As 2026 gets underway, employers are facing a perfect storm: rising healthcare costs, shifting ACA affordability rules, and growing pressure to balance budgets without overburdening employees. One of the most significant updates is the increase in the ACA affordability percentage from 9% to 9.96%, as indexed annually by the IRS, which is the highest level to date. While this change gives employers more flexibility on paper, it may create new challenges for employees, especially hourly and lower-wage workers.
The Affordability Threshold: A Closer Look
So, what does the affordability increase actually mean? Under the ACA, employers must ensure employee-only coverage is considered “affordable” based on a percentage of wages. In 2025, an employee earning $14 per hour could be charged a maximum of $164.16 per month for health insurance premiums (based on 130 hours per month). In 2026, that same employee could be charged up to $181.27 per month.
While this shift helps employers offset rising premium costs, it could come as a surprise to employees already stretching their paychecks. The impact is especially significant when you consider that only 63% of hourly workers report being able to afford the healthcare their families need without financial hardship, compared to 83% of salaried employees, according to Mercer.
Medical Costs Continue to Rise
At the same time affordability thresholds are increasing, overall healthcare costs show no signs of slowing down. Health insurers expect medical costs to rise 8.5% in 2026, marking the third consecutive year at that level, according to PwC. Even after accounting for cost-containment strategies, total health benefit costs per employee are projected to increase 6.5% on average, which represents the highest jump since 2010.
Without any cost-reduction measures, employers estimate plan costs would rise by nearly 9%. These projections are based on responses from more than 1,700 U.S. employers surveyed in Mercer’s 2025 National Survey of Employer-Sponsored Health Plans. As projected, 2026 represents the fourth consecutive year of elevated healthcare cost growth, following a decade of more moderate increases.
What’s Driving Higher Healthcare Costs?
Healthcare cost growth is being fueled by two primary factors: price increases and higher utilization. Price pressures continue to mount as advancements in diagnostics and treatments, such as cancer therapies and weight-loss medications, deliver better outcomes at a higher cost. Provider consolidation has strengthened negotiating power with insurers, while broader economic inflation, including rising healthcare wages, has added further pressure. Emerging AI-based billing platforms may also be contributing to increased spending.
Utilization is rising as well. Deferred care from the COVID-19 pandemic is catching up, healthcare staffing constraints have eased, and virtual care, particularly in behavioral health, has expanded access and convenience. While increased access is a positive development, it also contributes to higher overall utilization.
How Employers Are Responding
According to Mercer, 59% of employers plan to make cost-cutting changes in 2026, up from 48% in 2025 and 44% in 2024. Most commonly, these changes involve higher deductibles, copays, or other cost-sharing mechanisms that shift more responsibility to employees at the point of care. At the same time, many employers are working to preserve access to meaningful, high-quality benefits by prioritizing lower-cost, high-impact services such as preventive care, telemedicine, and telepsychology, which help support employee health without significantly increasing plan spend.
What Employees Will Feel in 2026
For employees, the impact of these changes is likely to be felt in multiple ways. Premium contributions typically rise alongside overall plan costs, meaning paycheck deductions could increase 6% to 7% on average. At the same time, higher deductibles and copays may result in increased out-of-pocket expenses when care is needed.
This makes clear communication and enrollment support more important than ever. Helping employees understand their options and the trade-offs between premiums, deductibles, and coverage can go a long way in easing confusion and frustration.
A Special Note on the ACA Marketplace
Enhanced ACA marketplace subsidies, in place since 2021, expired at the end of 2025 after Congress did not pass an extension. As a result, many individuals purchasing coverage through the marketplace are entering 2026 with significantly higher premiums and reduced financial assistance.
For some households, this shift could mean premium increases of up to 75%, translating to roughly $700 more per year. While this change primarily affects the individual market, it also has broader implications for employers, particularly when evaluating affordability, workforce coverage decisions, and employee retention.
Preparing for the Year Ahead
With healthcare costs projected to reach their highest growth rate in over 15 years, 2026 will require thoughtful strategy, proactive communication, and a renewed focus on affordability. Employers who act early by evaluating plan design, exploring alternative solutions, and supporting informed enrollment decisions will be better positioned to navigate the changes ahead.
The landscape is shifting, but with the right approach, it’s possible to manage rising costs while still prioritizing employee well-being.
Sources
Mercer: Employers Prepare for the Highest Health Benefit Cost Increase in 15 Years
HFMA: Employers Anticipate 2026 to See Biggest Healthcare Cost Increase in Over a Decade
CNN Business: Why Your Health Insurance Copays, Deductibles, and Premiums Will Probably Surge Next Year
