I expect a 10 percent jump in health care services. More for knock-on impacts.
Companies Jacking Up Prices Again
Healthcare costs is one reason why. The other is tariffs.
The Wall Street Journal notes The Break Is Over. Companies Are Jacking Up Prices Again.
Some companies have pointed a finger at tariffs for their increases, while others, especially small businesses, also blame higher wages and hefty health-insurance costs that firms said they can’t absorb or share with suppliers.
Structural Systems Repair Group, a Cincinnati-based construction company, is taking a 10% to 15% increase in prices that will show up in new contracts this year.
SSRG typically absorbs increases in materials costs totaling 5% or less, but tariffs pushed steel prices up by 10% last year, said Bryan Erickson, the company’s president. SSRG’s healthcare costs for its 115 employees increased by a similar amount, he said.
“It’s not sustainable for us to tolerate that kind of increase without some sort of concession from our customers,” said Erickson, whose company adapts and maintains parking garages, stadiums and other structures.
Atomic Object, a Grand Rapids, Mich.-based digital software consultant, raised the hourly rate it charges its customers to $200 this year, after boosting rates to $195 an hour from $180 an hour at the end of 2024.
The company’s health-insurance premiums jumped by 14% this year after climbing by 12% in 2025, and now equal nearly 10% of revenue, up from about 5% three years ago.
There were two three key ideas in the article. One of them is indirect. I have been talking about one of the ideas repeatedly.
Three Key Ideas
Tariff-Related Price Hikes Will Hit in 2026
Medical Care Costs Rising for Everyone
Companies Hiking Prices to Offset Healthcare
I have discussed rising medical care costs for everyone, point number 2, multiple times. The knock-on impact of point 2 is point number 3, which I did not discuss.
The article did not discuss point number 2.
The net impact of these ideas is greater than the article projected or that I mentioned previously for point two alone.
Impact on CPI and PCE
The impact of points 1 and 3 will be immediate on both the CPI and PCE
The impact of point 2 will be immediate on the PCE but spread out over a year on the PCE.
Medical care services is about 17 percent of the PCE but only 7 percent of the CPI.
Business Group Health Care Services
Business Group on Health Survey projects 9% Health Care Cost Increase for 2026
Employers predict that health care cost trend increases for 2026 will come in at a median of 9%, offset to 7.6% with plan design changes. These somber forecasts come as more employees use GLP-1s for obesity, receive cancer diagnoses and use mental health services, the survey showed. On a compounded basis, costs in 2026 are likely to be 62% higher than 2017 levels.
“In this challenging environment, employers remain firmly committed to an ongoing investment in employee health and well-being,” said Ellen Kelsay, president and CEO of Business Group on Health. “Yet they will need to make bold and strategic moves to contain costs, sometimes disrupting health care models along the way.”
If the BLS and BEA adjust for plan changes (reduced coverage), the corporate plans will average 9 percent higher.
If the BLS and BEA cheat, the hike will be 7.6 percent or so. That projection was made in August.
Employers Project 10% Jump in Health Care Costs for 2026
SHRM reports Employers Project 10% Jump in Health Care Costs for 2026
Driven by catastrophic claims and costly specialty and prescription drugs including popular GLP-1 injectable medications, employers are bracing for a double-digit increase in health care costs next year.
Organizations are projecting a 10% hike in health care costs in 2026, according to new data from the International Foundation of Employee Benefit Plans (IFEBP), a nonprofit organization based in Brookfield, Wis., with 31,000 employer members. The increase in expenses is up from the 8% rise employers projected for 2025 and in line with other recent estimates for health care costs from benefits and employer organizations.
Health care costs are consistently a pain point for employers, but the figures show an even steeper trajectory for costs next year, indicating that organizations may turn to cost-sharing and other strategies in an effort to help.
“Uncertainty around future trends in employer costs remains high, particularly as it relates to rising health care costs,” said Andrea Medici, labor economist at SHRM. “The interplay between slowing wage growth and rising health care expenses presents a nuanced outlook for employers.”
Cost-sharing is the top strategy employers are turning to, according to IFEBP, with 27% of employers saying that they are passing more costs to employees by raising deductibles, co-pays, and premiums for their workers. That’s up from 21% from employers surveyed last year.
