Four pathways to sustainable healthcare cost growth 

Healthcare costs have steadily risen in the high single digits over recent years and are expected to continue this trend for the next 12 to 18 months. This increase results from higher price inflation, greater utilization, and changes in case mix such as new services and changes in the distribution of care. While healthcare costs have historically outpaced broader economic indicators like the Consumer Price Index and wage growth by about 3 to 4 percentage points, recent data show this gap widening to approximately 6 to 7 percentage points, increasing pressure on employers, insurers, and individuals.

For stakeholders across the US healthcare system, slowing the current pace of cost growth is a critical challenge. Certainly, some factors influencing cost are beyond an employer plan sponsor’s control; for example, general economic conditions affect healthcare utilization and thus spending. During good economic times, demand for healthcare services (like demand for most goods and services) increases, driving up utilization and cost. During recessions, patients often delay or skip nonurgent care, elective procedures, and routine visits because of financial strain or loss of insurance, lowering utilization and easing pressure on cost trends. Employers, policymakers, and other stakeholders should recognize and treat recession-driven changes in demand as merely a short-term moderating force and pursue proactive measures to achieve cost control.

Right now, there are four promising pathways to a future of sustained healthcare affordability that merit coordinated efforts and strategic investments. We discuss each of those pathways below and offer some practical actions employers can take to better manage cost in their own programs while contributing to the larger efforts to bend the trend.

Technology adoption: Driving operational efficiencies and unlocking cost savings. Across most industries, new technology brings down prices by improving efficiency. Healthcare has been an exception – provider consolidation, opaque pricing, and complex reimbursement structures limit competition and have prevented purchasers from capturing savings. However, evolving payment models and contracts – particularly value-based arrangements that tie reimbursement to quality and cost outcomes – can better align incentives as providers deploy AI and other technologies to improve clinical decision-making, optimize resource use, reduce administrative burden, and strengthen care coordination. Automated workflows, predictive analytics, and similar efficiencies can lower overhead and unnecessary services. While technology has not yet delivered on its promise to reduce healthcare costs, AI and other innovations combined with value-based contracting and improved market dynamics hold significant potential to drive meaningful cost containment for purchasers in the near future.

Free market dynamics: The rise of direct-to-consumer channels. Direct-to-consumer options are increasing transparency and competition in healthcare by giving consumers clearer upfront pricing and enabling more informed decisions. Transparency exposes price and quality differences and pushes providers to compete on value rather than volume. Direct-to-consumer works best for standardized, easily delivered services such as telehealth consultations, routine lab testing, and certain preventive or elective care, as opposed to services that require complex diagnostics, long-term management or specialist care. While direct-to-consumer options are expected to grow steadily as technology adoption and consumer comfort grow, they will likely complement rather than replace traditional care, and help moderate cost trends in segments where transparency and competition drive efficiencies and better consumer experience.

Improved health outcomes. Improving health is central to slowing long-term healthcare cost growth. The two primary levers are behavioral change and advances in therapeutics. Encouraging better diet, regular exercise, smoking cessation and medication adherence reduces healthcare utilization and illness severity, although achieving population-level change requires education, incentives, social support, and access to resources. Therapeutic advances in drugs, biologics and personalized medicine improve disease management and prevent costly complications. The most promising approaches combine both levers, such as digital health tools—mobile apps and wearables—that support self-management and real-time monitoring. Additionally, value-based care models that incentivize providers to focus on prevention and effective chronic disease management are aligning financial incentives with improved health outcomes. Widespread improvement is complex and requires sustained effort, but the potential to lower utilization, reduce illness severity and contain costs makes this a priority for employers, providers, and policymakers.

Legislation. Legislative and regulatory measures can curb healthcare price growth through supply controls, uniform rate models, and other policy levers. Supply controls like certificate of need programs limit facility expansion to prevent duplication and overcapacity, which can reduce capital spending but may also limit competition and slow access. Uniform rate models set standardized payments across payers to limit price variation and simplify administration, though they can blunt price competition and, if rates are set too low, threaten provider viability. Other levers – price transparency laws, anti-price-gouging rules, and policies that promote value-based payment – can improve market efficiency and purchasing power. For employers and other purchasers, these approaches can moderate cost growth and improve budgeting predictability, but they require careful design and monitoring to avoid harming access or quality, and stakeholders should engage with policymakers and plans to strike the right balance.

What employers can do now: Seven actions to address rising healthcare cost trends

By focusing on these practical steps aligned with key cost drivers, employers can proactively manage healthcare cost trends and support sustainable benefits strategies.

1. Leverage value-based contracting and technology adoption. Partner with health plans and providers to implement value-based contracts that incentivize quality and cost efficiency; encourage providers to adopt AI and other emerging technologies to improve operational efficiency and reduce unnecessary services; and invest in data analytics tools to identify high-cost areas and target interventions effectively.
2. Evaluate direct-to-consumer opportunities in the context of the employer ecosystem by exploring DTC’s strategic role rather than treating it as another vendor, and by identifying where DTC could change how benefits are accessed instead of merely adding a channel. Clarify potential value for employees by testing faster access, improved convenience, better price transparency, reduced time away from work, improved engagement, more discreet access, and simpler navigation. Test value to the plan through site-of-care shift, reduced avoidable emergency care and urgent care, improved care continuity, better chronic condition control, improved satisfaction/retention, and reduced administration friction.
3. Implement comprehensive wellness and behavioral health programs that focus on preventive care, chronic disease management, and behavioral health to improve employee health and reduce utilization.
4. Advocate for policy and legislative changes. Engage in policy advocacy that supports supply controls such as certificate of need laws, uniform payment rates, and other regulatory reforms to contain costs, and collaborate with industry groups to influence legislation that fosters competitive market dynamics and transparency.
5. Prepare for economic downturns by designing benefit plans that preserve access while encouraging cost-conscious utilization during slowdowns or affordability challenges. Consider tiered networks, reference pricing, and high-deductible health plans paired with health savings accounts to manage changes in economic conditions.
6. Support access to innovative therapeutics and personalized medicine to improve outcomes and reduce long-term costs, and partner with providers to integrate new treatment protocols that prioritize value and effectiveness.
7. Enhance employee education and engagement by providing clear information on healthcare options, costs, and how utilization affects them so employees can make informed decisions, and by using digital engagement platforms to deliver personalized health insights and promote proactive health management.

Rising healthcare costs present complex challenges, but they are not insurmountable. By understanding the multifaceted drivers of cost trends and taking proactive, informed actions today, employers can help bend the cost curve and secure better health outcomes and financial sustainability for their workforce and organizations. Now is the time to act—explore these avenues, engage your partners, and lead the way toward a more affordable healthcare future.