Health benefits as infrastructure: a forensic audit for 2026

Health benefits are often managed like an annual procurement exercise. Mercer’s Health Trends 2026 points to a more accurate model: employer health plans now behave like critical infrastructure—exposed to inflation shocks, geopolitical disruption, labor constraints, and market concentration. When infrastructure is under-maintained, value rarely collapses overnight. It leaks: through waste, weak governance, misaligned incentives, and coverage gaps that turn into higher-severity claims later.

The 2026 signal is not simply “costs are rising.” Volatility is rising, and blunt cost shifting can amplify that volatility by driving delayed care and higher downstream claims. The more durable response is benefits optimization: reduce controllable leakage and reallocate spend toward higher-value protection, prevention, and navigation.

The new baseline: costs are structural, volatility is additive

Mercer projects global (ex-US) medical trend at roughly 11% for 2026, continuing multiple years of double-digit increases. The underlying drivers remain persistent: aging populations, chronic condition prevalence, healthcare staffing constraints, and higher-cost treatments.

Two forces act as volatility multipliers:

• geopolitical and trade uncertainty: tariffs and supply-chain disruption are expected to materially affect trend, with insurers adding 1.0–2.5 percentage points to projections in some markets to reflect policy uncertainty.
• market concentration: provider consolidation increases pricing power on the supply side, reducing leverage even when plan design changes.

In practice, the cost curve is shaped by more than utilization. It is shaped by negotiating power, supply constraints, and shocks outside the benefits function.

Forensic audit: the leaky pipes draining capital

Leak 1: waste embedded in care delivery

Inefficient and wasteful care sits near the top of affordability concerns globally. Waste shows up in predictable places: duplicative diagnostics, low-value care, administrative friction, and the wrong site of care.

The drain is not only claims expense. Waste also consumes room to invest in prevention and targeted coverage. In infrastructure terms, it resembles chronic transmission loss: the system still functions, but the efficiency penalty compounds.

Structural upgrade: bundled procedure pricing discipline

One of the most practical “repair kits” is bundled procedure pricing: negotiating fixed prices for common procedures to reduce cost variability and improve predictability. This is the pricing discipline equivalent of standardizing replacement parts in a supply chain—less variance, fewer surprises, tighter control over unit economics.

Leak 2: catastrophic spend without governance

High-cost claimants drive disproportionate spend. The report emphasizes prevention, early detection, and structured case management to reduce severity and avoid escalation.

A sharper governance risk sits underneath: more members are reaching lifetime limits, and some employers respond with ad hoc exceptions. That creates uneven exposure and precedent risk—especially as catastrophic events become more frequent and more expensive.

Leak 3: the fraud recovery governance gap

Fraud is a capital leak with an uncomfortable pattern: investigation without recovery. The report shows high investigation rates, but far fewer insurers take decisive actions such as criminal reporting, civil lawsuits, or steps to remove fraudulent claims from experience used for rate setting.

The difference between detection and restitution is the difference between a “control theater” program and asset protection. Without recovery pathways, fraud becomes a recurring tax on the plan.

Leak 4: the protection gap across the workforce

In some markets, escalating costs are pushing employers toward narrower plans while lower-income employees opt out of coverage entirely, widening the protection gap. The outcome is a divided system: part of the workforce protected, part under-protected.

The institutional impact is subtle but material: higher absenteeism, higher safety and error risk, higher turnover, and reputational exposure. It also increases brittleness in roles that tend to be hardest to backfill in tight labor markets.

Leak 5: aging workforce risk mismatch

Aging is widely recognized as an affordability risk, but prioritization lags sharply. The report captures the mismatch: a large share of insurers are concerned about affordability given aging populations, yet only a small share prioritize adding programs to support aging employees.

That gap behaves like deferred maintenance: known load increases on the system without upgrades to capacity. The downstream expression is higher chronic disease burden, disability risk, and loss of institutional knowledge through preventable exits.

Leak 6: climate-driven health volatility

Respiratory conditions are influenced by environmental factors and can be exacerbated by extreme weather events. Yet only a small share of insurers cite extreme weather as a concern for keeping plans affordable, suggesting this volatility is under-modeled.

Regions exposed to wildfires, heatwaves, and poor air quality can see episodic spikes in utilization and absence. If costs are already structural, volatility becomes the larger management problem.

Leak 7: navigation weakness and premature automation

Even well-designed benefits underperform if people cannot use them effectively. Less than half of insurers typically provide education to help employees understand benefits and navigate care. The result is predictable: avoidable high-cost utilization, delays that worsen conditions, and reduced trust in the plan.

AI is often framed as the fix, but the report shows cautious adoption and flags limitations for complex or sensitive needs. The durable pattern is augmentation: tools that improve access and routing while preserving human support for high-impact cases.

Retention hedge: reproductive health as a universal-need gap

Reproductive health is positioned as a “universal need” gap with direct talent implications. The report notes that fertility-related testing and treatments are not covered by most plans in many markets. These gaps matter because unmet needs translate into delayed care, stress, and avoidable churn at critical life stages.

The value case is reinforced by the report’s employee outcome linkage: when benefits meet needs, far more employees report thriving in their role. In infrastructure terms, this is not decorative spending; it is load-bearing support.

Alternative funding levers: turning spend into an asset

Outside the US, many plans remain fully insured with fixed premiums. Mercer highlights alternative funding models—portfolio funding, self-insurance with stop-loss, and captive or cell captive arrangements—that can improve transparency and, for some organizations, capture efficiency gains.

This shifts the operating model: from a fixed premium expense to an asset-like structure where better governance and utilization control can translate into retained value, not just reduced renewal pain.

The optimization maturity model

Mercer provides a four-stage transition path that turns “optimize benefits” into an operating roadmap:

1. cost shifting
2. cost management
3. health and quality improvement
4. benefits optimization

Most organizations oscillate between the first two stages because they deliver immediate budget effects. The report’s logic points to a different system: remove leakage first (waste, fraud without recovery, site-of-care drift), tighten catastrophic governance, then reinvest in the protections that prevent expensive failure modes (prevention, aging supports, reproductive and mental health, navigation).

In 2026, the question is not whether health benefits will cost more. The question is whether the system is engineered to leak less, absorb shocks better, and produce measurable value over time.

Source attribution

This executive analysis is based on data and research from Health Trends 2026: Balancing cost control with benefits optimization by Mercer.
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