Rising Health Benefit Costs Expected to Outpace Inflation in 2025

Strategic Insights -

As the US enters a third consecutive year of health benefit cost increases above 5%, employers are facing significant challenges in managing healthcare expenses. According to a recent survey by Mercer, a global leader in helping clients realize their investment objectives, shape the future of work, and enhance health and retirement outcomes for their people, total health benefit cost per employee is expected to rise 5.8% on average in 2025. This trend is driven by complex forces, including price dynamics, the widening gap between healthcare worker supply and demand, and the consolidation of health systems.

Key Takeaways:

  • The average total health benefit cost per employee is expected to rise 5.8% in 2025, even after accounting for planned cost-reduction measures.
  • Smaller employers, which typically have fully insured health plans, reported that cost would rise by about 9% on average if they took no action to lower cost.
  • The rising cost trend is driven by factors such as price dynamics, the widening gap between healthcare worker supply and demand, and the consolidation of health systems.
  • Spending on prescription drugs remains the fastest-growing component of health benefit cost, with employers reporting a 7.2% increase in 2024.
  • About half of employers will make cost-cutting changes to their plans in 2025, an increase from 44% in 2024, involving raising deductibles and other cost-sharing provisions.
  • Employees will pay for 21% of health insurance premiums through paycheck deductions in 2025, the same as in 2024.

Statistics:

  • 5.8%: Expected average increase in total health benefit cost per employee in 2025.
  • 9%: Average increase in cost for smaller employers if they took no action to lower cost.
  • 7.2%: Increase in drug benefit cost per employee in 2024.
  • 44%: Percentage of employers making cost-cutting changes to their plans in 2024.
  • 21%: Percentage of health insurance premiums paid by employees through paycheck deductions in 2025.

Sources:

  • Mercer's 2024 National Survey of Employer-Sponsored Health Plans
  • Sunit Patel, Mercer's US Chief Actuary for Health and Benefits
  • Tracy Watts, Mercer's National Leader of US Health Policy