Sep 27, 2024
Healthcare Trends
Employer health plan costs are expected to increase by 5.8% per employee in 2025, according to a recent analysis by Mercer. This marks the third consecutive year of significant increases, following a decade of steadier 3% annual rises. Mercer's 2024 National Survey of Employer-Sponsored Health Plans, which surveyed over 1,800 U.S. employers, highlights concerns about these rising costs and the steps employers can take to mitigate them.
Rising Health Plan Costs for Employers in 2025
The projected 5.8% increase already factors in potential cost-cutting measures employers may take, such as raising deductibles. However, if no action is taken, expenses could rise even higher—up to 7%—and for smaller employers, those with between 50 and 499 employees, the increase could be as much as 9%.
Why Health Plan Costs Are Increasing
Several factors are driving these increases. One of the major issues is the growing gap between the number of healthcare workers and the rising demand for healthcare services. As the U.S. population ages, this issue will only continue to worsen, increasing the pressure on employers’ health plan costs.
Additionally, health system consolidation has accelerated in recent years, reducing the number of hospitals and giving larger health systems greater negotiating power. This consolidation could lead to savings in the long term, but for now, it is driving higher healthcare prices, according to experts like David Grande of the Leonard Davis Institute of Health Economics at the University of Pennsylvania.
Prescription Drug Spending: A Major Factor
The most rapidly growing cost factor, according to Mercer analysts, is spending on prescription drugs. Drug benefit spending per employee increased by 7.2% in 2024, and this number is expected to rise further due to the introduction of high-cost, complex drugs such as gene and cell therapies.
What Employers Are Doing to Cut Costs
To manage these rising costs, more than half of U.S. employers (53%) plan to implement cost-cutting measures in 2025, an increase from 44% in 2024. These measures often include raising deductibles and other forms of cost-sharing, which pass some of the increased costs onto employees in the form of higher out-of-pocket expenses.
"Employers are still concerned about healthcare affordability," says Tracy Watts, senior partner and national leader for U.S. health policy at Mercer. Balancing the need to keep healthcare affordable for employees while managing overall healthcare spending will remain a significant challenge for employers over the next few years.
Read in full in Healthcare Brew