Health Benefit Costs To Rise 5.8% Per Employee In 2025: Survey

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Dive Brief:

• Health benefit costs per employee are expected to rise 5.8% on average next year, even after companies implement cost-saving measures like raising deductibles, according to preliminary data from consultancy Mercer. 
• If employers don’t use cost-cutting strategies, Mercer estimates their expenses will rise by about 7% on average. Smaller companies with 50 to 499 workers would be particularly hard hit: Their expenses would spike by about 9% on average if they don’t take action to lower costs. 
• Next year could be the third consecutive year with cost hikes above 5%, according to Mercer. But general inflation has fallen, suggesting other factors — like higher prescription spending and a shortage of healthcare workers — could be contributing to the growing cost trend. 

Dive Insight: 

The survey, which included responses from more than 1,800 employers, found about half will make cost-cutting changes to their health plans next year, an increase from 44% in 2024.

Companies have largely avoided shifting healthcare expenses onto their workers in recent years, as high out-of-pocket healthcare costs could worsen already serious affordability challenges, according to Mercer.

Many people report delaying or foregoing healthcare services due to cost, and about 40% of Americans have racked up debt due to medical or dental bills, according to health policy research firm KFF. Though being enrolled in health insurance helps to mitigate the high costs of care, 43% of respondents covered by their employers said it was difficult to afford healthcare in a recent Commonwealth Fund survey. 

Periods of sustained healthcare cost growth make it less likely that employers will be able to absorb increased expenses, according to Mercer. Managing costs is also key to lessen increases in employee premiums. On average, employees are expected to pay 21% of premiums through paycheck deductions in 2025, the same as this year. 

Employer healthcare costs are increasing in part due to higher utilization in some areas, like behavioral healthcare or new medications for weight loss, called glucagon-like peptide 1 agonists or GLP-1s. 

The drugs show promise in reducing obesity, but they’re expensive and need to be taken continuously to stay effective. 

GLP-1s aren’t the only medications driving increased healthcare costs. Prescription drug spending remains the fastest-growing component of health benefit expenses, and new gene and cellular therapies will likely continue inflating healthcare expenses too, according to Mercer.

The gap between the number of healthcare workers and an increasing demand for services as the population ages is also contributing to growing costs. Another report from Mercer published earlier this month found the sector will face a shortage of more than 100,000 workers by 2028. 

M&A among health systems — another longer-term trend in healthcare — could also pose challenges for employers looking to rein in health benefits costs. 

“Consolidation may generate savings in the future through increased efficiency and improved integration, but there is evidence it is putting pressure on pricing, as larger health systems have greater negotiating power than smaller systems,” Sunit Patel, Mercer’s U.S. chief actuary for health and benefits, said in a statement.