Health Benefit Costs to Increase by 5.8% in 2025

Year after year, health benefit costs continue to increase, and 2025 is expected to be no exception. According to a recent survey conducted by Mercer, U.S. employers estimate that health care costs will increase by 5.8%, marking the third consecutive year that total costs per employee rose more than 5%.

The report included an analysis of responses from more than 1,800 employers nationwide. Employers estimated that their costs would rise by an average of 7% if they took no action to lower costs. Not surprisingly, smaller employers with 50 to 499 employees estimate being impacted the most, reporting that costs would rise by an average of 9% if they took no action to lower costs.

Why Are Health Benefit Costs Rising?

Rising costs are attributed to the widening gap between the supply of health care workers and the demand for health care services, along with costly behavioral health care and glucagon-like peptide-1 (GLP-1) medications.

Prescription drug spending remains the fastest-growing driver of health benefits costs. Data revealed that the drug benefit cost per employee rose 7.2% in 2024, influenced by the introduction of costly gene and cellular therapies.

How Are Employers Responding to Rising Health Benefit Costs?

Half (53%) of employers said they will make cost-cutting changes to their health plans next year to manage rising costs, such as raising deductibles. For reference, 44% planned to take cost-saving measures in 2024. Health care coverage costs are generally shared between the employer and employee; therefore, managing costs is important to curtail employee premium contributions.

In line with other industry data, the Mercer report suggests employers will likely continue to struggle with rising health care costs next year. Many employers will focus on lowering costs and finding ways to balance the competing priorities of health care affordability for employees and the overall cost of health care coverage.

Health Care Cost-Containment Strategies

So, what steps can your organization take to help proactively mitigate the effects of rising health care costs? While the right cost-containment strategies will vary based on your unique health plan, funding arrangement, employee needs and more, consider the following cost-cutting tactics as you develop your benefits strategy for the year ahead.

Pharmacy Carve-Out

As prescription drug spending is a key driver of health care costs, implementing pharmacy-specific cost-containment measures may be the right move for your organization. Consider a pharmacy carve-out scenario, wherein the employer has greater visibility into and control over clinical programs, as well as contractual stipulations and plan performance.

In addition, a carve-out increases plan design and network enhancement flexibility, which allows employers to adopt more innovative clinical and steerage programs that enhance medication adherence and create the opportunity for better financial outcomes.

Reference-based Pricing (RBP)

Under RBP, the health plan uses the Medicare reimbursement amount for given medical services as the “reference price,” then reimburses providers based on a percentage above that reference price. Most RBP vendors will negotiate with providers for pricing within a range above the plan’s starting point, which satisfies the provider and saves the plan on claims expenses, all while ensuring the member receives services. Reference-based pricing plans have the potential to save employers as much as 20% – 30% in their medical spending.

Captive Solution

A captive is an alternative risk solution for mid-sized employer groups, and the right captive can lead to significant savings and an overall improved health care experience. In a captive, employers partner with other employers to create economies of scale for their stop-loss coverage by self-funding smaller claims, pooling money for mid-level claims, and implementing a higher stop-loss deductible, thereby lowering fixed costs. Some captives include other cost-containment programs, value-add services and even wellbeing programs.

Connect with CBIZ to Counteract Rising Health Benefits Costs

A benefits consultant can help your organization identify the cost-saving strategies that will yield the most significant results. At CBIZ, we offer depth of experience paired with local, personal service — the best of both worlds. To learn more about how we can help you identify and implement innovative cost-containment strategies amid rising health care costs, connect with our team today.