Madison-based M3 Insurance is putting a spotlight on rising healthcare costs for employers, noting its client base saw a 7.46% increase this year.
The insurer recently released the 2026 edition of “Momentum: An M3 Employee Benefits Trend Report.” It shows its clientele of about 2,000 employers across the country are currently spending $17,042 per employee per year on healthcare.
While the year-over-year change is smaller than last year’s average increase of 8.64%, this “meaningful moderation” is well above the rate of inflation and follows years of rising costs, report authors wrote. They note that increase being applied to the larger base spend is “a very different problem” than it would have been just five years ago.
Meanwhile, utilization is on the rise for mental and behavioral health services, treatment of musculoskeletal conditions and chronic conditions, the report shows. But the landscape is dominated by specialty drugs, making up 51.5% of total spending among M3 clients, the report shows.
“For the first time, the majority of what employers are spending on pharmacy is being driven by a relatively small number of high-cost medications,” authors wrote.
Importantly, this category doesn’t include GLP-1 weight loss drugs. Authors note the cost pressure associated with these treatments along with the rising share represented by specialty drugs “are two separate and compounding challenges employers are managing simultaneously.”
Though these drugs offer “genuine clinical benefit” for diabetes and weight management, they’re making up 3-5% of total healthcare spending and up to 20% of prescription drug spending for these employers.
When broken down by size, only the largest employers in the insurer’s client base had an average increase in per-employee spending this year that exceeded last year’s increase. For those with 500 or more employees, the average increase rose to 8.97% this year from 8.91% last year.
For those with between 250 and 499, the increase fell to 6.24% from 8.36%. Among employers with between 100 and 249 employees, the increase fell to 7.76% from 9.52%. And for those with 99 and fewer employees, it fell to 7.35% from 8.42%.
Authors say the overall trend is a “meaningful signal that employer action is having an effect” on their healthcare spend, pointing to some renegotiating pharmacy agreements and adjusting plan designs.
And though the increase seen among M3’s largest clients isn’t much larger than the prior year’s, authors say the trend is “worth watching closely” since it differs from all other groups.
“Large employers often have greater self-funded exposure, more complex plan designs, and higher concentrations of high-cost claimants,” authors wrote, adding “if you’re in this size band, the data is a signal to act with urgency, not wait for the market to stabilize.”
The report notes the impact of “catastrophic” claims exceeding $100,000 on healthcare spending by these large employers, especially around cancer and specialty drugs. For claims in this upper range, cancer is the top condition, representing about 26% of all high-cost claim spending and more than triple the amount of the next-highest category.
Factors driving this trend include more frequent cancer diagnoses, higher treatment costs linked to specialty medications and longer durations of treatment associated with higher survival rates for various forms of the disease.
“That last point is often overlooked,” the authors wrote. “Better outcomes are genuinely good news — but they also mean more months of high-cost treatment per patient.”