IFEBP further noted that, to hold down costs, employers are also looking at plan design initiatives such as conducting dependent eligibility audits and offering high-deductible health plans (cited by 17% of employers, up from 15% last year), and implementing purchasing or provider initiatives such as telemedicine, price transparency tools, and centers of excellence (17%, up from 9% last year)
Small Business Health Insurance Premiums Could Rise 11% in 2026
Health System Tracker explains How much and why premiums are going up for small businesses in 2026
For 2026, the median proposed premium increase among 318 small group insurers across all 50 states and the District of Columbia is 11%. A more detailed review of filings from 16 states and D.C. shows that insurers cite rising healthcare costs as a primary driver of premium increases. Other contributing factors include higher prescription drug costs and utilization, rising labor expenses, and overall economic inflation. Some insurers also note declining enrollment and worsening risk pool morbidity as factors leading to higher projected costs next year.
Why Are Premiums Going Up?
Healthcare Costs Are Rising
Insurers note that the costs of services such as hospitalizations, physician care, and prescription drugs continue to rise annually, which prompts premium adjustments to keep pace with increased expenditures. For 2026, insurers commonly estimate the underlying increase in the cost of healthcare (medical trend, which is a function of price and utilization) is about 9%.
Inflation & Labor Shortages
Some insurers cite broader economic factors, including general inflation and labor shortage, as contributing to increased provider reimbursement rates, which in turn place additional financial pressure on insurers and drive up premiums. A handful of insurers have also pointed to increased provider consolidation as a factor reducing market efficiency and raising reimbursement rates.
Tariffs on Medical Supplies
Some insurers also highlight the potential impact of tariffs, which can raise the cost of pharmaceuticals and medical supplies. When acknowledging the possibility of tariff-driven cost increases, some insurers chose to factor that uncertainty into their rates, while others did not. Of the 96 insurers with filings reviewed in more detail, 23 mentioned the potential impact of tariffs in their rate setting.
High-Cost Medications
Consistent with premium changes in the individual market, the increasing cost, prevalence, and utilization of GLP-1s and other specialty drugs are frequently mentioned by insurers in justifying proposed rate increases. 27 insurers of the 96 insurer filings reviewed in greater detail mentioned the impact of GLP-1s on premiums. To mitigate their upward pressure on premiums, some insurers have decided to exclude coverage of GLP-1s for weight loss purposes for 2026.
Market Instability
Recent volatility in the small group market has been caused by decreases in enrollment for small group plans and a simultaneous increase in relative costs for the remaining risk pool. Insurers point to several pressures destabilizing the ACA small group market through enrollment declines and worsening risk pool health, including competition from relatively lower-cost individual and self-insured options, and state stop-loss rules that can make self-insurance a more attractive alternative for small employers.
Costs employers pass on to employees will immediately be picked up by the PCE, but will be spread out for the CPI.
And the CPI will ignore employer costs totally.
Decreased coverage (worse plans than before) should be picked up by the BEA and BLS as a negative hedonic adjustment. However, this is one key spot for for easy manipulation.
Obamacare Premiums
Peterson KFF reports Higher Premium Payments or Higher Deductibles: The Tradeoffs ACA Enrollees Face
The Affordable Care Act (ACA) enhanced premium tax credits expired on January 1st, 2026, causing premium payments to increase significantly for many Americans enrolled in ACA exchange plans. The Congressional Budget Office (CBO) projected that a permanent extension of the enhanced tax credits would increase the number of people with health insurance by 3.8 million in 2035. Without the extension, the CBO anticipated insurers on the individual market would raise rates with the expectation that some healthier people would drop coverage rather than pay a significantly higher monthly amount. The total number of people who have enrolled in the ACA Marketplaces and paid for at minimum one month of coverage won’t be available until the summer of 2026.
To keep the same plan as last year, KFF estimates that enrollees’ contributions to their premium payments will increase by an average of 114%, net of premium tax credits. According to a recent KFF poll, most Marketplace enrollees are expected to maintain some form of health insurance coverage in spite of rising premiums payments and, so far, available data suggests that signups remain strong. However, 70% of respondents stated that, if premium payments for their current coverage doubled, they would likely look for a different Marketplace plan with a lower premium and higher out-of-pocket expenses. Enrollees could generally find a less expensive premium by switching to a lower metal tier plan with a higher deductible. This brief explains the tradeoffs that exist when individuals switch between silver and bronze plans.
