With commercial medical costs projected to increase 9.0% in 2027, patients are feeling the financial squeeze from administrative friction generated by the payer-provider AI arms race.
KEY TAKEAWAYS
PwC projects a 9.0% commercial medical cost trend for group plans in 2027, driven by structural inflators like AI-enabled documentation tools, rising specialty pharmacy costs, and IDR payments.
As payers aggressively deploy AI-driven pre-payment reviews to combat rising costs, providers are automating their defenses, creating an expensive administrative arms race that fails to lower systemic costs for the consumer.
To navigate this financial squeeze without alienating their communities, health systems must shift away from back-end collections and prioritize transparent, empathetic pre-service financial clearance.
Last year, PwC projected a 8.5% medical cost spike in the commercial group market. Unfortunately, the professional services company’s forecast for the next year does not suggest there will be any relief for rising healthcare costs.
According to PwC’s latest Medical Cost Trend: Behind the Numbers report, the 2026 group cost trend has been retroactively adjusted upward to 9.0%. Looking ahead to 2027, health plan actuaries expect that 9.0% growth rate to sustain in the group market, alongside an 8.5% increase in the individual market.
With historical deflators, like biosimilars and site-of-care shifts now fully embedded into the baseline, the cost environment heading into 2027 represents a structural shift rather than a temporary spike, according to the report.
Five Cost Inflators in 2027
Health plan actuaries point to five distinct inflators driving medical costs higher across the commercial sector.
1. AI-Enabled Revenue Optimization
While revenue cycle leaders may say that payers started the battle of the bots, provider use of AI-powered scribes and ambient documentation tools are leading to higher E/M levels and higher-severity DRG assignments. Consequently, health plans are seeing higher billed allowed amounts and increasing per-member-per-month trends without a corresponding change in actual care utilization or contracted rates.
2. Provider Reimbursement Pressures
Hospitals continue to face elevated labor expenses and rising input costs for drugs and supplies. To offset these structural costs, health systems are leveraging market consolidation to negotiate higher commercial reimbursement rates.
3. Surging Pharmacy Costs
Pharmacy trend continues to outpace overall medical trend. Spending on cancer medicines alone reached $143 billion in 2025. Additionally, high-cost GLP-1 therapies are expanding well beyond obesity treatment, securing FDA approvals for cardiovascular disease and chronic kidney disease.
4. Behavioral Health Utilization
Between 2018 and 2024, behavioral health visit rates increased by 62.6%. Unlike other medical categories that are driven by unit cost, the behavioral health trend is actively fueled by sustained increases in patient utilization.
5. IDR Arbitration
The No Surprises Act’s Independent Dispute Resolution (IDR) process has become a significant revenue driver for providers. Providers won roughly 88% of payment determinations in the first half of 2025. A 2025 report found that IDR had generated $5 billion in costs, including $2.24 billion in direct payments to providers.
Looking at the Bigger Picture
While AI has been sold as a tool to improve efficiency, the technology has so far driven an expensive administrative arms race rather than acting as a systemic cost deflator. On the health systems side, providers are using AI-powered scribes and documentation tools to capture greater complexity and patient acuity. Meanwhile, health plans are deploying their own technology to auto-triage complex claims, detect billing anomalies, and flag provider outliers before funds are ever released.
Administrative friction between providers and payers ultimately causes patients to delay or interrupt necessary clinical care. It is critical that payers and providers work together to prevent this, according to Ryan Thompson, Chief Revenue Cycle Officer at Providence.
“It’s incumbent on both payers and providers to identify what we can do differently to mitigate that friction that causes patients to interrupt or delay care,” Thompson says.
This puts revenue cycle leaders in a tricky position, where they are expected to drive collections from cash-strapped patients without alienating local communities by focusing solely on revenue optimization.
To counteract the 2027 cost trajectory without damaging patient trust, health systems must prioritize transparent, pre-service financial clearance. Ryan Klein, Senior Director of Patient Access and Financial Experience at UW Health, emphasized that leaning into empathy and flexibility ultimately protects both the patient and the bottom line.
“An experience-first approach, I don’t think it undermines revenue goals,” Klein stated. “I think it just simply sets up the patient to contribute to their out-of-pocket liability in the way that best works for them.”
HENRY KOTULA 