M3 has produced an annual employee benefits trend report for over 20 years – this year’s Trend Report is different. In the past, our report has focused on plan design, highlighting premium changes and how high-deductible plan adoption has differed among employers of varying sizes, within the public and private sector, and geographically throughout Wisconsin.
Employee benefits have changed and so has M3’s Trend Report. Today, as an employer, you’re inundated with not only plan design choices, but innovative point solutions that promise immediate savings and a better employee experience. At the same time, you’re grasping for control of your health care costs in an environment where premiums continue to increase year-over-year (more on that later).
In a market like this, every solution can seem like a good solution. M3’s employee benefits team helps our clients think differently. We see the bigger picture, identifying and vetting new opportunities for our clients to make sense of the madness and create customized strategies that fit their unique employee populations, business goals, and talent attraction and retention efforts.
Our aim with this year’s Trend Report? To give you a sense of that M3 experience. In this report, we will help you understand today’s health care landscape and untangle the factors at play in rising costs, while sharing what we’re seeing innovative employers do to prepare for the years ahead.
The State of Employer Health Care Spend
Health care costs continue to rise year over year, creating growing pressure for employers and their workforce. While the drivers of this trend are complex, the financial impact is clear.
When looking at healthcare costs based on employer size, increases were largely similar, with one outlier – employers with 100-249 employees received a 9.52% increase on average compared to the other categories:
In response, many employers are seeking ways to play a more active role in shaping their health care strategies. Rather than passively absorbing cost increases, these organizations are exploring new options to manage spend, support employee well-being, and gain greater visibility into what drives their claims experience.
For those looking to take a more proactive approach, a growing number of tools and models are available, from alternative funding arrangements and direct primary care relationships to advanced analytics, pharmacy optimization, and value-based care arrangements. In the pages ahead, we’ll explore how innovative employers are adopting these and other emerging strategies to better control costs, improve employee well-being, and gain deeper visibility into the factors driving their claims experience. Understanding these evolving approaches will be essential as organizations prepare for the challenges and opportunities that lie ahead in 2026 and beyond.
Understanding Today’s Cost Pressures
Employers are preparing for continued cost acceleration in 2026 and beyond. But what’s driving these increases?
Key cost drivers include:
- Healthcare inflation, which is outpacing general inflation trends
- An aging population with growing care needs
- A rise in chronic conditions and behavioral health claims
- Specialty and brand name drugs driving pharmacy spend – particularly categories like GLP-1s
The downstream effects of these pressures show up in the data:
- Chronic condition claims (such as diabetes, hypertension, and coronary artery disease) are becoming more frequent and expensive
- Cancer treatment costs continue to climb due to new therapies and earlier detection
- Musculoskeletal surgeries, especially orthopedic procedures, are a growing cost category
- Behavioral health utilization remains elevated, with increased access demands and associated claims spending
How Employers Are Responding in 2025 and Preparing for 2026
Rather than waiting for cost pressure to ease, employers are actively reevaluating their benefits strategies, testing new models, fine-tuning existing ones, and stepping away from approaches that no longer deliver value. While no one strategy fits all, several emerging trends are gaining momentum, some approaches appear to be leveling off, and others are clearly declining in relevance. The following pages outline what we’re seeing in the marketplace – and where it’s heading.
Framework for Prioritizing Benefits Strategies
Not every trend will be the right fit for your organization – and that’s the point.
The most effective benefits strategies are those aligned with your population, goals, and risk tolerance.
As you evaluate the options in this report, consider how these factors might shape your next move.
| Consideration | What to Ask Yourself |
|---|---|
| Group Size & Structure | Do I have the scale or concentration to support certain models (e.g., onsite care, direct contracts)? |
| Claims Volatility | Are high-cost claims or chronic conditions driving our spend? Or, is trend more consistent and manageable? |
| Administrative Capacity | Do I have internal bandwidth or vendor support to implement and monitor new programs effectively? |
| Workforce Demographics | What do my employees value most: access, affordability, virtual care, cultural alignment? |
| Innovation Appetite | Are we ready to test new models, or is leadership looking for proven, lower-risk solutions? |
| Data Maturity | Am I using data to inform decisions, and do I have visibility into what’s driving costs today? |
Direct Contracting Models
Employers are beginning to move beyond traditional fee-for-service structures in pursuit of solutions that better align payment with outcomes.
One model seeing increased adoption is Direct Primary Care (DPC). This model offers a flat, per-member-per-month payment directly to providers, which can improve access, continuity, and affordability of care. Employers are drawn to its simplicity and focus on primary care engagement.
High-Performance Networks
To address cost and quality variation, some employers are implementing narrow or tiered networks.
- Narrow networks limit provider choice to high-value options
- Tiered networks steer members toward preferred providers using financial incentives
When paired with effective communication and employee engagement, these networks may promote better consumer choices and reduce unnecessary spending.
Variable Copay Plans
These benefit designs are structured to remove deductibles and coinsurance, replacing them with fixed copays that vary by provider or facility.
