As 2026 approaches, one thing is clear: employers are facing some of the steepest health plan cost increases in over a decade. As benefit expenses climb, so do the tensions in compensation planning.
In a recent interview with the Kansas City Business Journal, Caitlin O’Byrne Waters, President of CBIZ Employee Benefits in Kansas City, highlighted what many employers are already feeling.
“Employers are trying to do what they can, but the reality is that most companies can’t just absorb a nearly 10% increase, so some of that is getting passed on to employees.”
Waters cited a projected 9.5% increase in employer health plan costs for 2026, driven by factors like pharmacy inflation (especially GLP-1 medications), rising cancer claims, and global supply uncertainties. Pharmacy spend alone is expected to rise 11%, with medical costs close behind at 7.9%.
Balancing the Total Rewards Budget
Every dollar spent on benefits is a dollar that can’t be spent elsewhere, whether that’s on base pay, incentive programs, upskilling, or hiring. For example, for an employee earning $70,000, an 8% increase in employer-paid benefits could amount to more than $1,500 in additional cost. That’s money that might otherwise fund direct compensation adjustments.
“Typically, we’ve seen 75% of the increased cost staying with employers,” said Waters. “This year, it’s getting to be closer to 50/50.”
That shift in cost-sharing can erode employee trust and satisfaction if not communicated well, especially when paired with modest pay increases. Compensation and benefits teams must work in tandem to ensure rising costs don’t undercut the value of total rewards.
What’s Left for Salary Increases?
With healthcare costs consuming a larger share of the budget, employers are facing tough decisions about what’s left for salary increases in 2026.
- Wage trends remain elevated, especially in skilled and in-demand roles.
- The labor market is still tight, keeping pressure on attraction and retention strategies.
- Inflation is climbing again, which reinforces employee expectations for meaningful raises and cost-of-living adjustments.
Now, benefit cost growth, up to 9.5% in some cases, is straining total rewards budgets even further.
These competing forces leave many employers squeezed. Salary increase budgets may not stretch as far, especially if more dollars are redirected to rising health plan costs. That makes it even more critical to be intentional with salary decisions and transparent about tradeoffs.
Navigate Rising Costs With Confidence
By taking a strategic, data-driven approach to total rewards, employers can make intentional decisions that support both the business and employees.
CBIZ partners with organizations to analyze benefits spend, benchmark compensation, and design incentive strategies that balance cost containment with employee satisfaction.
Discover solutions to keep talent engaged, motivated, and fairly compensated.
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