Employers Prepare to Pass Higher Health Costs to Workers Amid Stagnant Labor Markets

Strategic Insights -

Employers who had maintained generous benefits in tight labor markets are now preparing to share the burden of rising health costs with their workers, a change in thinking that reflects the current economic landscape. According to a Business Group on Health survey of 121 large employers insuring 11.6 million people, companies' medical costs have sharply outpaced their expectations over the past two years, leading to a projected health cost increase of 9% next year. Employers are no longer willing to absorb these costs alone, and instead, are shifting them to employees through higher premiums, with some companies projecting increases as high as 10%.

Key Takeaways:

  • A survey by the Business Group on Health found that companies' medical costs have sharply outpaced their expectations over the past two years, with a projected health cost increase of 9% next year.
  • 51% of employers surveyed by Mercer said they would be shifting costs to employees this year, up from 44% last year.
  • Cancer is the top driver of employer health costs for the fourth year in a row, with diagnoses increasing and treatment costs growing.
  • Employers have expressed concerns about pricey biologic drugs, anti-inflammatory specialty drugs, and soaring demand for GLP-1s for obesity.
  • Pharmacy expenses accounted for nearly a quarter of all employers' health care spending (24%) in 2024, and companies project an increase of 11% to 12% next year.
  • Nearly one-quarter of large employers will have alternative health plan arrangements in place next year, with another 36% considering them for the future.
  • Employers will scrutinize other employee health perks and hold their vendors accountable, as passing cost increases is seen as a short-term solution.
  • A significant number of employers (66%) reported being concerned about cuts to Medicaid and Medicare.

Statistics:

  • 121 large employers participated in the Business Group on Health survey, which covered 11.6 million people.
  • Companies' medical costs have outpaced their expectations over the past two years, with a projected health cost increase of 9% next year.
  • 51% of employers surveyed by Mercer said they would be shifting costs to employees this year.
  • Pharmacy expenses accounted for 24% of all employers' health care spending in 2024, with an projected increase of 11% to 12% next year.
  • 66% of employers reported being concerned about cuts to Medicaid and Medicare.

Sources:

  • Business Group on Health survey of 121 large employers insuring 11.6 million people.
  • Mercer's annual survey of employers' health and benefit strategies for 2026.
  • International Foundation of Employee Benefit Plans survey of employers' health and benefit strategies.
  • GOP's tax-and-spending bill.