5 trends shaping the benefits landscape for small and midsize businesses

As the first half of 2025 comes to a close, the employer-sponsored benefits market faces complex challenges. Political shifts, market instability and stubborn inflation have all contributed to those challenges, making it ever more difficult for businesses to provide high-value benefits while managing costs.

Small and midsize employers (those with fewer than 50 employees) have had it particularly tough. Compared with larger firms, smaller businesses often lack the human resources sophistication, negotiating power and population size needed to get the best deal on their health plans. This leaves small and midsize businesses with solutions that have limited employee appeal, high premiums and few tools to mitigate cost. 

As SMBs continue to feel the squeeze, the benefits brokers who advise them can provide value by guiding them to solutions designed with their specific needs in mind. Below are five key trends shaping the 2025 benefits landscape that brokers and employers should consider.

1. Cost containment amid rising medical price trend

SMBs are motivated to offer health benefits as a means of competing with larger firms for talent, but escalating health care costs and fewer resources to manage them pose significant challenges. PwC projects an 8% increase in employer health costs in 2025, driven by inflationary pressure, prescription drug spending and behavioral health usage. Worse, employees at smaller firms pay a higher share of total premiums than do those at larger companies — as much as double in some states — according to data from Commonwealth Fund.

However, two models in the group and individual markets have emerged as promising solutions. One is level funding, which offers SMBs the cost control of self-funding via predictable monthly payments and potential refunds on unused claims. With level funding, employers pay a premium for stop-loss coverage, which kicks in when claims exceed a certain threshold, helping employers manage risk. And when employers’ plan design removes barriers like copays and deductibles on routine health services, they tend to see a higher usage of the services that keep people healthy and a lower usage of the emergency room and other services often needed when care is delayed.

The other model is individual coverage health reimbursement arrangements, which have proven equally game-changing for SMBs. ICHRAs allow employers to set a defined benefits budget and reimburse employees for purchasing the individual health plan of their choosing. This tax-advantaged solution offers two distinct advantages. It allows employers to spread risk across a much larger pool of people, thereby reducing the burden on a company with a small population, while allowing employees to purchase only what they need and not pay for things they don’t. 

2. Expansion of virtual care and digital health services

The demand for virtual care and telehealth services exploded during the COVID-19 pandemic, and usage remained high in the years following. A 2023 study by McKinsey found that 17% of all health care visits from 2020 to 2022 were virtual, compared with roughly 1% in February 2020. This trend has been a signal to reimagine the role that benefits can and should play in the lives of enrollees. More specifically, it means plan design that includes no-cost access to virtual care services for general medicine and physical therapy, bolstered by digital payment solutions that ease out-of-pocket spending.

It also means using claims data more effectively to mitigate the costliest health conditions. Take musculoskeletal health, for example. Employers spend more than $350 billion — nearly 15% of their total medical costs — annually on treatment for employees with MSK disorders, according to Kaiser Permanente. Claims data can be used to identify high-risk members who may benefit from nonsurgical interventions, second opinions and personalized clinical guidance to manage their conditions. Integrated services like these will be critical to helping employers effectively drive down costs. 

3. Alternative payment models

Another key trend shaping the benefits landscape in 2025 is alternative payment models. These are value-based health care payment structures that incentivize providers to focus on quality, efficiency and patient outcomes as opposed to the traditional fee-for-service model, which pays for each service delivered. 

New entrants in this space have developed episode-based prices for more than 150 conditions and procedures that cover about 80% of medical care and costs. Providers who achieve cost and quality outcomes can participate in the savings they generate, and the APMs can flex with variable provider appetites for risk. Keep an eye out for health plans that offer value-based provider networks and APMs as a key strategy for long-term health care savings.

4. Continued expansion of ICHRAs

ICHRAs remain a promising solution for SMBs looking to offer benefits that are both cost-effective and appealing to employees with diverse health needs. Data from HRA Council points to an 84% increase in adoption by applicable large employers from 2023 to 2024, and continued growth is expected in 2025.

There are several trends underlying this growth. One is the introduction of state legislation that provides tax credits for small businesses that offer ICHRAs. Indiana was first to introduce this incentive, in January 2024, while Georgia, Texas and Ohio have followed suit with similar bills this year. Under the Ohio bill, for example, employers with from two to 50 employees would be eligible to receive a $400 nonrefundable credit per employee, provided they offer ICHRAs to at least a portion of their workforce and contribute at least $400 per employee to the ICHRAs in a taxable year.

Beyond the financial incentives, enhanced customer experiences will be critical to ICHRAs’ long-term success. This is especially true for SMBs, which tend to have underresourced HR teams. It’s important to consider ICHRA administrators with end-to-end solutions that support the entire client experience — from sale to implementation, enrollment to renewal — versus handing them off to a tech platform that offers little to no human support to address issues when they arise. 

5: Demanding more from health insurers

According to Forrester, only 52% of consumers trust their health insurer to act in their best interest, putting overall satisfaction with the industry at a three-year low. Employers and their employees deserve better — and they’re going to expect it in 2025 and beyond.

So what does better look like? It means creating benefits that actually benefit businesses. It’s plan design that puts member experience at the center. It’s removing cost barriers while providing innovative tools to manage out-of-pocket costs. And it’s surrounding members with accessible customer support teams to provide guidance when it’s needed. 

These trends underscore what we expect will be a pivotal year for health benefits. Brokers must keep these trends top of mind as they prepare their clients to make important decisions about health coverage.

Steve Wolin is CEO of Gravie. Contact him at [email protected].