Once again we have a potential for manipulation by the BLS and BEA.
Paying the same for less coverage is a cost increase. It’s wait-and- see if the BLS and BEA play any games.
If so, we may not even know unless there is a whistle blower.
Medicare Premiums
The Center for Retirement Research reports Higher Medicare Premiums Will Eat Up More than 25% of Social Security’s COLA
In November, the Centers for Medicare & Medicaid Services announced that the Part B premium will rise from $185 in 2025 to $202.90 per month in 2026. This 10-percent increase means that the base premium will exceed $2,400 next year. Moreover, Part B premiums as a share of annual Social Security benefits – defined as the benefit for the retired workers with average pre-retirement earnings – will reach an all-time high of 9.4 percent (see Figure 1). The increase in 2026 will also eat up over a quarter of Social Security’s 2.8-percent cost-of-living adjustment.
Of course, Part B premiums are not the only healthcare-related retiree costs. Under Part A, which covers inpatient hospital care and is financed primarily by the payroll tax, beneficiaries will face a deductible of $1,736 in 2026. Medicare Part B beneficiaries, in addition to the monthly premium discussed above, will face a deductible of $283. Finally, in Part D, which covers drugs, beneficiaries face another premium, which varies by plan, and an income-related premium, which is deducted directly from their Social Security benefit. Because Medicare’s out-of-pocket costs can be quite high, many enrollees buy supplemental insurance, which can involve yet additional premiums.
Ignoring these large omissions from Medicare coverage, it is still interesting to know how much Social Security income retirees have for other expenditures after paying their medical costs. My colleagues made this type of calculation using data from the 2018 Health and Retirement Study. Figure 2 presents a rough update of their findings to account for the fact that the Part B premium as a percentage of the average Social Security benefit will be 9.4 percent in 2026 compared to 8.3 percent in 2018. While this ad hoc adjustment will probably make the authors cringe, the results show that the share of Social Security income remaining after out-of-pocket medical spending is 71 percent for the median beneficiary. For those at the 25th percentile in terms of Social Security income, the share remaining for non-medical expenditures is only 52 percent, and for those at the 75th percentile in the distribution, the remaining share is 81 percent.
Health Care Increase Synopsis
Medicare: 10 Percent Increase (PCE immediate, CPI spread out)
Corporate Increase 9.6 percent, if honest. If not, perhaps 7.6 percent. (PCE Only, No CPI Impact)
Obamacare: 114 percent if honest. But again, there is the possibility the BLS and BEA ignore reduced coverage (PCE immediate, CPI spread out)
I stick with a 10-12 percent Health Care Services increase, mostly hitting at once in the PCE and spread out over a year or more in the CPI.
At a PCE weight of 17 percent, a 10 percent increase would have an immediate 1.7 percentage point impact.
I did not factor in potentially big knock-on inflation impacts of companies hiking prices of goods and services to offset the increased cost of medical care benefits.
Related Posts
January 14, 2026: The Fed Has Missed Its Inflation Target on Ten Different Measures
The Atlanta Fed tracks various inflation targets. Let’s have a look.
January 21, 2026: Expect a Big Divergence This Year Between CPI and PCE Inflation
Rent and Healthcare go different ways in 2026. Plus there are huge timing issues.
February 16, 2026: The Tariff Delay Is Now Over, Companies Start Hiking Prices Again
Hello consumers, expect higher prices in the high single digits on many items.
There are 24 million people on ACA, and a majority of them are in Republican states.
For Obamacare discussion, please see my December 7, 2025 post How Much Will 4.5 Million Florida Residents Pay for Obamacare in 2026?
Here’s some interesting health care math on Obamacare in Florida.
What About Overall Health Care Costs?
Good question. I addressed that issue on December 8, 2025 in Health Care Inflation Bomb Makes the Fed’s 2 Percent Target Almost Impossible
Let’s discuss 2026 health care premiums and what they mean to the Fed’s preferred measure of inflation.
I project increases in health care will add 1.4 to 1.6 percentage points to headline PCE inflation before food, energy, shelter, or tariffs move prices at all.
And it’s the PCE, not the CPI that will have the Fed’s attention.