Employer health insurance costs expected to rise

The preliminary results from the report are based on responses from over 1,800 employers surveyed from June 12 through August 12. The final report, which will be released later this year, will include data from around 2,200 employers.

According to Mercer, total health benefit cost per employee is expected to rise 5.8% on average in 2025, even after accounting for planned cost-reduction measures. Employers estimated that their costs would rise by around 7% on average if they took no actions to lower costs, and smaller employers — defined as those with 50 to 499 employees — said their costs would rise around 9% if they took no action to lower them.

These projections would mark the third consecutive year that health benefit cost increases have been above 5%, following a decade of cost increases that averaged around 3%.

The survey found that 53% of employers said they intend to make cost-cutting changes to their plans in 2025, an increase from 44% in 2024. Typically, these cost-cutting changes involve raising deductibles and other cost-sharing provisions and ultimately result in higher out-of-pocket costs for plan members.

What's driving the increase in cost?

A number of factors are likely driving higher cost trends, according to Mercer. While there have been significant utilization increases within a few areas like behavioral healthcare and GLP-1 medications, overall utilization had a fairly modest impact on cost trends this year, Mercer said.

Price dynamics had the largest impact on cost trends, and one source of pricing pressures is the increasing gap between the supply of healthcare workers and the demand for healthcare services, which continues to grow as older Americans become a larger part of the population.

The consolidation of health systems is also having an effect, Mercer found. While consolidation could generate savings in the future through increased efficiency and improved integration, some evidence suggests it has put pressure on pricing because larger health systems have greater negotiating power than smaller ones, Mercer said.

Mercer also noted that the introduction of healthcare price transparency requirements in 2021 may have had an unintended consequence of driving up provider reimbursements, as providers now know when other providers have negotiated higher rates from a health plan.

The fastest-growing component of health benefit cost has been spending on prescription drugs, Mercer found. Employers reported that drug benefit cost per employee increased 7.2% in 2024.

Mercer asked large employers — defined as those with at least 500 employees — about their strategic priorities for health programs in the future. "Managing high-cost claimants" and "managing cost for specialty drugs" were the top two strategies listed.

"Employers are still concerned about healthcare affordability and ensuring that employees can afford the out-of-pocket costs when they seek care," said Tracy Watts, Mercer's U.S. leader for health policy. "But they also need to manage the overall cost of healthcare coverage to achieve a sustainable level of spending for the organization. Balancing these competing priorities will be a challenge over the next few years." (Mercer press release, 9/12; Minemyer, Fierce Healthcare, 9/13)

These ready-to-use slides detail the current trends and major priorities in the employer-sponsored insurance market. The materials are based on Advisory Board conversations with health plan leaders, benefits brokers and consultants, and — more importantly — employer health benefits and HR leaders. Use these slides to guide your conversations about evolving trends in the employer-sponsored insurance market.