Understanding health insurance premiums: Why rates are rising and what businesses can do

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Rising healthcare costs are one of the most pressing concerns employers face today. For Rochester-area businesses and organizations across New York, managing health benefits for employees has become a strategic imperative that helps employees feel supported. It also has an impact on workforce recruitment, retention, and financial sustainability.

At the same time, employees are feeling the strain through higher out-of-pocket costs, deductibles, and prescription drug expenses. Understanding what drives health insurance premiums, how those dollars are spent, and what actions employers can take is essential for managing this environment effectively.

 How health insurance premiums are calculated

Health insurance premiums are built on a straightforward but powerful set of factors. For fully-insured plans, there are four primary drivers that determine pricing:

Cost of care

This reflects what insurers pay to hospitals, physicians, pharmacies, and other providers for services. It also includes the cost of prescription drugs and medical equipment. Healthcare costs continue to rise due to several factors including increasing hospital expenses, higher prices for specialty and brand-name medications, and investments in advanced technology and treatments. Simply put, when the cost of care rises, premiums follow.

Utilization of services

Utilization is the demand side of the premium financial equation. It refers to how often people use medical services.

When more individuals seek care, fill prescriptions, or undergo procedures, insurers pay more claims. This increased demand raises overall costs across the system, which in turn raises premiums.

In 2026, to date, utilization trends have continued to increase at Excellus BlueCross BlueShield (Excellus BCBS), especially for cancer medications, hip and knee surgeries and certain cardiovascular treatments.

Intensity of care

Intensity measures the complexity and cost of treatments. Over time, less expensive treatments are often replaced with more advanced and more expensive options. For example, a routine back or knee issue that years ago might have been treated conservatively with therapy is now more likely to include high-cost imaging and procedural interventions — which often means higher claims costs for employers and higher deductibles or out-of-pocket costs for members. In fact, from 2023-2026, claims costs for the treatment of joint, bone and muscle conditions increased 39% at Excellus BCBS.

We are excited about the improved outcomes these advancements can have for our members; however this progress often comes with increased overall costs.

Administrative costs, taxes and new policies

While important, administrative costs are a relatively small portion of total spending compared to medical care itself. These costs can include claims processing, customer service, clinical care management, billing and enrollment. Taxes on private insurance can also add costs as can new laws and policy changes.

Where premium dollars go and why healthcare costs are rising nationwide

The vast majority of what is paid by members in premiums is used to pay for their healthcare.

For example, in 2025, approximately 92 cents of every premium dollar collected by Excellus BCBS was used to pay for member care. This includes things like doctor visits, hospital stays, prescription medications, and preventive screenings and services.

This means that premiums largely reflect the cost of the healthcare system itself.

It is also important to examine the trend of rising healthcare costs nationwide, since premium increases do not occur in isolation. They mirror broader trends across the national and regional healthcare landscape.

Specialty medications continue to be one of the fastest growing cost drivers. These drugs treat complex conditions such as cancer, autoimmune inflammatory conditions, and rare disorders. While often life-changing, they come with high price tags –with some medications costing thousands of dollars per dose.

Additionally, many procedures that once required hospital stays are now performed in outpatient settings. While this can improve convenience and outcomes, the total volume of procedures has increased, contributing to overall cost growth.

Finally, an aging population, higher rates of chronic conditions, and greater awareness of behavioral health needs all contribute to increased demand.

Together, these factors create a system where costs rise year after year, putting pressure on both employers and employees.

Championing affordability and access

Health insurers play a critical role in balancing two priorities: ensuring members have access to high-quality care and managing costs to keep premiums as affordable as possible.

This balance requires a mix of strategies from care management, to the design of innovative programs to provider partnerships.

Care management programs help members navigate the health system and partner with providers to manage chronic or complex conditions. These programs can improve health outcomes, reduce avoidable hospitalizations and lower long-term costs. Last year alone, more than 33,000 Excellus BCBS received personalized support through this program.

Preventive services such as screenings, immunizations, and annual checkups are often covered at no additional cost. Early detection and intervention help prevent more serious and expensive conditions later.

Pharmacy programs are designed to ensure medications are safe, effective, and cost-efficient. Encouraging the proper use of medication, guiding people toward medicines that work just as well but cost less, and providing access to price transparency tools are all ways employers can help employees manage rising costs. Site of Care, for example, is an Excellus BCBS program that improves healthcare affordability while enhancing access and convenience for members receiving infusion and injectable drug therapies. It allows for members to receive these medications in less costly facilities, sometimes even in their own home.

Collaboration with local physicians and hospitals helps promote evidence-based, cost-effective care. Value-Based Care (VBC) is a provider payment model that aims to improve care quality, reduce costs, and enhance satisfaction for both members and providers. The model focuses on quality of care, rewarding providers for improving care, health outcomes and service efficiency rather than for the number of services delivered.

A shared responsibility

Managing healthcare costs is not the responsibility of any one stakeholder. It requires coordinated effort across health insurers, providers, policy makers, employers and employees, each playing a distinct but interconnected role in shaping both cost and outcomes. While the drivers of rising premiums are complex, they are not uncontrollable—and progress depends on collective, consistent action over time.

Employers, in particular, are uniquely positioned to influence both how care is delivered and how it is used. Many have already taken meaningful steps to promote prevention, expand access to tools and resources, and design benefits that encourage smarter healthcare decisions. Continuing to build on that foundation will be critical as cost pressures persist.

At the same time, employees must be equipped with the knowledge and confidence to navigate the health system effectively. When individuals understand their benefits and have access to high-value care options, they are more likely to engage in ways that improve both their health and the overall affordability of coverage. There are tools and educational resources available to help businesses and their employees understand and make the most of their benefits at www.excellusforbusiness.com.

Health insurers and providers must also continue to innovate—developing new care models, strengthening partnerships, and advancing programs that prioritize quality, access and cost efficiency.

Finally, collaboration among insurers, providers, employers and policymakers is essential to improving healthcare quality and affordability. Insurers offer data and payment models, providers bring clinical insight, employers represent affordability needs, and policymakers set the framework, none of which works well in isolation. When combined, these efforts can help create a more sustainable system for all.

Ultimately, improving affordability is not about any single solution, but about alignment. When all stakeholders are working toward the same goal—better health at a lower cost—the impact is meaningful and lasting. By staying focused on transparency, collaboration and informed decision-making, we can continue to make healthcare more predictable, more accessible and more sustainable for the communities we serve.

Paul Valley is senior vice president, Commercial Group Markets, Excellus BlueCross BlueShield.