By rewarding employees who choose high-quality, lower-cost care, variable copay plans:
- Improve transparency around out-of-pocket costs
- Promote affordability for routine and high-value services
- Align financial incentives with better health outcomes
Point Solutions Informed by Data
Point solutions are everywhere, but only some are actually solving the problems that matter. The most successful implementations are grounded in employer-specific data and paired with ongoing measurement to ensure ROI.
Top solution areas gaining momentum in 2025:
- Digital musculoskeletal care
- Cancer and complex condition management
- Mental health support
- Diabetes and GLP-1 oversight
With the right analytic tools, employers can pinpoint gaps and align investments accordingly.
Pharmacy Optimization
Pharmacy trend continues to be one of the fastest-growing components of health plan spend, and it’s expected to remain a significant pressure point heading into 2026. In response, employers are seeking greater visibility, control, and clinical integrity in their pharmacy programs.
Key areas of focus include:
- Plan oversight and audits to validate pricing, discounts, and rebate performance
- PBM transparency through better contract terms and clearer revenue arrangements
- Clinical formulary management to ensure the right drugs are covered at the right cost
- Specialty drug oversight that expands access beyond PBM-preferred channels when clinically appropriate
Looking ahead to 2026, employers are also preparing for a new wave of pharmacy cost drivers:
- GLP-1 medications (e.g., Ozempic®, Wegovy®) continue to gain popularity for both diabetes and weight-loss indications, contributing to rising branded drug spend and raising questions about long-term coverage strategy.
- Gene therapies are entering the market with curative potential for rare conditions, but their multimillion-dollar price tags demand careful financial modeling, stop-loss evaluation, and risk-sharing considerations.
- Biosimilars are emerging as a cost-saving alternative to high-cost biologics, but successful adoption hinges on education, formulary alignment, and provider engagement and network access.
To stay ahead of these shifts, employers are increasingly partnering with independent pharmacy advisors who can benchmark spend, monitor emerging therapies, and offer guidance rooted in clinical and financial data. These strategies help ensure pharmacy programs remain both sustainable and responsive to employee health needs.
Advanced Care Navigation & Advocacy
As benefits ecosystems become more complex, employers are turning to advocacy and navigation solutions to guide employees through care decisions, claims issues, and provider selection. These tools help employees:
- Find high-value providers
- Manage chronic or complex conditions
- Understand benefits and costs in real time
When paired with strong communication and clinical integration, care navigation can improve the member experience while reducing unnecessary spend.
Social Determinants of Health (SDOH) Strategy
Employers are increasingly acknowledging that factors outside the traditional health plan, such as transportation, housing, food access, and language barriers, can significantly influence employee health outcomes and healthcare costs.
While still an emerging area, some employers are beginning to incorporate SDOH considerations into their benefits strategy through:
- Transportation support for medical appointments
- Culturally competent and bilingual care access
- Community-based partnerships or wraparound services
- Data integration to identify and address population-specific gaps
These efforts are early-stage for many organizations, but they reflect a broader shift toward addressing whole-person health and reducing barriers that impact both engagement and outcomes.
Alternative Funding Arrangements
As cost and complexity rise, more employers are reconsidering how they pay for health care. Interest is growing in models like:
- Level-funded plans
- Captive arrangements
- Traditional self-funding
Each offers different degrees of risk, flexibility, and data access. For employers equipped to manage the tradeoffs, alternative funding can open doors to customized plan design, targeted vendor partnerships, and better control over long-term trends.
Onsite & Nearsite Clinics
Interest in onsite and nearsite care models remains steady, especially in industries with concentrated employee populations or limited provider access. These clinics can deliver:
- Lower-cost, employer-controlled primary care
- Integrated wellness and preventive services
- Improved engagement for chronic condition support
However, adoption has leveled off for some employers due to startup costs and challenges in driving sustained utilization.
“Check the Box” Wellness Programs
Programs that rely on step challenges, wellness portals, or health risk assessments continue to have a place in many organizations, particularly as entry points into broader wellness strategies. However, these tools alone are no longer seen as innovative or leading-edge, especially when they lack clinical integration or measurable outcomes tied to individual progress.
Today, more employers are expanding their approach to focus on building a culture of health and supporting healthcare consumerism – emphasizing preventive care like age-appropriate screenings and primary care utilization. While ROI is difficult to quantify for general wellness efforts, value on investment (VOI) remains strong when programs are aligned with workforce needs, foster sustained engagement, and contribute to long-term risk mitigation. For chronic condition management programs, measurable ROI becomes more achievable through targeted, data-driven interventions.
HDHPs as the Only Plan Option
While high-deductible health plans (HDHPs) remain a popular component of many benefit strategies, fewer employers are offering them as a standalone option.
Rising out-of-pocket costs have prompted renewed focus on affordability, leading to increased interest in copay-based, variable copay, or value-based designs that offer better upfront cost transparency and improved employee experience.
One-Size-Fits-All Telehealth
Basic, stand-alone telehealth platforms that offer episodic, generalist care are seeing reduced employer investment. Instead, employers are prioritizing virtual care models that are integrated, condition-specific, or tied to navigation and primary care. The shift reflects growing expectations that virtual care should drive long-term value, not just convenience.
