Employers Look to Balance Rising Health Costs, Benefit Upgrades in 2025
Workspan Daily
July 24, 2024
Key Takeaways

  • Health benefits remain a top asset. Healthcare costs are projected to rise in 2025, but a majority of employers will maintain their current benefits, according to a new Mercer study.
  • More virtual help available. Seventy percent of survey respondents are looking to artificial intelligence to help employees navigate benefits and care.
  • Focus on employee well-being. Mental health will be a key benefits area in 2025. As a result, employers are expanding mental health provider networks and adding digital mental health solutions. 

Despite rapidly rising healthcare costs, most employers will not reduce their health benefits for 2025 and many will make program enhancements, although they may be doing so more selectively than in past years, according to a new Mercer survey.

Mercer’s report, built around the survey responses from nearly 700 U.S. organizations, showed leaders are considering three key tactics for next year:

  • 64% of chief financial officers reported they want a strong or very strong emphasis on embedding better clinical management into their programs.
  • 48% are exploring non-standard provider networks to tap into smaller, higher-performing hospital and physician networks.
  • 45% are likely or very likely to increase employee-sharing amounts.

Other highlights from the report show employers are looking to prepare for the impact of extreme climate on employee health, are more likely to add coverage for obesity medications (including GLP-1s) than drop it and are moving to add benefits to support women’s reproductive health.

“Employers are juggling faster cost growth with the need to offer attractive benefits and keep healthcare affordable for all employees,” said Ed Lehman, Mercer’s U.S. health and benefits leader. “That’s why it’s important they assess their investments in employee health more carefully than ever to create real, long-term value for employees.”

Lehman said organizations must “strike a balance between cost containment and ensuring access to high-quality care for their employees.”

Keep Care Affordable

Even as healthcare costs continue to climb, employers should still offer and expand health and well-being benefits because they are critical components in a total compensation package, said Karen Frost, the vice president of health strategy at Alight, a human capital data and technology company.

“Employers recognize that their employees, especially lower-paid employees, struggle to afford even buying health insurance, let alone use it,” she said.

When those workers struggle to afford out-of-pocket costs, it can cause them to delay or decline care, leading to harder and more costly late-stage diagnoses, Frost explained. For example, the total health benefit cost per employee is expected to rise more than 5% in 2025, driven in part by an 8.6% spike in prescription drug costs since 2023.

In addition, Frost shared Alight’s client data showed only 51% of employees who are earning under $40,000 per year were enrolled in employer-sponsored health coverage in 2024 (down from 61% in 2022), while employees earning $40,000 to $60,000 per year only had 78% enrollment in 2024 (down from 82% in 2022). 

Employers want to minimize healthcare costs without significant disruption to employees, said Alex Kreibich, a divisional vice president at Gallagher, an insurance, risk management and consulting firm. Employers are looking for optimized health plan networks, pharmacy contracts and incentives for preventive care engagement, he said.

“Given the heightened prevalence of cancer diagnoses, injectable drugs and other high-cost specialty medications, including cell and gene therapies, employers are also increasingly focused on large and complex claim management strategies,” Kreibich said, such as clinically focused concierge programs that help members identify lower-cost and higher-quality care pathways for their unique health journey.

Move the Needle on Mental Health Benefits

One of the top drivers of stress — financial well-being — is closely tied to mental health, Kreibich said. As a result, more employers are supplementing traditional benefits like retirement planning with voluntary benefits, such as hospital indemnity, critical illness insurance and pet insurance.

Employers are also expanding mental health provider networks and adding digital mental health solutions, Frost said.

“They are investing in solutions that help employees manage their total well-being, as mental health struggles are interconnected with physical and financial challenges,” she said. “These investments are helping employers erase the stigma around talking about mental health in the workplace.”

Tap into Virtual Help

Looking ahead, employers will increasingly turn to virtual solutions to help employees navigate benefits and care. The Mercer survey showed 70% of the respondents are looking to artificial intelligence to help employees navigate benefits to find the best care at the lowest cost.

“Digital health solutions can help employees manage their chronic conditions,” Frost said. “These platforms can deliver targeted relevant information and timely personalized recommendations, nudge workers to take action, and empower them to make confident decisions.”

In fact, 86% of employees welcome these digital-forward approaches to managing care, according to Alight’s 2023 International Workforce and Wellbeing Mindset Study.

Maximizing employee engagement with benefits is a key to optimization, so watch for more employers to upgrade HR technology solutions to foster engagement, Frost said.

“The challenge is making employees aware of the breadth of benefits their employers provide and helping them make smart, confident decisions around their healthcare,” she said.

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