Employers Expect Third Consecutive Year of Health Benefit Cost Increases Above 5% in 2025, According to Mercer

By Business Wire On Sep 12, 2024

Mercer, a business of Marsh McLennan and a global leader in helping clients realize their investment objectives, shape the future of work and enhance health and retirement outcomes for their people, released preliminary results from its 2024 National Survey of Employer-Sponsored Health Plans.

“While we’ve seen significant increases in utilization in a few areas, such as for behavioral healthcare and GLP-1 medications, overall utilization has had a relatively modest impact on trend this year. The biggest driver of higher costs is price dynamics, some of which are macro in nature.”

According to an analysis of responses from over 1,800 US employers, total health benefit cost per employee is expected to rise 5.8% on average in 2025, even after accounting for planned cost-reduction measures. Employers estimated that their cost would rise by about 7%, on average, if they took no action to lower cost. Smaller employers (those with 50-499 employees), which typically have fully insured health plans, have been hit the hardest. They reported that cost would rise by about 9% on average if they took no action to lower cost.

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Based on these projections, 2025 would be the third consecutive year of health benefit cost increases above 5%, following a decade of cost increases averaging only around 3%. Meanwhile, general inflation has cooled, suggesting that other factors are contributing to the higher health benefit cost trend.

Complex forces driving higher cost trend

According to Sunit Patel, Mercer’s US Chief Actuary for Health and Benefits, several factors are contributing to faster cost growth. Mr. Patel said, “While we’ve seen significant increases in utilization in a few areas, such as for behavioral healthcare and GLP-1 medications, overall utilization has had a relatively modest impact on trend this year. The biggest driver of higher costs is price dynamics, some of which are macro in nature.”

One source of pricing pressure is the widening gap between the supply of healthcare workers and the demand for healthcare services, which is building as older Americans become a larger part of the population. Another is the continuing consolidation of health systems – which shows no sign of slowing down. Mr. Patel notes, “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.”

Spending on prescription drugs remains the fastest-growing component of health benefit cost. Employers reported that drug benefit cost per employee rose 7.2% in 2024. The ongoing introduction of very high-cost gene and cellular therapies is contributing to this higher cost growth.

The employer response to faster cost growth

The survey results suggest that about half of employers (53%) will make cost-cutting changes to their plans in 2025, an increase from 44% in 2024. Generally, these changes involve raising deductibles and other cost-sharing provisions and result in higher out-of-pocket costs for plan members when they seek care. In recent years, many employers have avoided making these types of changes, but this becomes more difficult in a period of sustained higher cost growth.

According to Tracy Watts, Mercer’s National Leader of US Health Policy, “Employers are still concerned about healthcare affordability and ensuring that employees can afford the out-of-pocket costs when they seek care. But they also need to manage the overall cost of healthcare coverage to achieve a sustainable level of spending for the organization. Balancing these competing priorities will be a challenge over the next few years.”

Because the cost of healthcare coverage is typically shared between the employer and employee, managing cost is also important to minimize growth in employee premium contributions. On average, employees will pay for 21% of health insurance premiums through paycheck deductions in 2025, the same as in 2024.

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