Employers Project 8%-9% Rise in Health Care Costs for 2025

Inflation, GLP-1 drugs, and catastrophic medical claims will push employer health care costs significantly higher next year, according to new projections.

Two new reports found that employers’ health care costs will rise between 8% and 9% in 2025 if organizations don’t find ways to reduce spending.

The average cost of employer-sponsored health care coverage in the U.S. is expected to increase by 9% in 2025, surpassing $16,000 per employee, according to an analysis from Aon. That’s significantly higher than the 6.4% increase in health care budgets that employers experienced from 2023 to 2024, with an average cost of $14,823 per employee after cost-saving strategies. Employers bore the brunt of the expense in 2024, paying $11,956 versus the $2,867 average that employees paid, according to Aon’s analysis of its Health Value Initiative database, which captures information for more than 950 U.S. employers representing approximately 6.7 million employees.

Meanwhile, a survey from the International Foundation of Employee Benefit Plans (IFEBP) predicted a slightly lower—but still high—increase for 2025, finding that U.S. employers project a median health care plan cost increase of 8%. This is an increase over similar surveys conducted in 2022 and 2023, which projected a 7% rise, according to the nonpartisan group with more than 31,000 members.

Both reports were released Aug. 15.

Rising employment levels and wage increases fueled by widespread inflation during the past few years are partly responsible for pushing health care costs higher, said Debbie Ashford, North America chief actuary for health solutions at Aon.

“To keep pace with these pressures, the health care industry negotiates higher prices, which in turn emerge as higher medical trends,” she explained.

The Impact of GLP-1 Drugs

The other big trend pushing employer health care costs higher is the use of pricey GLP-1 (glucagon-like peptide-1) drugs, such as Ozempic and Wegovy, which have been soaring in popularity over the past year. Although the drugs have been in high demand from employees and have shown promise for treating obesity, their high cost—typically between $1,000 and $1,500 a month per patient—is a considerable problem for employers.

“Specialty drugs remain the leading factor in spending, even though they represent a small fraction of overall utilization,” Ashford said. “The demand for GLP-1 medications has skyrocketed, and a surge in new drugs in the GLP-1 category is expected to drive up costs even further, adding 1% to the aggregate health care cost increase.”

In the IFEBP survey, employers said specialty/costly prescription drugs were the top reason for cost increases (20%, up from 16% last year), followed by medical provider costs (18%, up from 14% last year) and utilization due to chronic health conditions (16%, down from 22% last year).

Respondents who selected specialty/costly prescription drugs as the primary reason for cost increases indicated that GLP-1 drugs were predominantly responsible (cited by 75%), according to IFEBP.

Those findings follow a recent survey from Gallagher that found specialty medications are one of employers’ top two health care cost concerns. Increasingly, employers that offer coverage of GLP-1 drugs are managing utilization by requiring prior authorization and tying coverage to ongoing participation in a weight-management program, Gallagher found.

The worries about cost come as more employers offer coverage of those medications.

Earlier this year, IFEBP found that employer coverage of GLP-1 drugs is up 8 percentage points since last fall. More than half of employers (57%) currently provide coverage for type 2 diabetes only—the original intended use for the drugs—up from 49% in 2023. Perhaps even more significantly, 34% provide coverage for both type 2 diabetes and weight loss (up from 26% in 2023), according to the benefits organization’s May survey of 279 employers.

Cost Strategies

Even though the projected health cost increases for 2025 are high, they can come down—if employers implement strategies to help manage costs. That was a tactic used by several employers this year, said Julie Stich, vice president of content at IFEBP.

“During 2024, employers have been implementing several strategies to manage costs, with an increased focus on utilization control and cost-sharing initiatives,” she said.

Those two strategies will continue to be the main ones available to employers in 2025.

When asked what types of initiatives would have the most impact on managing costs for 2025, employers noted utilization control initiatives such as requiring prior authorization, utilizing disease management, and using nurse advice lines (cited by 27% of employers, up from 22% last year), and cost-sharing initiatives such as raising deductibles, co-insurance, co-pays, or premium contributions (21%, up from 16% last year).

Plan design initiatives, including dependent eligibility audits, high-deductible health plans, spousal surcharges, and formulary changes (cited by 15% of employers, up from 12% last year), and purchasing/provider initiatives such as offering telemedicine, price transparency tools, and centers of excellence for employees (9%, down from 12% last year) were other methods employers said would make a difference regarding costs next year.