Health plans expect the cost of treating patients to climb in 2027, projecting the highest medical cost trend in nearly two decades with a 9% rise in commercial health costs, according to a new analysis from PwC.
Payers are pointing the finger at several inflationary factors, including the increasing use of artificial intelligence tools by health systems, hospitals and medical practices. AI-enabled documentation and coding tools allow providers to capture greater specificity and reimbursable severity without proportionate increases in care intensity, according to PwC's report. As a result, payers see higher paid amounts per claim.
Seventy percent of health plans rank provider AI tools as a top-three cost driver. For example, more detailed note-taking leads to more itemized reimbursement claims, inflating costs for plans, according to the analysis.
Health plans also cite growing provider reimbursement pressure, rising pharmacy spending, particularly specialty drugs and higher-cost GLP-1 therapies and sustained growth in behavioral health utilization as utilization surged 62% from 2018 to 2024.
Health plans also blame ongoing regulatory pressures, with escalating out-of-network payment disputes under the No Surprises Act.
To project the growth of employer medical costs in the coming year, PwC health researchers surveyed and interviewed actuaries at 27 U.S. health plans throughout April and May 2026 to generate an estimate of the medical cost trend for the coming year. These plans cover more than 103 million employer-sponsored members and 8 million Individual Affordable Care Act (ACA) marketplace members.
As the costs of care continue to rise, it increases the cost of doing business for health plans. And PwC analysts note that historical cost trend deflators—biosimilars, generic drugs and site-of-care optimization—are not enough to materially impact the rising cost trend, while many health plans have already incorporated those into their baseline cost assumptions.
For the fifth year, health plan actuaries PwC surveyed anticipate medical cost trends for the Group and Individual markets to remain elevated. The Group medical cost trend is projected to be 9% in 2027, while the Individual market trend is projected to be 8.5%. The study also supports a restatement of the Group and Individual trends up for 2026 from 8.5% and 7.5% to 9.0% and 8.5%, respectively.
PwC analysts note that this trend is without the impact of the expiration of enhanced subsidies in the ACA Individual market.
Behind the primary cost drivers and recommended actions
Health plans need to prioritize cost-of-care levers to address these cost trends, according to PwC health researchers.
AI adoption: Providers are quickly adopting AI-enabled documentation and coding tools. For payers, more complete, detailed documentation can increase the capture of billable complexity, support higher-severity coding and raise reimbursement per encounter or admission under current payment models, PwC analysts wrote.
In the outpatient setting, more complete documentation can support higher evaluation and management (E/M) coding and higher paid amounts per visit. In the inpatient setting, a more complete capture of complications and comorbidities can shift admissions into higher-paying severity tiers.
A recent study of ambient AI scribe adoption at the University of California, San Francisco (UCSF) Health found that AI technology use was associated with higher relative value units (RVUs) per encounter, higher RVUs per week, and modestly higher ambulatory encounter volume, with no measurable increase in claims denials. These findings indicate that AI-enabled documentation can increase billing intensity and provider revenue without a corresponding offset through denial activity.
With the current environment, health plans need to focus payment integrity efforts upstream, the report said. "Payment integrity becomes less about post-payment recovery and more about confirming the validity of high-risk claims before payment is released," PwC health researchers wrote.
During pre-payment review, health plans should prioritize high-dollar inpatient claims, shifts in diagnosis-related groups (DRG), duplicate claims, unbundling, modifiers, genetic testing, durable medical equipment (DME), implant/device charges and fast-growing gray-zone services. "The goal is not more denials; it is more accurate payment before dollars leave the plan," PwC researchers wrote.
Provider reimbursement pressure: Provider price pressure is fueled by fundamental underlying inflationary forces that are amplified by provider market consolidation that weakens payer negotiating leverage, according to the report. Higher hospital and care costs, concentrated provider markets and provider-led revenue optimization contribute to higher reimbursement expectations across the healthcare system.
"For health plans, durable rate assumptions will require disciplined contracting, stronger visibility into contract performance, and targeted protections against reimbursement drift once contracts are in place," the health researchers wrote. "In some markets, that may also mean greater willingness to use out-of-network pressure, narrow network exclusion, or less preferential benefit design and steerage for providers that do not meet expectations set forth in negotiations."
Rising pharmacy trend: Drug costs remain one of the clearest sources of medical cost pressure, with the trend increasingly concentrated in a small number of high-impact categories. More than 85% of PwC's survey participants cited a 2027 pharmacy cost trend that was outpacing the overall medical trend.
Managing pharmacy trend will likely require more than traditional formulary controls, particularly as more high-cost therapies enter categories with limited substitutes and broader eligible populations, the report recommended. "Growing uncertainty around PBM transformation, transparency, and pricing reform adds another layer of complexity: Some of these changes may improve visibility into pharmacy economics, but their effect on underlying medical cost trend will likely depend on whether they materially alter net drug costs, formulary incentives, and specialty drug management, rather than simply redistributing savings within the supply chain," the researchers wrote.
Behavioral health demand: The use of behavioral health services increased 10% from 2023 to 2024 and surged 62% since 2018, according to Trilliant Health data.
Trilliant found that behavioral health visit rates increased from 828 to 1,346 visits per 1,000 people between 2018 and 2024. Prescription demand has risen alongside visit growth, with stimulant use up 53.3% and antipsychotic use up 45.4% over the same period.
For payers, access to behavioral health services and effective management can influence medical trends and affordability. "For large self-funded employers, the same dynamic extends beyond claims spend alone, with implications for absence, productivity, disability, and overall workforce health. It also reinforces the need to evaluate behavioral health vendors and point solutions not just on engagement, but also on their ability to improve access, redirect care to more efficient settings, and produce measurable impact on total cost of care," the researchers wrote.
Regulatory pressures: The No Surprises Act's Independent Dispute Resolution (IDR) arbitration process has become a reimbursement inflator, with providers winning 88% of disputes with payers in 2.6 million cases filed in 2025, according to the report.
PwC health researchers recommend payers pursue more direct control over out-of-network expenditures through refined reimbursement policies, targeted contracting provisions and network strategies designed to reduce dependence on nonparticipating providers in high-friction specialties and facility-based settings.