Employers Anticipate Sharpest Increase in Medical Costs in 15 Years

Strategic Insights -

Employers in the US are facing a significant challenge in managing health care costs, with many anticipating the sharpest increases in medical costs in about 15 years. A survey of 1,700 companies conducted by Mercer, a benefits consultant, shows that employers are expecting an average increase of nearly 9 percent in health costs next year without making any changes to benefits. This is the fourth consecutive year that employers have faced significantly higher costs for health insurance, with the projected increases being the biggest since 2010.

Key Takeaways:

  • Employers expect an average increase of nearly 9 percent in health costs next year without making any changes to benefits.
  • The survey indicates that employers are anticipating the sharpest increases in medical costs in about 15 years, driven by higher drug costs, rising hospital prices, and greater demand for care.
  • A quarter of employers surveyed projected double-digit increases for 2026 even after changes to plans.
  • Employees are likely to feel the pinch more acutely, given the current economic climate, with many already struggling to afford medical care.
  • Some companies are considering changing the design of their benefits to offer less expensive alternatives, such as tiered networks or plans with higher out-of-pocket costs.
  • Roughly a third of employers are considering offering alternative plans that could potentially save costs.
  • Prescription drug costs are a significant concern, with some employers beginning to move towards smaller, independent benefit managers that claim to be more transparent about prices.
  • Rising hospital prices, labor shortages, and increased demand for services are driving medical costs upward.
  • The aging of the population, workers staying longer in jobs, and the ability to receive care through telemedicine are also fueling costs.
  • Policy changes related to health care under the Trump administration and the Republican-controlled Congress could drop millions of Americans from Medicaid or subsidized Obamacare insurance, driving up costs.
  • Some employers may be hesitant to ask employees to pay more, worrying that workers will skip or delay medical care due to unaffordability.

Statistics:

  • The survey of 1,700 companies indicated that employers are expecting an average increase of nearly 9 percent in health costs next year without making any changes to benefits.
  • The average cost of coverage for a family of four is $25,572 in 2024.
  • Employees pay an average of $6,000 a year for health coverage.
  • A third of Americans, or around 91 million adults, said that if they were to need medical care, they would not be able to pay for it.
  • Roughly a third of employers are considering offering alternative plans that could potentially save costs.
  • The share of prescription drug costs attributed to middlemen, or pharmacy benefit managers, is not specified.

Sources:

  • Mercer, a benefits consultant, conducted a survey of 1,700 companies.
  • The Business Group on Health, which represents large employers that provide health insurance to their workers, was quoted in the article.
  • The National Alliance of Healthcare Purchaser Coalitions, which represents organizations that offer health benefits, was also quoted in the article.
  • The Kaiser Family Foundation (KFF), a nonprofit health research group, was referenced for statistics on health care costs.
  • The Commonwealth Fund, a nonprofit organization that studies health care coverage and access, was quoted in the article.
  • CalPERS, which offers health benefits to state and local employees in California, was quoted in the article.
  • The University of Southern California, where Paul B. Ginsburg is a health policy professor, was referenced in the article.
  • Reuters was referenced for a photograph mentioned in the article.