Employers should prepare for a major increase in healthcare costs in 2025, with new projections showing rises of 8-9 percent or more over this year’s spending.
This dramatic uptick comes as a result of several key factors putting pressure on health plans, including widespread inflation, demand for expensive specialty medications, and a growth in catastrophic claims. Employers that take action now with aggressive cost-cutting strategies may be able to blunt the impact.
Driving Forces Behind the Increase
A number of dynamics are converging to push healthcare costs significantly higher for employers next year. Overall inflation is feeding into rising wages and higher employment, which translates into more expensive health premiums. At the same time, more expensive specialty drugs and services are coming onto the market, leading to an increase in utilization.
According to projections from professional services firm Aon, healthcare costs per employee are estimated to rise by approximately 9% in 2025, reaching over $16,000. This outpaces the 6.4% increase seen from 2023 to 2024, when per-employee costs averaged $14,823. Of that total spend, employers covered $11,956 per worker compared to $2,867 paid by employees.
Another forecast from the International Foundation of Employee Benefit Plans (IFEBP) was slightly more conservative but still showed a steep climb. Their survey of employers revealed expectations for a median increase of 8% in 2025 health plan expenses. This continues an upward trend from 7% jumps anticipated in both 2022 and 2023.
The Role of Specialty Drugs
A major culprit behind escalating health expenses is the surging cost of specialty medications, particularly GLP-1 drugs like Ozem­pic and Wegovy. While these treatments show promise for weight loss and diabetes, their high monthly price tag of $1,000-$1,500 per prescription quickly adds up. According to ex­perts, demand for GLP-1 drugs is skyrocketing across employer plans.
The introduction of new medications in this class will likely pile on more costs as well. Aon estimates that specialty drugs will account for a full 1% of next year’s 9% rise in total health spend. They require intense oversight, even though specialty treatments make up a small portion of utilization.
In IFEBP’s poll, 20% of employers sin­gled out costly prescription options as the top driver pushing up program expenses. That fig­ure increased from just 16% last year, unseat­ing medical provider costs as the number one factor. Of those citing specialty therapies, 75% pointed to GLP-1 medications in particular.
Catastrophic Claims and Chronic Conditions
While specialty drugs may capture head­lines for their shocking price tags, they aren’t the only reason for mounting health expenses. Chronic conditions among employees also take a toll through increased utilization of regular doctor visits, procedures, hospital stays, and medications needed to manage them.
In fact, 20% of organizations surveyed by IFEBP named catastrophic claims as the pri­mary reason costs continue to rise each year, while 16% cited chronic health conditions. Less healthy worker populations end up driving more services, especially complicated treat­ments for complex long-term diseases.
Even a small number of catastrophic claims can also blow budgets. Just one or two patients with major health emergencies requiring ex­tensive hospitalization and rehab can devastate even the best-funded plan.
Cost Management Strategies
While the projected 8-9% jumps are daunting — with some markets predicting even higher numbers — concentrated efforts around managing utilization and sharing ex­penses can potentially tame increases. When asked which cost-saving initiatives would have the most impact next year, employers pointed to the following measures.
Utilization control landed on top, with 27% stating that requiring prior authorizations, us­ing nurse advice lines, and instituting disease management protocols would make the biggest difference. These moves ensure treatments and prescriptions are truly medically necessary before being approved.
Shifting more costs to the wallets of em­ployees is also an increasingly important lever cited by 21% of those surveyed. This can in­clude tactics like raising plan deductibles and co-insurance rates across the board or specifi­cally for costly specialty drugs.
Other organizations may tighten dependent eligibility criteria or institute spousal surcharg­es. While tough to execute, directing more ex­penses to employees ultimately lightens the load on the company. Moving to stricter formular­ies that limit expensive brands or exclude cer­tain drug classes altogether is another avenue.
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Copyright © 2024 Smarts Publishing. This is not intended to be exhaustive nor should any discussion or opinions be construed as legal advice. Readers should contact legal counsel or an insurance professional for appropriate advice.