Over 165 million Americans rely on employer-sponsored healthcare coverage, but it’s getting more expensive for employers to foot the bill. 

Mercer, a global consulting firm specializing in health benefits, projects healthcare costs per employee will jump 8.2% in 2027, the steepest increase since 2003 and the fifth consecutive year of elevated costs, according to a survey of 1,800 U.S. employers. But the number on employers’ books isn’t what workers will feel: Two-thirds of companies with 500 or more employees plan to raise premiums, meaning paycheck deductions will climb even faster than that 8.2% average. It’s coming out of your pay, in all likelihood.

“The reality is this does eat into money that could be invested in wages,” Nick Stefanizzi, CEO of Northwell Direct, which provides health benefits to self-insured employers, told Fortune. 

Health insurance makes up almost a quarter of the benefits employers pay workers per hour. Private employers pay about $3.48 on average for employees’ health insurance per hour the employee works, according to June Bureau of Labor Statistics data, out of the $14.07 per hour spent on benefits. 

Several factors, both old and new, are driving the 8.2% increase. Mercer pointed to hospital consolidation and less government spending on healthcare as the structural forces keeping healthcare costs above inflation but noted expensive new cancer treatments, GLP-1 weight-loss drugs, and AI-enabled medical billing are also pushing up costs. Mercer’s chief actuary Sunit Patel estimated GLP-1 use alone accounted for one percentage point of the total increase in health cost growth for 2027.     

Impact on workers’ wallets

Higher health insurance costs for employers turn into out-of-pocket costs for their employees in several ways. They can hike up employees’ share of premiums, the fixed and recurring fees paid to the plan provider that’s split between the employer and employee. Workers with family coverage contributed an average of about $6,850 toward premiums last year. 

But premiums aren’t the only way employees see health insurance eat their paychecks. Employers can also raise deductibles (the price upfront before coverage starts) and copays (the flat fee before a visit). Almost half of the companies employing 500 or more people surveyed by Mercer said they’ll make changes to existing medical plans that will translate into those higher costs for their employees next year. 

“They’re going to absorb some portion of it at the employer level, and then they’re going to push the rest to the employee,” Brandy Thompson, CEO of benefits technology company BenefitBay, told Fortune. “We have an increase in out-of-pocket costs that are going to hit the employee, and both of those things are not sustainable in the current inflation market that we are already experiencing.” 

There’s also another, less perceptible way higher healthcare costs erode take-home pay.  Economists have found higher healthcare premiums can translate into smaller wages because health insurance is part of workers’ total compensation.

“Employers have a certain amount they can spend on each employee, and that includes salary, healthcare, and other benefits,” Navin Nagiah, CEO of healthcare technology company Daffodil Health, told Fortune.“If healthcare takes up a bigger piece of that pie every year, there is less money left for everything else.”

The Congressional Budget Office includes health insurance as part of its reports on household income because it considers employers’ contributions to healthcare as a “substitute to cash wages” that boosts households’ economic resources. Driven by growing employer health insurance contributions, salaries decreased from 91% of total worker compensation in 1960 to an average of 82% in the past decade, according to CBO’s analysis. CBO projects the cost of health insurance will slightly outpace wages in the next 30 years.