Projected health care cost trend jumps to decade high

WASHINGTON, D.C., Aug. 20 – Projected health care cost trend jumped to almost 8% for 2025, the highest amount in more than a decade, according to Business Group on Health’s 2025 Employer Health Care Strategy Survey.

The predicted surge in employer health care spending – actual health care costs have grown a cumulative 50% since 2017 – comes against a backdrop of inflation, heightened demand for expensive drugs such as GLP-1s, potentially curative but high-cost cell and gene therapies, and the ongoing burden of treating cancer and other chronic conditions.

“Employers are steadfast in their desire to provide comprehensive offerings to their workforces,” said Ellen Kelsay, president and CEO of Business Group on Health. “They continue to absorb much of the upticks in cost and remain keenly focused on lowering spending and improving outcomes and experiences for employees. However, the foreboding cost landscape has accelerated the need for bold transformation, and employers seek partners who will make that happen.”

The Business Group survey, released today in Washington, D.C., also showed that pharmacy spending was largely responsible for the increased health care trend in 2023; that GLP-1s have created challenges for employers; and that while cancer and musculoskeletal conditions remained the top two cost drivers, this year saw more employers reporting cardiovascular conditions as the third costliest.

The survey gathered data on a range of critical topics related to employer-sponsored health care for the coming year. A total of 125 large employers across varied industries, who together cover 17.1 million people in the United States, completed the survey between June 3, 2024, and July 12, 2024.

“While health care costs exert pressure on a fragmented health care environment, employers will always work to strike a balance between cost management, quality improvement and enhanced employee experience,” Kelsay added. “These are challenging times for benefits professionals.”

More details on employers’ top areas of concern, according to the survey: 

• Health care costs are expected to grow at the highest rate in a decade.

Before plan design changes, the projected health care cost trend, which refers to the anticipated percentage increase in the cost to treat patients year over year, jumped from 6% in 2022 to almost 8% for 2025. Employers also reported that they were preparing to continue to absorb much of the increases, at least for the upcoming year, while more rigorously leaning into additional cost management strategies.

• Pharmacy costs are largely responsible for cost increases and consume a growing share of the health care budget.

The median percentage of health care dollars spent on pharmacy rose from 21% in 2021 to 27% in 2023. Fully 76% of employers reported being “very concerned” with overall pharmacy cost. Just 1% of employers said the prescription drug market is competitive enough to keep medications affordable, a further decline from the 5% of employers who thought so in 2023. In addition, most employers called for a combination of market and government reform to curb drug prices.

• GLP-1 medications, a top driver of pharmacy costs, have created challenges for employers. 

Some 79% of employers said they saw a heightened interest in obesity medications,  including GLP-1s, among their covered members. While these medications are a standard treatment for diabetes (covered by 96% of employers in 2024), eligibility has broadened to include obesity (covered by 67% of employers in 2024) and cardiac conditions (covered by 34% of employers in 2024). It is therefore no surprise that 96% of employers expressed concern about the long-term cost implications of GLP-1s.

• While cancer remained the top condition driving cost, more employers said cardiovascular conditions were among their top three cost drivers.

While employers recognize that cancer costs are fueled by factors such as an increased prevalence of cancer among younger populations and the growing cost of cancer treatments, they also see the need to boost cancer prevention efforts, such as early screenings. It is noteworthy that employers reported musculoskeletal conditions as an ongoing cost concern and that 40% of employers identified cardiovascular conditions as their No. 3 cost driver, up from 30% in 2023.

• To address costs and improve performance, employers plan to reassess the quality and effectiveness of vendor partnerships. 

Respondents said they would leverage the request for proposal (RFP) process to secure better vendor pricing and end partnerships with underperformers, while having an eye on non-traditional health plans and transparent pharmacy benefit manager (PBM) arrangements as additional levers to lower costs. Employers also indicated that they would integrate benefit offerings to streamline and simplify member experience.

• Mental health continues to be a priority for employers, with a focus on access and ways to eliminate cost barriers to use.

Fully 79% of survey respondents reported that improving access is a top mental health priority for 2025. To address both access and cost, employers said they were continuing to pursue strategies such as no- or low-cost virtual counseling, eliminating out-of-network barriers and the use of on-site counselors.

• Employers remain committed to health equity efforts.

To narrow health disparities within their plans and programs, employers reported continuing to pursue targeted approaches that include working with employee resource groups (ERGs) to better promote benefits and well-being initiatives. Employers also are focused on issue areas that include affordability for lower-income employees; women’s and reproductive health; and support for the health needs of LGBTQ+ employees, as well as employees with a disability or who are neurodiverse.

• Protecting ERISA preemption is employers’ highest policy priority.  

Employers continue to value the preemption provisions under the Employee Retirement Income and Security Act of 1974 (ERISA), because it allows for the offering of  comprehensive  benefits to employees in a nationally consistent manner. Survey respondents also identified the following as national priority priorities: addressing mental health and health care workforce shortages and broadening the availability of generic medications.