US Healthcare Costs Set for Steepest Rise in Two Decades

The U.S. healthcare system, already the world's most expensive, is poised for substantial cost increases, with Americans facing the largest jump in employer health plan costs in over 20 years. Projections indicate an 8% to 10% rise in these costs for the upcoming year, a significant acceleration compared to the average increases seen in the 2010s.

This escalating expense is the second in a series of projected shocks to healthcare costs and coverage. The first began in January 2026, when individuals purchasing insurance through the ACA Marketplace experienced an average premium increase of 114% after enhanced subsidies expired. The third shock is anticipated with the implementation of Medicaid work-reporting requirements, expected to result in millions losing coverage.

Historically, major reforms to the U.S. healthcare system have occurred roughly once per generation, with significant legislative efforts under Presidents Truman, Lyndon B. Johnson, Bill Clinton, and Barack Obama. With healthcare costs now ranking among voters' primary concerns, these recent financial strains may signal a renewed impetus for comprehensive reform.

ACA Marketplace Insurance

The expiration of enhanced premium tax credits, initially part of the 2021 American Rescue Plan Act and extended by the 2022 Inflation Reduction Act, has led to a significant rise in out-of-pocket costs for ACA Marketplace enrollees. These credits lapsed on December 31, 2025, after Congress did not renew them.

This change is estimated to have increased after-subsidy premiums by approximately 114%, or about $1,000 annually. Consequently, enrollment in the Marketplace decreased by 12%, from 21.8 million to 19.2 million, as some individuals opted out of coverage. New Mexico, which provided state-level subsidies, was the only state to see enrollment growth. Many remaining enrollees have shifted to less comprehensive plans, leading to higher deductibles, which have increased by over $1,000 to an average of $3,786.

The average premium paid by Marketplace enrollees in 2026 reached $178 per month, a 58% increase from 2025 and higher than the $164 paid in 2021 before the enhanced credits. Insurers are proposing an additional 15% premium increase for 2027, building upon a 20% rise in the previous year, partly due to a healthier risk pool among those who remained enrolled.

Employer-Sponsored Health Insurance

For the approximately 160 million Americans who receive health insurance through their employers, the open enrollment period typically occurs in October or November for coverage beginning January 1.

Consulting firms project a 8% to 10% increase in total healthcare costs for employers in 2027, the most significant rise since 2003. Factors contributing to this surge include increased utilization of healthcare services, the introduction of expensive new medications such as GLP-1s, hospital consolidation, and the adoption of AI in billing processes. For a typical employee, this increase could translate to an additional $400 to $500 in costs.

These projections encompass both employee premium contributions and employer spending. Research indicates that employees also bear indirect costs through potentially lower wage increases. Furthermore, the reported cost increases may understate the full impact, as employers have increasingly shifted costs to employees through higher deductibles and reduced coverage. For instance, the proportion of large employers covering GLP-1s for obesity has decreased from 72% to 60%. Adjusting for these benefit reductions, the estimated cost increase could be an additional one to three percentage points.

Medicaid Coverage

The third significant impact is on the Medicaid program. Beginning January 1, 2027, federal legislation mandates that 44 states and Washington, D.C., require adults enrolled through Medicaid expansion to document 80 hours per month of work, school, or community service.

The Congressional Budget Office (CBO) estimates that this requirement could lead to approximately 5.7 million people losing Medicaid coverage by 2034, with an additional 5.3 million becoming uninsured. Evidence from states like Arkansas, which implemented similar requirements in 2018, showed that while employment levels did not change, over 18,000 individuals lost coverage within seven months, despite meeting the criteria or qualifying for exemptions, largely due to administrative burdens.

In addition to work requirements, the legislation includes other measures affecting Medicaid, such as reducing eligibility verification frequency from annually to semi-annually, shortening the duration of retroactive coverage, and limiting state provider taxes used to fund the program. The CBO projects that these combined provisions could result in 7.5 million more uninsured individuals by 2034.

These cumulative changes mark a period of significant healthcare cost escalation in the U.S. The increases in Marketplace premiums, the projected rise in employer-sponsored plan costs, and the potential reductions in Medicaid coverage are expected to place considerable strain on family budgets, while also potentially creating a generational opportunity for healthcare reform.