One in three health plan actuaries surveyed named BH services as a top three inflator, expecting a 10% to 20% trend for behavioral health next year.
- Drug Spending and New Therapeutics: U.S. drug spending grew by $50 billion (11.4%) to $487 billion in 2024. This growth is driven by oncology, immunology, cardiovascular, obesity, and diabetes drugs.
- GLP-1s: These weight-loss drugs continue to be a top cost inflator for health plans, projected to account for 0.5% to 1.0% of the estimated medical cost trend for 2026. While they offer potential long-term health benefits, challenges with adherence and sustained behavioral modification persist.
- Cell and Gene Therapies (CGTs): While not yet a major cost driver, there is concern that these high-cost, breakthrough therapies (e.g., for sickle cell disease, hemophilia) will exert significant inflationary pressure as more enter the market and adoption increases.
Federal Policy Shifts Add to Cost Pressures
Medical cost trend pressures are intensified by significant changes in federal health policy and regulation, particularly the “One Big, Beautiful Bill” (OBBB/H.R. 1), signed into law in July 2025.
- Medicaid and ACA Subsidies: The OBBB is projected to reduce federal healthcare spending by $1 trillion over the next 10 years by tightening Medicaid eligibility (potentially leading to millions more uninsured by 2034) and allowing enhanced ACA subsidies to expire. This could prompt providers to seek higher rates from commercial payers to compensate for reduced public funding.
- Tariffs: Proposed tariffs on pharmaceutical imports threaten to drive up drug prices and worsen shortages.
Deflators: Countering the Upward Trend
Despite the inflationary forces, some factors are working to temper cost increases:
- Biosimilars: Biosimilar adoption continues to be a key deflator. In 2024, private-label strategies boosted Humira biosimilar uptake significantly. In 2025, a similar trend is emerging with Stelara, as seven FDA-approved biosimilars (including private-label versions) launch at over 80% less than the reference product. Health plans cite biosimilars as the leading cost deflator for the third consecutive year.
- Strategic Cost of Care Management: Health plans are seeing some success in managing the total cost of care by deploying utilization management, claims integrity reviews, pharmacy oversight, and prescription management programs, often weaving AI into their processes.
Act Now: Strategies for Health Plans and Employers
PwC emphasizes that cost containment must become an operating principle for health plans:
- Strengthen Payment Integrity and UM: Health plans need robust utilization management (UM) and payment integrity programs, leveraging predictive analytics and pre-payment audits to prevent budget overruns and ensure billing accuracy. Value-based contracts can help shift costs back to providers.
- Rethink Pharmacy Benefit Strategy: This includes auditing existing pharmacy partners, exploring transparent Pharmacy Benefit Managers (PBMs) or Pharmacy Benefit Administrators (PBAs), and tightening oversight of GLP-1s through enhanced prior authorization and value-based contracts. Integrating GLP-1 coverage with wraparound services like nutrition counseling and digital coaching is crucial for sustained health benefits.
- Manage High-Cost Therapies: For CGTs, health plans should explore innovative reimbursement models like outcomes-based rebates, milestone-based payments, and carve-out partnerships. They should also streamline biosimilar approvals and push for transparent rebate negotiations with PBMs.
- Embed AI and Digital-First Interventions: Health plans should embed AI into care management, pre-payment audits, and care coordination to boost efficiency and impact. Prioritizing digital-first interventions that engage members with minimal overhead is essential. Foundational investments in data infrastructure can sharpen analytics and enhance fraud, waste, and abuse detection.
- Employer Engagement: Employers should set clear trend targets and hold health plans and vendors accountable for performance metrics related to GLP-1 oversight, behavioral health integration, and pharmacy cost drivers.
Call to Action: Creating A Patient-Centric Ecosystem
The 2026 medical cost trend signals a need for bold reinvention in healthcare. Longer-term, this means reallocating spending to create a patient-centric ecosystem focused on preventive, personalized, and predictive care, with flexible sites. Payers will become “health architects,” steering care and managing costs, while providers leverage AI for efficiency and connectivity across the ecosystem.
