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US health insurance costs are expected to rise sharply in 2027, placing additional financial pressure on employers and households as millions of Americans abandon individual coverage.
According to Aon, employer-sponsored healthcare costs are projected to increase 9.5% in 2027, pushing average annual costs above $19,000 per worker. Insurers participating in Affordable Care Act (ACA) marketplaces have proposed a median premium increase of 15%, according to KFF.
- US employer health insurance costs are projected to increase 9.5% in 2027, surpassing $19,000 per employee, while ACA marketplace insurers propose median premium increases of 15%.
- Individual health insurance enrollment fell by more than 4.5 mn people, from 25.2 mn in 2025 to 20.5 mn by mid-2026, reflecting higher costs and changes to federal subsidies.
- A proposed healthcare financing model would separate universal catastrophic insurance from routine care, using portable coverage, individual tax advantages and transparent cash-pay services.
The individual insurance market has already experienced a substantial decline in participation. Enrollment fell by more than 4.5 mn people, or 18%, from 25.2 mn in 2025 to 20.5 mn by mid-2026.
The decline, the steepest in a decade, has been driven by the expiration of enhanced federal premium tax credits introduced during the COVID-19 pandemic and subsequent federal policy changes.
These developments have intensified questions about whether the structure of US healthcare financing remains suited to modern medical treatment, particularly as expensive therapies increasingly require sustained rather than occasional spending.
Why employer-sponsored health insurance faces structural pressure
Insurers, hospital consolidation and pharmaceutical pricing all contribute to rising healthcare costs. The underlying financing model, however, presents another challenge.
Employer-sponsored health insurance developed partly from wage restrictions imposed during World War II, when employers increasingly used tax-advantaged benefits to compensate workers.
At that time, the medical treatments available were relatively limited. Insurance primarily helped households manage unpredictable hospital expenses, while many serious diseases had few effective interventions.
Pooling premiums across large groups was well suited to protecting individuals against relatively infrequent, costly medical events.
Modern medicine operates under different conditions. Targeted biologics, gene therapies and GLP-1 medications have expanded treatment options for chronic and serious diseases. Some treatments can materially alter disease progression, while others may require long-term or lifelong use.
This creates a financing problem for insurance systems originally designed around unpredictable events. When a substantial share of the population requires continuous, expensive treatment, healthcare spending becomes less exceptional and more predictable.
Funding lifelong maintenance therapies for potentially half the population through conventional insurance arrangements places increasing pressure on premiums and cost-sharing mechanisms.
Employers and insurers have responded partly by transferring more expenses to workers through higher deductibles and other out-of-pocket obligations.
As a result, some Americans retain insurance coverage but avoid medical appointments or treatment because they cannot afford the costs they must pay themselves.
Universal catastrophic coverage and cash-pay healthcare
One proposed structural reform would divide healthcare financing into two separate systems: universal catastrophic insurance and a transparent market for routine medical services.
Under the first component, every American would receive baseline protection against major medical expenses, regardless of employment status.
This coverage would protect households against potentially devastating costs associated with cancer treatment, major surgery, intensive care admissions and advanced therapies, including gene treatments costing $1 mn.
The objective would be to preserve insurance for financial risks that individuals cannot reasonably manage through ordinary income or savings.
The second component would address routine and preventive care through direct payments rather than conventional insurance reimbursement.
Primary care appointments, diagnostic testing and maintenance medications would operate within a more transparent cash-pay market, where patients could compare prices and purchase services directly.
The argument for this approach is that routing predictable medical expenditure through third-party insurers introduces administrative costs and obscures prices through negotiated agreements between insurers and healthcare providers.
Direct competition for patients could reduce some of those expenses and improve price transparency.
GLP-1 drug prices offer an example of direct-pay competition
The market for GLP-1 medications illustrates the potential effects of direct consumer purchasing.
As insurers restricted coverage and employers expressed concerns about the cost of the drugs, manufacturers and other providers developed direct-to-consumer payment options.
Over the past two years, competition for cash-paying patients has coincided with a substantial reduction in advertised treatment prices.
Monthly GLP-1 treatment costs that previously exceeded $1,500 now have starting prices around $150, according to research published in the Journal of Medical Internet Research.
These figures illustrate the availability of lower-priced treatment options rather than establishing that every medication or treatment arrangement has experienced an equivalent reduction.
The broader policy argument is that transparent pricing and competition can improve affordability for certain categories of care without requiring every transaction to pass through an insurer.
Tax reform could separate health coverage from employment
Implementing such a system would require changes to the tax treatment of health insurance.
Current arrangements provide substantial tax advantages to employer-sponsored health plans, reinforcing the role of employers in selecting and financing coverage.
An alternative would direct tax benefits to individuals, allowing them to purchase portable catastrophic insurance alongside flexible accounts for routine and preventive healthcare expenses.
These accounts could be used for services and medications purchased directly, giving patients greater control over everyday healthcare spending.
A more immediate reform would address how cash payments interact with insurance deductibles.
Under the proposed rule, whenever a patient pays cash for a medical service at a price equal to or below the insurer’s negotiated rate, that expenditure would count toward the patient’s annual deductible.
This would reduce the financial disadvantage of purchasing care directly when cash prices are lower than those available through insurance arrangements.
The proposal would also preserve catastrophic protection while reducing the reliance on insurance intermediaries for predictable healthcare expenses.
With individual market enrollment down by more than 4.5 mn people and annual employer healthcare costs projected to exceed $19,000 per worker, the financial pressures behind the reform debate are substantial.
Separating protection against catastrophic medical expenses from the financing of routine care would represent a fundamental departure from the employer-sponsored model. Its central policy challenge would be establishing universal protection while making everyday treatment affordable through direct purchasing, transparent pricing and individual tax benefits.
