Health Care Cost Management: 3 Key Levers for Employers

Effective health care cost management has become a pressing priority for today's employers as costs continue to rise. For large employers, that pressure is significant: 80% of covered workers at firms with 200 or more employees are enrolled in self-funded health plans, according to the 2025 KFF Employer Health Benefits Survey.¹ 

At the same time, health care costs are entering another period of elevated growth. According to the latest available data from Mercer's National Survey of Employer-Sponsored Health Plans,² total health benefit cost per employee was projected to increase an average of 6.5% in 2026. 

For self-funded employers, managing that growth may involve more than simply shifting costs to employees. Employers may benefit from understanding where their health care dollars are going, which benefits and vendors are producing value and where employee behavior may be contributing to unnecessary costs. 

In this article, we'll look at how current trends—including specialty pharmacy expenses, mental health utilization and multigenerational workforces—are changing the way employers need to think about cost management strategies. 

Rather than focusing on a single cost-saving method, we’ll look at three primary levers through which self-funded employers can manage health care spending: 

• Plan Design 
• Vendor Management 
• Employee Engagement 

3 Trends Impacting Self-Funded Employer Health Plans 

In 2025, the average annual premium for employer-sponsored health coverage was $9,325 for single coverage and $26,993 for family coverage, according to KFF.(1) Family premiums increased 6% in a single year and have increased 26% since 2020. The rise in premiums isn’t due to a single factor, but a variety of health care and workforce trends. Here’s a look at three of those trends and how they’re affecting overall health plan costs. 

1. Pharmacy costs and usage are increasing. 

The Benefitfocus State of Employee Benefits Report 2026³ found that pharmacy expenses represented 29.5% of total employer health care spending in 2025, up from 27.2% the previous year. Prescription spending increased 10.9% per covered individual year over year. 

The problem isn't simply the number of prescriptions being filled. High-cost medications account for a disproportionate share of spending. The report also revealed that specialty drugs represented only 1.4% of prescriptions but 35.9% of prescription spending. 

GLP-1 medications have added another layer of complexity. In the Benefitfocus population, the percentage of members taking GLP-1 medications increased from 5.1% in 2024 to 6% in 2025, while GLP-1s' share of overall prescription spending increased from 17.5% to 20.3%. Annual spending for members taking GLP-1 medications was nearly $7,400 per member. 

National employer data shows why this has become a plan-design issue rather than simply a pharmacy issue. In 2025, KFF¹ reports 43% of firms with 5,000 or more employees covered GLP-1 agonists when used primarily for weight loss, up from 28% the year before. 

2. Demand for mental health treatment is increasing. 

Mental health is another important part of the changing cost picture. The Benefitfocus data shows that mental health conditions affected 21.7% of members, with mental health prevalence increasing 0.6% year over year. Members with mental health conditions accounted for approximately $1.6 billion in total plan spending, or $12,762 per member per year. 

Although an increased prevalence of 0.6% year over year may seem small, it’s important to consider the impact on cost. According to UnitedHealthcare's “7 trends shaping employer benefits strategies in 2026”⁴, mental health appeared among the top conditions driving employer health care costs for the first time. This shift reflects both increased utilization and the growing recognition of mental health needs across workforces. 

3. Multigenerational Workforces are creating plan complexity. 

In addition to these health care trends, employers are managing increasingly multigenerational workforces. The Benefitfocus data shows meaningful differences in health conditions, preventive care use, health plan preferences and benefits needs across generations. Baby Boomers, for example, have substantially higher clinical complexity, while younger generations show different patterns of mental health, reproductive health and preventive-care utilization. 

That means employers increasingly need to balance cost management with benefits strategies that recognize different health needs, financial circumstances and preferences across the workforce. 

So how can self-funded employers keep costs down while also making sure health care remains affordable and useful for employees? 

3 Health Care Cost Management Levers 

When we're working with our clients at Benefitfocus on data analytics strategies for health care cost control, we typically look at three major cost management levers: 

1. Plan Design 

There are a number of adjustments that self-funded employers can make to their health plan design to manage costs. These include changes to the type or structure of the plan, such as offering a PPO alongside a high-deductible health plan (HDHP), as well as changes to employee cost sharing through premiums, deductibles, coinsurance and out-of-pocket maximums. 

