Employers Predict Persistent Growth in Health Benefits Costs

Employers Predict Persistent Growth in Health Benefits Costs

Employers are bracing for a significant rise in health benefit costs throughout the coming years. According to newly released preliminary findings from Mercer, costs per employee are expected to grow by an average of 5.8% in 2025. This increase is notable, particularly as it marks the third consecutive year that costs are projected to exceed a 5% rise.

Understanding the Cost Increase

Mercer, a subsidiary of Marsh McLennan (NYSE: MMC), conducted a comprehensive analysis involving over 1,800 US employers. The data reveals that costs could escalate by about 7% if no proactive measures are taken. Notably, smaller employers, particularly those with 50-499 employees, have felt the squeeze more severely, reporting a potential rise of nearly 9% without mitigation.

Factors Influencing Rising Costs

This surge in health benefit costs follows over a decade of more manageable increases, averaging around 3% annually. While general inflation figures have moderated recently, health benefit costs are still experiencing a relentless upward trend due to various underlying factors.

Sunit Patel, Mercer’s US Chief Actuary for Health and Benefits, identifies complex dynamics that are pushing costs higher. "Although we’ve observed heightened utilization in sectors like behavioral healthcare and specific medications, overall trends suggest modest impacts from utilization alone. The predominant driver of escalating costs is the market's pricing dynamics, some of which are macroeconomic in nature," he explained.

The Pressure of Supply and Demand

One significant aspect contributing to the growing costs is the increasing discrepancy between the availability of healthcare workers and the rising demand for services, especially as the older demographic expands. Another factor is the ongoing consolidation within health systems, creating a landscape where larger entities wield greater negotiating power, exerting pressure on prices.

Prescription Drug Costs

The cost of prescription medications continues to be the most rapidly increasing area within health benefits, with employers noting a steep 7.2% rise in drug expenses per employee in 2024. This spike can be attributed to the introduction of new high-cost gene and cellular therapies into the market.

Employer Strategies for Managing Costs

In light of these financial challenges, the survey indicated that more employers are planning to implement cost-containment strategies for the upcoming year. Approximately 53% of employers anticipate making adjustments to their health plans to curb rising expenses. This marks a notable increase from 44% last year.

The changes often involve adjusting deductibles and cost-sharing measures, which tend to increase out-of-pocket expenses for employees. Historically, many employers adopted a cautious approach to these alterations, but the sustained growth in costs necessitates difficult decisions.

The Balancing Act for Employers

As Tracy Watts, Mercer’s National Leader of US Health Policy, states, “While employers are committed to ensuring healthcare remains affordable for their employees, they also face the immense pressure of managing overall spending. The challenge lies in effectively balancing these concerns amidst the consistently rising cost of health coverage.”

As employee contributions typically share the burden of health expenses, managing costs is crucial to avoiding steep increases in premium payments. For 2025, employees are expected to contribute about 21% of their health insurance premiums, remaining consistent with their contributions from the previous year.

Final Thoughts on Health Benefits Trends

Mercer’s upcoming National Survey of Employer-Sponsored Health Plans aims to provide further insights as more comprehensive data is collected. Foundation findings reflect a shifting landscape that requires ongoing attention to navigate potential cost increases. Preparations for long-term strategies will be essential as organizations respond to economic demands while prioritizing employee well-being.

Frequently Asked Questions

What is the expected increase in health benefit costs for 2025?

The preliminary findings indicate a health benefit cost increase of about 5.8% per employee in 2025.

What factors are contributing to this rise in costs?

Complex dynamics such as the shortage of healthcare workers, pricing pressure from health system consolidations, and rising prescription drug costs are key contributors.

How are employers planning to manage these rising costs?

Employers are planning to implement cost-cutting changes including raising deductibles and increasing cost-sharing provisions.

What percentage of health insurance premiums will employees pay?

Employees are anticipated to cover approximately 21% of their health insurance premiums in 2025, consistent with 2024 levels.

When will the final results of Mercer’s survey be released?

The final results, which will include responses from about 2,200 employers, are expected to be released later this year.

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