Marsh (NYSE: MRSH) projects that total health benefit costs per employee for US employers will rise 8.2% on average in 2027. This marks the highest annual increase since 2003 and the fifth consecutive year of elevated growth following a decade of more moderate increases.

The preliminary results from Marsh’s 2026 National Survey of Employer-Sponsored Health Plans, based on responses from over 1,800 employers, indicate significant pressure on corporate budgets. Without intervention, employers expect current plan costs to surge by 11%.

Cost Drivers and Market Dynamics

Several factors are pushing medical cost trends above general inflation. Sunit Patel, Marsh’s US Chief Actuary for Health and Benefits, identified continued advances in diagnostics and therapeutics as a primary driver. While these treatments improve outcomes, they often cost more than the therapies they replace. Additionally, health system consolidation and lower government funding for public health programs are driving higher charges within employer plans.

Newer factors have emerged to push cost growth to levels not seen in decades:

• GLP-1 medications: Rising utilization of weight management drugs accounts for a full percentage point of the overall 2027 cost growth. Some employers seeking immediate relief have dropped this coverage.
• AI-enabled billing: Rapid adoption of AI software for claims submission has resulted in more claims being filed, including higher-level claims for reimbursement.
• No Surprises Act: Larger-than-expected payments to out-of-network providers through the Independent Dispute Resolution process are adding to costs.

Employer Response and Employee Impact

The pressure on healthcare budgets is likely to result in higher costs for employees in 2027. The survey found that 59% of employers plan to implement cost-cutting changes to health benefits, such as higher deductibles that increase members’ out-of-pocket expenses.

A separate Marsh survey conducted earlier this year revealed that about two-thirds of large employers (those with 500 or more employees) expect to increase employees’ share of premium costs next year. Consequently, many employees will see paycheck deductions for health coverage rise by more than the overall average cost increase of 8.2%.

Strategic Shifts in Plan Design

While many employers are shifting costs, others are exploring ways to control spending without burdening employees. Over a third of large employers plan to offer non-traditional medical plans in 2027, such as variable copay or high-performance network plans. These options typically feature lower deductibles and charge members less when they select top-performing providers.

Variable copay plans are gaining traction, with 12% of large employers planning to offer them in 2027. Among employers with 20,000 or more employees, this figure rises to 18%.

Guiding members to higher-quality care is becoming a priority. In the National Survey, 58% of large employers indicated that this strategy would be important or very important, up from fifth place in last year’s survey. Managing high-cost claims remains the highest priority, particularly as expensive new therapies for cancer and rare diseases reach the market.

What the Numbers Show

The divergence between the projected 8.2% cost increase and the 11% unchecked cost rise highlights the effectiveness of employer interventions but also underscores the severity of underlying inflation. With GLP-1 drugs alone contributing one full percentage point to the 8.2% total, specialized therapeutic utilization is now a quantifiable, material component of aggregate healthcare inflation, distinct from general medical trend rates.

US employers plan to set base salary merit increases at 3.2% for 2027, according to Marsh’s Mercer QuickPulse® US Compensation Planning Survey. The total salary increase budget stands at 3.5%, including promotions and cost-of-living adjustments.

The survey of 1,001 US organizations indicates that compensation budgets remain stable compared to actual increases reported in 2024, 2025, and 2026. Economic uncertainty continues to influence decisions, with 57% of employers expecting at least a moderate impact on their compensation strategies.

Sector-Wise Budget Variations

Merit budgets vary significantly across industries. High Tech leads with the highest planned merit increase at 3.8%, followed by Banking at 3.7%. Energy, Insurance/Reinsurance, and Non-Financial Services all plan for 3.6% increases. In contrast, Consumer Goods lag behind with the lowest budget at 2.9%, while Healthcare and Retail plan for 3.0%.

Promotion and Off-Cycle Trends

Promotion rates are expected to decline slightly in 2027. Employers plan to promote approximately 8.4% of their workforce, down from 8.6% in 2026 and 9.9% in 2025. This reduction suggests a tightening in career progression opportunities despite stable base pay budgets.

Off-cycle salary adjustments remain prevalent, with 64% of organizations providing or planning to provide them in 2027. This indicates that compensation management extends beyond the annual merit cycle, allowing firms to address talent retention needs dynamically.

AI Adoption in Compensation

AI and automation are increasingly integrated into compensation planning, though most organizations are in early stages. Nationally, 70% of organizations report at least some automation in compensation processes. However, only 1% have reached advanced levels of transformation.

AI is primarily used for:

• Market pricing recommendations and benchmarking (53%)
• Salary increase recommendations (50%)
• Job matching and leveling (49%)

Tauseef Rahman, Marsh’s US Workforce Reward Solutions Leader, noted that barriers to deeper AI adoption include governance, data quality, and system integration rather than lack of interest.

What the Numbers Show

The divergence between stable merit budgets and declining promotion rates highlights a shift in compensation strategy. While base pay increases remain consistent with previous years, the drop in promotion percentages from 9.9% in 2025 to 8.4% in 2027 suggests employers are becoming more cautious about expanding headcount or advancing roles, possibly due to economic uncertainty cited by 57% of respondents.

As of July 2026, 87% of organizations stated their 2027 salary budgets were still preliminary, with only 5% having secured final approval. This indicates that final compensation figures may still adjust before implementation.