Employer health care costs expected to surge nearly 8% in 2025

Health care costs expected to surge in 2025: ©Christian Delbert - stock.adobe.com

The cost of employer-sponsored health care is expected to rise by nearly 8% in 2025, marking the largest increase in over a decade, according to a survey from the Business Group on Health. The report highlights significant challenges for employers as they grapple with the rising costs, driven by a mix of inflation, the growing demand for costly medications, and the ongoing treatment of chronic conditions like cancer and cardiovascular diseases.

The survey, which collected data from 125 large employers covering more than 17 million people across the United States, found that health care costs have surged by a cumulative 50% since 2017. Ellen Kelsay, president and CEO of the Business Group on Health, acknowledged the mounting pressures but reaffirmed employers' commitment to providing comprehensive health care to their workforce. “Employers are steadfast in their desire to provide comprehensive offerings to their workforces,” Kelsay said in a statement. “However, the foreboding cost landscape has accelerated the need for bold transformation.”

Pharmacy costs are a major problem

One of the primary factors behind the projected increase is the rising cost of pharmaceuticals, particularly drugs like GLP-1s, used in treating obesity and diabetes. The survey found that pharmacy spending now accounts for 27% of total health care costs, up from 21% in 2021. The majority of employers (76%) expressed deep concern about the overall cost of prescription drugs, with a shrinking minority believing that the current market is competitive enough to keep prices affordable.

GLP-1 medications, in particular, have become a focal point for employers, as their expanded use for conditions beyond diabetes, such as obesity and cardiovascular health, has raised concerns about their long-term cost implications. Nearly all employers surveyed (96%) voiced concern over the sustained financial impact of these drugs.

The cost of chronic conditions

Cancer remains the top cost driver for employers, fueled by rising cancer rates among younger populations and the escalating costs of treatment. However, the survey also revealed a significant uptick in the reporting of cardiovascular conditions as a major cost factor, with 40% of employers citing it as their third-largest cost driver, up from 30% last year. Musculoskeletal conditions also continue to be a substantial financial burden.

To combat these rising costs, employers are increasingly looking to renegotiate vendor contracts and explore non-traditional health plans. Many are also focusing on streamlining benefits to improve the overall experience for employees while seeking more transparent arrangements with pharmacy benefit managers.

Mental health remains a critical priority, with 79% of employers aiming to improve access to mental health services in 2025. Strategies include eliminating cost barriers to virtual counseling and increasing the availability of on-site counselors.

Additionally, employers remain committed to health equity initiatives, with targeted efforts to support lower-income employees, women’s and reproductive health, and the health needs of LGBTQ+ and neurodiverse employees.

At the policy level, protecting the preemption provisions under the Employee Retirement Income Security Act of 1974 (ERISA) remains a top concern for employers. This law allows them to offer consistent benefits across the country. Other national priorities identified in the survey include addressing mental health and health care workforce shortages and increasing the availability of generic medications.