Large Employers Forecast 7.8% Hike In Health Costs Next Year, Thanks To Rising Pharmacy Spend

Large employers are bracing themselves for a 7.8% increase in healthcare costs next year — the highest projection in more than 15 years — mostly driven by higher spending on pharmaceuticals like coveted and expensive GLP-1s, according to the Business Group on Health’s annual survey of its members.

BGH this summer surveyed large employers that together cover 17.1 million people in the U.S. — roughly one-tenth of the more than 160 million Americans that receive insurance through their job. The survey results are the latest finding employers are gearing up for a major jump in healthcare costs next year, though specific figures vary from around 8% to 9%.

“A lot of pressure will be coming down on employers,” said BGH Vice President Brenna Shebel in a Tuesday press briefing.

Projected (and actual) health costs have both ticked up in recent years, despite some aberrations in the trend during the coronavirus pandemic.

But last year, the actual growth in healthcare costs was higher than employers and their consultants predicted. This hasn’t happened in recent years — except in 2021, at the height of the COVID-19 pandemic, according to Ellen Kelsay, president and CEO of BGH.

That’s a source of concern for both actual costs this year and going into 2025. Already, the 7.8% employers are eyeing down for next year is “the highest projection we’ve seen in this survey for over 15 years,” Kelsay said during the press briefing.

Spiking pharmacy spend

The steep projection is mostly due to pharmacy costs.

From 2021 to 2023, the median amount of healthcare spend on pharmacy has risen from 21% to 27%. It’s a figure Kelsay called “staggering,” and one which suggests virtually all of the healthcare trend increase is being driven by pharmaceuticals — one in particular.

Heightened interest in GLP-1s, or glucagon-like peptide-1 receptor agonists, is increasingly pressuring employers’ budgets. The medications, which were traditionally used to treat diabetes, have shown efficacy in combating a variety of conditions but are especially in-demand for weight loss.

Due to GLP-1s’ sky-high list prices, employers have grappled with whether they should cover the drugs despite soaring demand. An estimated 30 million Americans, or about 9% of U.S. population, could be on GLP-1s by 2030, according to an analysis by investment bank J.P. Morgan.

A majority of employers (56%) say GLP-1s are impacting healthcare costs to a “very great” or “great” extent, according to BGH’s survey. That’s compared to 46% for the next highest factor, high-cost therapies, and 25% for the third-highest, mental health conditions.

GLP-1s’ dominance as a contributor to high costs is “relatively surprising” given how quickly the drugs have come onto the scene, compared to more perennial cost drivers like poor quality providers or fraud and waste, Kelsay said.

Employers are also worried about other pricey drugs like cell and gene therapies. More than three-fourths of employers report being “very concerned” about overall pharmacy cost, BGH found.

A majority of employers are also concerned about business practices in the pharmaceutical supply chain that could be hiding where their money goes, while inflating the price of drugs.

BGH asked employers about their level of concern with some common practices of pharmacy benefit managers, powerful middlemen that negotiate discounts called rebates on drugs with pharmaceutical manufacturers in exchange for placing those drugs on plans’ formularies.

To critics, PBMs favor high-cost drugs so they earn larger rebates and therefore reap higher profits. They have also been slammed for hidden fees, self-dealing and complex black box contracts that health insurers and employers say leave them in the dark.

PBMs have found themselves at the center of public scrutiny over drug costs, including from Congress and the Federal Trade Commission. Antitrust regulators have particularly zeroed in on how the three largest PBMs — UnitedHealth’s Optum Rx, CVS’ Caremark and Cigna’s Express Scripts — could be wielding their market power to stifle competition.

Most employer respondents to the BGH survey called for reform to curb the skyrocketing cost of drugs, whether from the government or in the private sector. Employers themselves are expressing strong interest in transparent pharmacy benefit models, which give them a greater line of sight into how drugs are priced and paid for.

Twenty-five percent of employers had a transparent PBM program in place this year, while another 40% are considering implementing one in the next few years, according to the survey. It’s the pharmacy management strategy that’s expected to grow the most in the near-term, Kelsay said.

Employers are also exploring new PBM partners. Next year, one-third of employers will reassess their current pharmacy benefits provider or request new bids from other vendors, BGH found.

Major PBMs have already shed some big clients amid the criticism and disruption from pharmacy competitors. They’ve responded by standing up new models they bill as lower cost and transparent, including Caremark’s TrueCost, Optum Rx’s Clear Trend and Express Scripts’ ClearNetwork.

As a result, employers’ desire to reevaluate their pharmacy benefits providers doesn’t necessarily mean a shift away from the big three PBMs.

“Some of the more traditional PBMs and partners do offer, and have expanded their offerings to offer, some of the things employers are looking for like greater transparency,” Kelsay said. “They’re all being considered and I think it’s all fair game.”

Employers’ concern about their PBM partners is mirrored by a larger dissatisfaction with drugmakers, which set list prices for drugs at the start of the pharmaceutical supply chain. Just 1% of employers said the prescription drug market is competitive enough to keep drugs affordable, per BGH.

Other findings

Employers cite cancer as the medical condition driving the most cost. Cancers among young people continue to rise — as does the cost of cancer treatments, according to BGH’s survey. As a result, employers are focused on boosting prevention efforts like screening. Musculoskeletal conditions were the second-largest driver of spending, followed by cardiovascular conditions.

This year, the estimated total cost of healthcare per employee is $18,639 — up $1,438 from 2023, the survey found.

Employers told BGH that they won’t reduce benefits, and plan to absorb most of the costs themselves instead of passing them to their employees. However, that flies in the face of normal employer practices and other recent research.

A recent survey by consultancy Mercer found 45% of employers are likely or very likely to shift rising expenses onto their workers, at a time when many Americans are already finding it difficult to afford care.

Employer respondents to the BGH survey said they plan to leverage other cost management strategies, like prior authorization for GLP-1s and other drugs.

Many workers wanting to get their hands on GLP-1s will also have to meet a particular BMI threshold, have other comorbidities or join a weight management program.

Chronic condition management companies have invested heavily in building out their weight management offerings, peddling them to employers as a tool to ensure any short-term health benefits from GLP-1s are combined with more lasting behavioral changes. 

However, employers continue to be fed up with point solutions. Respondents to the survey indicated they would reassess and integrate benefit offerings, with 18% planning to specifically consolidate or reduce the number of services they offer.

Editor’s note: The visualization of employers’ pharmacy concerns was updated with more data.