Recent reports raise alarms over inexorable rise in healthcare costs
Reports from PwC and the Medicare trust fund show costs are rising for health plans, with dire consequences lying ahead.
Despite years of alarm over the continuing rise in healthcare costs, recent data suggest that they are still going higher.
Consumers bear a lot of the cost, but so do health plans – including the federal government, specifically through the Medicare and Medicaid programs. Efforts by public and private health plans to slash healthcare spending appear to be flailing this year, portending challenges ahead for providers, consumers and insurers.
Restraining rising healthcare costs is often cited as a national priority, although making actual progress has proven elusive. A report from federal actuaries estimated that national health spending increased by 7.1 percent in 2025, outpacing growth in the U.S. gross domestic product. The Centers for Medicare & Medicaid Services had estimated national spending on health will reach $5.6 trillion this year.
That’s real money. Total healthcare spending in 2024 totaled 17.2 percent of the U.S. gross domestic product. By contrast, healthcare spending represented 6.9 percent of GDP in 1974 and 12.5 percent of GDP in 2000.
But data from a recent survey shows that healthcare costs are rising faster, and among other impacts, that’s seriously jeopardizing the future of the trust fund that supports Medicare.
Health plan expenses rise
In its annual assessment of healthcare costs, PwC this week released its Behind the Numbers report that measures costs from health plans’ perspective. Data from the study suggest that commercial healthcare costs are expected to rise 9 percent for groups and 8.5 percent for individuals in 2027.
That’s the biggest increase in the past 17 years, PwC reports, and a foreboding harbinger for initiatives intending to restrain costs, with researchers suggesting that some of those initiatives are driving healthcare costs higher.
In conducting research for this fifth annual report, PwC surveys health plan actuaries to record their expectations for medical cost trends in the coming year. The actuaries work at 27 health plans that cover more than 103 million employer-sponsored members and 8 million individual members insured through the Affordable Care Act.
In addressing whether widely used cost management approaches can slow healthcare cost increases, the PwC researchers take a dim view. “The rising medical cost trend heading into 2027 is not a temporary spike,” they warn.
Among trends pushing plans’ costs higher are provider adoption of AI-enabled revenue optimization tools and the concurrent “growing provider reimbursement pressure,” driven by overall economic inflation being experienced by provider organizations. In addition, the report attributes rising health plan costs to provider consolidation, which they contend also drives up reimbursement rates.
Other forces impacting healthcare costs that health plans are absorbing include rising costs for pharmacological interventions and the increasing use of behavioral healthcare, as mental health claims continue to soar. Finally, those surveyed point to the arbitration process in the No Surprises Act as likely to add a new source of out-of-network reimbursement that health plans will cover.
“Many of the forces driving the trend, including pharmaceutical innovation, expanded behavioral health access and improved clinical documentation, can improve patient outcomes,” the researchers note. “The challenge for healthcare leaders is establishing that spending growth is matched by measurable value and affordability.”
Counteracting inflation
Health plans will struggle because they have fewer tools to restrain costs, what PwC calls “deflators.” The tricks they’ve previously used — historical cost trend deflators, such as biosimilars, generic drugs and site-of-care optimization — “continue to play a role, but health plans are already incorporating those into their baseline cost assumptions,” researchers conclude. “The external deflators are not enough to materially impact the rising cost trend.”
In 2027, PwC sees deflators being what “payers can directly control, such as benefit design, formulary design, cost-of-care initiatives and network choices where they exist.”
Given the trendline, PwC estimates that national healthcare spending, left unchecked, will grow to $9 trillion annually by 2035.
Federal bad news
That trajectory of rising costs was reflected in recent reports from the trustees of the Medicare program, which this week told Congress the prognosis for the financial sustainability of the program.
The Medicare trust fund that pays for Part A, which includes inpatient hospital stays, will be unable to meet all its expected costs after the second quarter of 2033, the report predicts. That’s three months earlier than last year’s projection.
The shortfall has been exacerbated by deficit spending in the Medicare hospital trust fund, which has spent more than it takes in for most of the past 17 years, trustees reported. While laws stipulate that the president should alert Congress for the need to take action to avoid insolvency of the hospital trust fund, no steps have been taken for the past decade, according to reporting by AARP.
Options that Congress could consider to counter declines in the trust fund include raising payroll taxes, reducing enrollee benefits or decreasing payments to healthcare providers. “The sooner solutions are enacted, the more flexible and gradual they can be,” says the trustees’ report. “Introducing reforms early would give affected individuals and organizations — including healthcare providers, beneficiaries and taxpayers — more time to adjust their expectations and behavior.”
Total Medicare spending rose about 8 percent in both 2024 and 2025.
Also facing a crisis is Social Security’s retirement trust fund, which is projected to face a funding shortfall in 2032, a year earlier than projections made last year. That could trigger reductions in retirees’ benefits, which would impact their ability to cover medical expenses, among other costs.
Time for action
Many organizations are calling for action on healthcare spending, with PwC saying that the most recent data highlights the urgent need to contain cost increases.
“All healthcare leaders should read the 2027 medical cost trend as a watershed moment to reflect on what will happen in the next few years as employers will likely not be able to sustain the same benefits and will likely mimic the actions of government health plans,” the PwC researchers conclude.
The cost crisis should catalyze efforts to reframe how healthcare is funded in the U.S., PwC says. “As health plans engineer their programs to bring costs to a sustainable level, every sector is encouraged to adapt to changes in how care is funded and delivered. Whenever possible, in the interest of patient care, industry leaders should seek collaboration. Transparency, consumer education and clarity on benefits and policy could improve patients’ health and reduce the administrative burden across the health economy.”
Fred Bazzoli is the Editor in Chief of Health Data Management.