- Healthcare costs continue to weigh on employers. A recent Business Group on Health survey found healthcare benefit costs for employers are expected to rise 8% in the coming new year, a 10-year high.
- Pharmaceuticals are a primary cost driver. One cost driver is the expanded use of glucagon-like peptide 1 (GLP-1) drugs, which primarily fight diabetes but recently have been prescribed to treat several “off label” conditions.
- Vendor assessment may help offset the cost increase. Assessing the quality and effectiveness of vendor partnerships is one strategy to combat projected cost increases.
Following upticks in employer expenditures in the recent past, projected healthcare costs are expected to increase by 8% next year — the highest jump in more than a decade — according to results from the Business Group on Health’s 2025 Employer Health Care Strategy Survey.
Actual healthcare costs have grown a cumulative 50% since 2017. Specific factors triggering the predicted surge in next year’s employer healthcare spend include:
- Inflation,
- Heightened demand for expensive drugs such as glucagon-like peptide-1 (GLP-1),
- Potentially curative but high-cost cell and gene therapies, and
- The ongoing burden of treating cancer and other chronic conditions.
The Business Group on Health, a nonprofit organization representing large employers’ perspectives on optimizing health, benefits and well-being solutions as well as health policy issues, surveyed 125 large employers across varied industries that cover a combined 17.1 million Americans (workers plus their spouses and dependents).
“Employers are steadfast in their desire to provide comprehensive offerings to their workforces,” said Ellen Kelsay, president and CEO of the Business Group on Health, adding that employers continue to absorb much of the cost increases while also remaining highly focused on lowering spending and improving workforce outcomes and experiences.
“However, the foreboding cost landscape has accelerated the need for bold transformation, and employers seek partners who will make that happen,” she said.
Pharmaceuticals Taking Up Larger Share of Budget
The new survey, in fact, found that while emerging GLP-1 drugs have created challenges for employers, cancer and musculoskeletal conditions remained the top general cost drivers. Employers reported cardiovascular conditions as the third-costliest healthcare expense.
Regarding GLP-1 drugs, 79% of employers reported they found a heightened interest in obesity medications (including GLP-1s) among their covered workers. While these medications are a standard treatment for diabetes (covered by 96% of employers in 2024), the emerging issue is eligibility has broadened to include obesity (covered by 67% in 2024) and cardiac conditions (covered by 34% in 2024).
It’s no surprise then that 96% of employers expressed concern about the long-term cost implications of GLP-1s, Kelsay explained.
Jeff Levin-Scherz, population health leader at WTW, agreed pharmaceutical costs are consuming a growing share of the overall employer healthcare benefit budget.
“This makes sense, as there have been vast improvements in drugs available for important diseases, including cancer, obesity and diabetes,” he said.
The downside, he added, is unit prices for brand-name drugs in the U.S. are four times higher than in other “high-resource” countries.
Apart from primary GLP-1 uses noted above, Levin-Scherz said additional benefits include decreases in mortality via kidney failure, obstructive sleep apnea and the incidence of multiple forms of cancer.
“The drugs make people healthier and likely improve productivity, but even with all of these medical benefits, they will not lower total medical expenditures,” he said.
Mental Health Services Continue to Grow in Plan Priority
According to Levin-Scherz, WTW also sees continued interest in and need for mental health services in light of high rates of depression and anxiety, especially among adolescents and young adults. In addition, WTW has found an increasing interest in benefit navigation programs, which can help guide members through the country’s complex and often confusing healthcare system.
Levin-Scherz said solutions include improved integration by seeking to consolidate vendors and simplify employer ecosystems, or by procuring point-solution vendors through health plans or pharmacy benefit managers. He added employers should be certain their vendors are well-integrated and that programs are complementary and not duplicative. A special challenge is ensuring virtual care delivery programs share information with traditional in-person providers.
“Potential changes to health and pharmacy plan design in light of cost pressures require new offerings, policy considerations and more,” Levin-Scherz said. “Employers are interested in lowering total medical expense, and centers of excellence and narrow networks with higher-value providers can help keep costs under control.”
Along the same lines, the Business Group on Health survey found 79% of survey respondents reported improving access to mental healthcare is a 2025 priority. To address both access and cost, surveyed employers said they were continuing to pursue strategies such as no- or low-cost virtual counseling, as well as eliminating out-of-network barriers and the use of on-site counselors.
Vendor Assessment and Restructuring May Pay Dividends
When it comes to reaching the objective of addressing healthcare costs and improving performance and value, one survey finding indicated employers plan to reassess the quality and effectiveness of vendor partnerships. For example, respondents said they would leverage the request for proposal (RFP) process to secure better vendor pricing and end partnerships with underperformers, while having an eye on nontraditional health plans and transparent pharmacy benefit manager (PBM) arrangements as additional levers to lower costs.
“While healthcare costs exert pressure on a fragmented healthcare environment, employers will always work to strike a balance between cost management, quality improvement and enhanced employee experience,” Kelsay said. “[Given all this,] these are challenging times for benefits professionals.”
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