Health Care Costs Are Frightening Employers—but These Strategies Can Make Them Less Scary

Health care costs aren’t getting any less scary for employers. In fact, new projections find that inflation, GLP-1 drugs, and catastrophic medical claims will push employer health care costs significantly higher next year.

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.

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 for those years, according to the nonpartisan group with more than 31,000 members.

Rising health costs are a frightening prospect for employers, but there are some ways employers can hold down budgets. Here are some strategies.

Think about GLP-1 drugs. Employers report that use of pricey GLP-1 (glucagon-like peptide-1) drugs, such as Ozempic and Wegovy, are a big reason for the rising health costs. Although the drugs are in high demand from employees and have shown promise in treating obesity, their high cost—typically between $1,000 and $1,500 a month per patient—is a considerable issue for employers.

But there are a number of steps employers can take to better control the cost. Some of those strategies, according to Rae McMahan, senior vice president of payor solutions at health firm Prescryptive, include:

• Understand if there’s a direct contracted price from the manufacturer. New models may offer price relief through a direct-to-employer price.
• Ensure members are utilizing coupons that are available, that the pharmacies are processing them, and that you and/or your third-party administrator or pharmacy benefit manager are adjusting the members’ accumulators accordingly.
• Press your pharmacy benefit manager and consultant to have a detailed discussion on alignment between drug coverage and medical coverage in obesity care. 
• Look to align around clinical criteria utilized during the prior authorization process compared to the indication on the drug label to understand your spend and any rebate impacts. 

Put control initiatives in place. When asked by IFEBP what types of initiatives would have the most impact on managing costs for 2025, employers noted utilization control initiatives (cited by 27% of employers, up from 22% last year), such as requiring prior authorization, using disease management, and adopting nurse advice lines.

“During 2024, employers have been implementing several strategies to manage these costs, with an increased focus on utilization control initiatives like prior authorization and case management to guide medication adherence and manage side effects,” said Julie Stich, vice president of content at IFEBP.

Offer guidance and resources to employees about healthy choices. One of the most effective ways to support positive outcomes for organizations and their workforce is by offering plan members guidance and resources, said Oliver Ayres, president of benefits firm Key Benefit Administrators.

“Healthy lifestyle changes are an essential element of driving positive outcomes,” he said, adding that such changes can work in tandem to offering GLP-1 drug coverage. “Ensuring access to telehealth services and offering coaching services to support employees with their diet, exercise, and more can ensure effectiveness and manage side effects” of GLP-1 drugs and other medications.

Share costs with employees. One obvious strategy to hold down costs for employers is to share costs with employees. Those methods include raising deductibles and implementing other cost-sharing provisions that result in higher out-of-pocket costs for plan members when they seek care. Although many employers have avoided making these types of changes, said Tracy Watts, Mercer’s national leader for U.S. health care policy, doing so becomes more difficult in a period of sustained increased cost growth.

“Employers are still concerned about health care affordability and ensuring that employees can afford the out-of-pocket costs when they seek care,” she said. “But they also need to manage the overall cost of health care coverage to achieve a sustainable level of spending for the organization. Balancing these competing priorities will be a challenge over the next few years.”

Tout mental health help. There have been significant increases in utilization of behavioral health offerings recently, according to Mercer data. Helping to keep employees’ stress at bay through various mental health supports, including apps, stress programs, and a healthy work environment, can have significant benefits—including a reduction in the overall cost of health care.

“The more organizations can support resiliency-building, teaching self-care, and prioritizing work/ life balance before things escalate into significant symptoms with functional impacts, the better,” said Jennifer Birdsall, clinical psychologist and clinical director at ComPsych, a mental health provider that works with employers. “This is where the continuum of care, which includes prevention, comes into play.”

Understand the interplay between medical and pharmacy benefits. Specialty drugs may be covered by a medical benefit or pharmacy benefit, McMahan explained.

“There’s often a gray area for where specialty falls, but it can relate to whether the drug is being administered in a clinical setting, like a doctor's office, outpatient clinic, or infusion center,” she said. “Lean on your consultant to understand the interplay. Having a comprehensive approach to managing all drugs, and ensuring programs are complementary and not contradictory, can help keep the spend for specialty and weight health management in check.”