But plan design is no longer simply about choosing between a PPO and an HDHP. Employers must also make increasingly consequential decisions about how benefits address high-cost medications, behavioral health, chronic conditions and access to appropriate care. 

For example, employers covering GLP-1 medications for weight loss are increasingly considering eligibility criteria, utilization management, lifestyle-support requirements and other approaches to managing the financial impact of these medications. KFF¹ found that 34% of employers covering GLP-1s for weight loss required enrollees to participate in a dietitian, case-management, therapist or lifestyle program in order to receive coverage. 

Plan design decisions should therefore be based on an understanding of how employees actually use their benefits—not simply on assumptions about how a particular plan design will affect costs. 

Increasingly, employers can use AI-powered health care cost analytics to identify patterns across claims, utilization and plan data that may otherwise be difficult to detect. AI-enabled analytics can help benefits teams surface emerging cost drivers, segment populations and identify potential opportunities for intervention—supporting a more proactive approach to health plan cost management. 

Predictive modeling for health plan management can help employers move beyond analyzing what happened last year to evaluating what different plan decisions could mean in the future. By modeling claims and utilization under alternative plan designs, employers can estimate potential financial impacts before making changes. 

One of the primary ways Benefitfocus helps our clients do this is through experience-based plan modeling tools. 

Integrated into Health Insights, these tools allow employers to evaluate potential changes to health plan design. With the ability to re-adjudicate current claims data, users can review current-year plans, test different scenarios and analyze the potential financial impact of plan design changes. 

This can translate into: 

• More informed forecasting. By analyzing current claims data across a comprehensive set of plan design variables and incorporating inflation, employers and their advisors can develop projections of future health care costs. 
• Potential time savings. Designing health plans manually can be time-consuming and confusing. With experience-based plan modeling tools, employers and brokers can build and test new plan scenarios more efficiently. 
• Greater visibility into financial impact. These tools provide financial analysis of current health plans versus alternate designs, enabling employers and brokers to understand the potential impact of changes on both employer and employee spending. 

2. Vendor Management 

Self-funded employers work with a wide range of vendors to achieve strategic goals for their health plans. Those vendors can generally be organized into three categories, each with its own cost-management opportunities: 

• Carrier/Third-Party Administrator (TPA): Population risk by segment, plan steerage, benefit constraints and direction to cost-control partners. 
• Providers/Networks: Service pricing, care settings, provider quality and utilization, including prescription drug management. 
• Medical Management: Year-round engagement and education, targeted engagement with at-risk members, condition management and measurement of outcomes. 

The challenge is that employers can accumulate vendors without necessarily having a clear picture of whether each one is producing measurable value. 

Establishing health plan key performance indicators (KPIs) can help employers turn that visibility into accountability. Depending on the strategy, useful measures may include KPIs such as: 

• Per-member-per-month costs 
• Utilization rates 
• Avoidable emergency department visits 
• Specialty drug spending 
• Preventive-care utilization 
• Employee engagement 
• Health outcomes 

Tracking these measures over time can provide a clearer picture of whether cost-management strategies are delivering the intended results. 

That challenge is particularly important as employers respond to pharmacy costs. The State of Employee Benefits Report 2026³ found that specialty drugs accounted for 35.9% of prescription spending while representing only 1.4% of prescriptions. 

Specialty drug cost containment strategies may involve a combination of utilization management, site-of-care optimization, specialty pharmacy management and careful evaluation of high-cost therapies. Employers can also use claims data to identify prescribing and utilization patterns, compare costs and determine where clinical or plan interventions may help reduce unnecessary spending without creating barriers to appropriate treatment. 

Traditional strategies such as encouraging generic substitution are less effective when many of the highest-cost drugs have no generic equivalent. In those cases, employers may need to examine procurement, sourcing, utilization management, specialty pharmacy arrangements and clinical criteria—not simply whether employees are taking the medication. 

Provider and network strategy can similarly affect costs. KFF¹ reports that 15% of firms with 50 or more employees offering health benefits had a high-performance or tiered network in their largest-enrollment health plan in 2025, while 8% offered a narrow-network plan. Among firms with 5,000 or more employees, those figures were 24% and 17%, respectively. 

