The average family premium for employer-sponsored health insurance rose to $28,303 in 2026, marking a 28% increase over the past five years. Despite this surge, neither workers nor employers show strong motivation to disrupt the existing system.
Health care costs continue climbing because every key participant benefits from higher spending. Insurers earn profits from rising premiums, while brokers and consultants collect commissions tied to those premiums. Hospitals exploit market dominance to demand steep prices, and physicians under fee-for-service models generate more revenue by providing additional services. Drugmakers, shielded by patents, set prices with limited oversight. This creates a system where no single entity has a financial incentive to reduce costs.
Price variations expose the system’s inefficiencies. A single MRI or knee replacement can cost three or four times more at one facility than at another nearby—without evidence that the higher-priced option delivers superior outcomes. In a functional market, such disparities would drive competition to standardize costs. However, patients lack both the tools and motivation to compare prices, while insurers simply absorb higher costs by raising premiums.
Employers, who cover most health benefits, might appear as the natural counterbalance. Yet they rarely challenge the status quo. Most delegate benefit decisions to insurers, brokers, and consultants, fearing that restrictive policies could upset employees. As a result, employers seldom tell overcharging providers, “No, we’ll take our business elsewhere.”
Employers Taking Control
Some large companies have broken this cycle. Walmart, for example, directs employees with complex conditions to designated centers of excellence, such as the Mayo Clinic, covering all related expenses—including travel and lodging. The approach proved more effective than expected: many workers referred for spine surgery avoided the procedure entirely after evaluation.
In 2011, CalPERS, California’s public employee retirement system, implemented a different strategy. It established a reference price for hip and knee replacements and required members choosing above that threshold to cover the excess cost. The goal was not to penalize patients but to pressure hospitals to lower rates—and the tactic worked. High-cost providers quickly reduced their prices.
For years, the assumption was that higher deductibles would make patients more cost-conscious. Yet deductibles lose impact once met, which occurs almost immediately for major treatments. Walmart and CalPERS reversed this logic: instead of waiting for patients to shop, they identified high-value, lower-cost care first and then guided employees toward those options.
Smaller businesses lack Walmart’s scale, but alternatives exist. Self Fund Health, a Wisconsin-based provider, offers small employers a similar model. It can be more economical to transport patients to Johns Hopkins for treatment than to treat them locally. Members retain access to a full network of doctors but gain free care from a tier of preferred, low-cost providers.
A single employer need not dominate a market to influence pricing. When a hospital loses even a small share of high-margin cases, such as 10 cardiac procedures to an out-of-state center, it takes notice. CalPERS did not force all members to switch hospitals, but the potential for patient shifts prompted price reductions.
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The central issue remains price transparency. Most workers lack clear cost information for medical services. When employers provide detailed price comparisons, they enable employees to make informed choices, not through penalties, but by revealing better alternatives.
Barriers to Employer Action
Three key obstacles prevent most employers from adopting cost-saving measures. The first is the tax code. Employer-sponsored health benefits are excluded from taxable income, making health spending cheaper than wages. This subsidy reduces the financial impact of high premiums, weakening the incentive to cut costs.
The Affordable Care Act’s Cadillac tax, a failed effort to limit tax advantages for expensive health plans, was repealed in 2019 after opposition from unions and industries benefiting from the current system. Yet the tax code already phases out other preferential treatments, such as retirement contributions and mortgage interest deductions. Applying similar logic to health insurance would not be unprecedented.
Small employers face additional challenges, including broker commissions. Many rely on brokers to design benefits, but those brokers earn fees tied to premiums and plan complexity. While federal law requires commission disclosure, employers rarely examine these details, or question whether the advice aligns with cost savings.
Even when employers attempt to steer workers toward lower-cost care, hospitals can resist. North Carolina’s State Health Plan recently introduced a tiered network, charging members more for high-priced systems. Atrium Health, a major provider, countered by waiving cost-sharing requirements at its facilities, effectively nullifying the tiering while maintaining high prices.
The solution lies in shifting leverage back to employers. Rather than allowing hospitals to set terms at the point of care, employers could offer lower-premium plans that include only lower-cost providers, and let workers who prefer higher-priced options pay the difference. A hospital can waive copays, but it cannot subsidize an employer’s entire premium.
Shifting Power Without Alienating Workers
Employers seeking to control costs without losing employee support can begin by offering tiered networks that clearly display price differences. For instance, a plan might list hospitals in ascending order of cost, with the least expensive options available at no extra charge. This approach does not restrict access but makes trade-offs transparent. Workers who choose pricier hospitals still have that option, but they bear additional out-of-pocket expenses, creating a direct link between decisions and costs. The framing matters: presenting choices as empowerment, rather than punishment, reduces resistance. CalPERS found that when employees see transparent pricing, many select lower-cost providers without resentment, recognizing the group-wide savings.
Data and Defaults as Drivers of Change
Price transparency alone is insufficient, employers must also leverage data to guide decisions. Self Fund Health, serving small Wisconsin businesses, provides employers with real-time cost comparisons before procedures. For example, it might show that a hip replacement at a local hospital costs $50,000, while the same procedure at a preferred out-of-state facility costs $30,000, including travel. When employers share this data upfront, the choice becomes clearer. Default options can also influence behavior: if the lowest-cost provider is automatically selected unless the worker opts out, inertia often steers them toward savings. This mirrors how retirement plans use auto-enrollment to boost participation.
