Employers Facing Healthcare Cost Containment Challenge for 2025

Healthcare costs in the coming year are expected to rise in varying degrees for employer-provided coverage plans, according to three reports recently published by WTW, Segal and Mercer. The challenge for organizations will be how to best mitigate those expected higher costs.

This article will explore key findings from each survey and share cost-saving strategies from experts.

WTW: Healthcare Costs Will Surpass Wage Increases

In WTW’s 2024 Best Practices in Healthcare Survey, U.S. employers surveyed project their healthcare costs will increase by 7.7% in 2025, compared with 6.9% in 2024 and 6.5% in 2023. A total of 417 employers, representing 6 million employees, participated in the survey.

Contributing factors to the healthcare cost increases, according to the survey, include:

Increase in utilization in both healthcare services and pharmacy
Rising costs of pharmacy and blockbuster emerging drugs, especially Glucagon-like peptide 1 (GLP-1) drugs, used to treat diabetes and obesity
Impact of delayed care continues due to COVID, resulting in more high-cost claimants than in previous years
Increases in negotiated rates for hospital systems

“Healthcare-related affordability has significant effects on an employee’s financial well-being,” said Regina Ihrke, a senior director and the health, equity and well-being leader, North America,at WTW

Ihrke explained healthcare cost hikes will likely surpass wage increases for the year, which then lowers employee take-home pay as well as the ability for employers to invest in other related programs and total rewards initiatives.

To lower costs, the WTW survey found:

73% of employers plan to carve out pharmacy benefits over the next few years
51% expect to adopt plan design or network strategies that steer employees to lower-cost or higher-quality providers, sites of care
34% of employers plan to shift costs to employees through premium contributions
27% would consider a smaller PBM (pharmacy benefit manager) that offers alternate pricing models.

Ihrke also offered these strategies to help employers respond to rising overall healthcare costs:

Modernize plan offerings to optimize high-performing healthcare delivery strategies, coupled with options that meet individual needs from affordability to savings.
Evaluate vendor partnerships by conducting analytic performance reviews, audits and marketing to identify the best financial optimal partners to meet objectives.
Prioritize micro-strategies for the key cost drives balancing attraction and retention. This includes focus areas such as well-being, family building and women’s health, as well as cost-management strategies for oncology, diabetes and musculoskeletal conditions.

Segal: The Rising Cost of GLP-1s

The annual cost trend for medical plans is projected to increase to 8%, according to Segal’s 2025 Health Plan Cost Trend Survey, which included about 70 health insurance providers and other healthcare management organizations.

The primary costs increases will be driven by the aforementioned GLP-1s, which are often among the top spots for plans in terms of spend on individual drugs, said Eric Miller, vice president and consulting actuary in the national health consulting and analytics practice at Segal.

“We expect the cost of and demand for these medications will remain high,” Miller said. He noted there were complicated variables, such as a supply shortage of GLP-1s and that plan coverage decisions are at varying stages, particularly for anti-obesity medications.

“While GLP-1s may get the most attention — and they’re a significant cost driver — the main driver of overall healthcare costs is higher-than-typical price inflation,” Miller said, adding that the upward pressure on prices is visible throughout the healthcare ecosystem as everyone is still reacting to periods of high global inflation.

“Strategies related to managing chronic conditions, networks, drug formularies or the overall benefit design need to be tailored and targeted,” he said. “For example, going into 2025, plans must prioritize development of a holistic strategy to manage obesity and determine what role GLP-1s will play in that strategy.”

Aside from the cost impacts of GLP-1s and price inflation, Miller said there are other areas with potential healthcare cost increases:

Mental health, which has experienced heightened interest and use with the virtual care setting
Certain cancer treatments, especially expensive hospital-based drug infusions
Expanded use of specialty medications, either from new medications or applying existing medications to a broader set of conditions.

Mercer: ‘A Tough Balancing Act’

According to preliminary responses from 1,800 U.S. employers in Mercer’s 2024 National Survey of Employer-Sponsored Health Plans, total health benefit cost per employee is expected to rise 5.8% on average in 2025. Overall, employers estimated their costs would rise by about 7% on average if they took no action to lower cost.

Based on these projections, 2025 would be the third consecutive year of health benefit cost increases above 5%. While general inflation has cooled, it suggests other factors are contributing to the higher health benefit cost trend, said Beth Umland, partner and research director, health and benefits at Mercer.

“In recent years, we’re seeing more employers take steps to steer plan members to higher-quality, cost-efficient providers, such as centers of excellence for surgeries and complex treatments or offering employees the option of enrolling in narrow network plans with lower premiums,” Umland said.

She also noted since employees usually pay part of premiums (on average, 21%), deductions for health coverage take a bigger bite out of their paycheck.

“Managing cost can be a tough balancing act for employers,” Umland said. “If health plan cost rises unchecked, that means an organization has less money to spend on pay raises.”

Employers could hold down the cost of coverage by raising deductibles or copays, however, some employees may find it difficult to afford the care they need. As a result, offering less generous coverage could make it harder for organizations to attract and retain employees, Umland said.

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