Health care utilization benchmarking gives employers another way to identify opportunities for intervention. By comparing utilization patterns across populations, providers, services and time periods, benefits teams can identify unusual patterns, establish appropriate benchmarks and determine where additional investigation or targeted engagement may be warranted. 

As with plan design, employers need data that allows them to evaluate whether vendors and network strategies are actually improving outcomes, steering employees toward appropriate care and producing a meaningful return on investment. 

Measuring vendor ROI requires more than comparing a vendor's fees with projected savings. Employers should establish a baseline, define measurable objectives and track changes in costs, utilization and outcomes after implementation. This makes it possible to determine whether a vendor is actually improving health plan performance—and whether the relationship should be expanded, adjusted or reconsidered. 

3. Employee Engagement 

Health care cost management doesn't end with the plan document. 

Employees ultimately make decisions about where, when and how they receive care and those decisions can have a significant financial impact on both employees and employers. 

Effective population health management best practices start with understanding which health conditions, utilization patterns and populations are driving costs. Rather than applying the same intervention to everyone, employers can use population-level data to identify higher-risk groups, target appropriate resources and support preventive care and chronic-condition management. 

The Benefitfocus State of Employee Benefits Report 2026³ provides a clear example. 

Nearly one-third (32.1%) of members in the Benefitfocus population lacked a primary care provider, an increase of 1.9% from the previous year. At the same time, 64% of emergency department visits were classified as non-emergent or treatable by a primary care provider. The average cost of an emergency department claim was $498, compared with $99 for an office visit and $53 for an urgent care visit. 

Those numbers point to an important opportunity: helping employees understand not only what benefits they have, but how and when to use them. 

And the opportunity is not necessarily the same for every employee. 

Benefitfocus found differences in emergency department utilization across generations, with Millennials accounting for 29.2% of non-emergent ED visits, Gen X accounting for 25.6% and Gen Z accounting for 25.4%. 

A multigenerational workforce therefore requires more than a single annual open-enrollment communication. Employers may need to tailor education and engagement around different health needs, life stages and patterns of benefits utilization. 

For example, younger employees may find value in more education about establishing a primary care relationship and navigating mental health benefits, while older employees may benefit from more targeted support around chronic-condition management and preventive care. 

Employee healthcare navigation and decision support can help employees make more informed choices throughout the health care journey, not just during open enrollment. Tools that help employees understand their benefits, compare care options, estimate costs and find appropriate providers may reduce confusion while supporting more informed use of the health care system. 

At Benefitfocus, one of the ways we help clients drive health literacy is through engaging decision-support tools embedded into the health plan enrollment experience. When weighing plan options, employees can consider their own prior-year claims and utilization data and estimate their total out-of-pocket costs under each plan. 

This can offer employees additional information when making enrollment decisions, while also giving employers a way to connect plan design with actual employee behavior. 

Putting the Three Levers Together 

Self-funded employers have a significant stake in managing the health and health care costs of their populations. 

But today's cost-management challenge is more complicated than simply increasing deductibles, negotiating with vendors or encouraging employees to choose lower-cost care. 

Employers are navigating rapidly rising pharmacy costs, specialty medications, expanding GLP-1 utilization, increased behavioral health needs and a workforce spanning multiple generations. 

One approach is to consider all three levers together: 

• Plan design can determine how benefits are structured and how financial incentives influence utilization. 
• Vendor management can help employers identify and address unnecessary costs while demanding greater transparency and measurable results from partners. 
• Employee engagement can help employees understand their benefits and make informed decisions about where, when and how to receive care. 

The common thread connecting all three is data. 

With the right insights, self-funded employers can identify where costs are rising, understand which populations and services are driving those costs, evaluate potential interventions and measure whether those interventions are producing results. 

In an environment where health care costs continue to rise, that visibility can help employers balance two goals that are increasingly difficult to separate: controlling health care spending while helping employees get the care they need. 

Managing health care costs as a self-funded employer can be complex. Rising pharmacy spend, increasing mental health treatment utilization and a multigenerational workforce can create pressure that calls for a thoughtful, data-driven response. Considering plan design, vendor management and employee engagement together, with data connecting each lever, may help employers address these challenges. 

Download the Benefitfocus State of Employee Benefits Report 2026 today and learn more about the cost drivers shaping benefits programs today and practical strategies to help manage them.