Introduction
Employers in the U.S. are once again facing rising health benefit costs, as Mercer’s latest survey projects an increase of more than 5% for the third consecutive year. According to the preliminary findings from the National Survey of Employer-Sponsored Health Plans, healthcare benefit costs are set to rise significantly in 2025, continuing a trend that has caused concern for both employers and employees alike.
In this article, we will delve into the key findings of Mercer’s report, explore the main factors contributing to these rising costs, and discuss how employers are responding to this ongoing challenge.
Mercer’s 2025 Health Benefit Cost Survey
Survey Overview
Mercer’s annual National Survey of Employer-Sponsored Health Plans provides a comprehensive analysis of healthcare cost trends for employers across the country. For the 2025 survey, more than 1,800 employers participated, offering insights into how healthcare expenses will evolve over the next year.
Expected Cost Increases
The survey found that the total health benefit cost for individual employees is projected to increase by 5.8% in 2025. This estimate includes cost-reduction strategies that employers may implement to mitigate the financial impact. Without these efforts, the report suggests costs could increase by as much as 7% per worker.
This projected rise follows a decade in which healthcare benefit costs grew at a slower pace, averaging just 3% per year. However, since 2023, costs have consistently risen by more than 5%, signaling a shift in the healthcare cost landscape.
Factors Driving the Rise in Employer Health Benefit Costs
Several key factors are contributing to the rising cost of employer-sponsored health plans. These include:
Healthcare Worker Shortages
The ongoing shortage of healthcare workers is a major factor pushing up healthcare costs. As demand for services continues to rise, the limited supply of healthcare professionals has led to higher wages and operational costs for healthcare providers, which are ultimately passed on to employers and employees in the form of increased insurance premiums.
Consolidation Among Providers
The consolidation of healthcare providers, such as hospitals and physician practices, has also contributed to higher costs. When healthcare providers merge, they often gain more bargaining power, allowing them to negotiate higher prices with insurers. This increase in provider pricing leads to higher premiums and out-of-pocket costs for employers and their employees.
Prescription Drug Costs
Prescription drug costs remain a significant driver of healthcare inflation. According to Mercer’s report, drug benefit costs per employee rose by 7.2% in 2024, and similar trends are expected in 2025. The increasing costs of specialty medications, including GLP-1 drugs used for weight loss and diabetes management, are putting additional pressure on health plans.
Employer Strategies to Manage Costs
As healthcare costs continue to climb, employers are being forced to explore various strategies to manage these rising expenses while still providing quality coverage for their workforce.
Cost-Shifting to Employees
According to Mercer’s survey, 53% of employers plan to implement cost-cutting changes to their health plans in 2025, up from 44% in 2024. A common approach is to shift more of the costs onto employees by raising deductibles, co-pays, and other out-of-pocket expenses. By doing so, employers can reduce their share of healthcare costs while maintaining coverage.
Cost-Reduction Initiatives
In addition to shifting costs to employees, many employers are implementing cost-reduction initiatives to curb the financial burden. These initiatives include wellness programs, disease management, and the use of high-deductible health plans (HDHPs) with health savings accounts (HSAs). These efforts aim to encourage employees to take a more active role in managing their health and healthcare expenses.
The Impact on Employees
Out-of-Pocket Costs
While employers are taking steps to control healthcare costs, employees will still bear a significant portion of the financial burden. In 2025, employees are expected to pay 21% of their healthcare costs, the same percentage as in 2024. However, with overall healthcare costs rising, the dollar amount employees pay out-of-pocket will inevitably increase.
Drug Benefit Costs
The rising cost of prescription drugs is having a direct impact on employees as well. With drug benefit costs projected to grow by more than 7%, employees who rely on expensive medications could see their out-of-pocket costs rise significantly, especially if their employer implements cost-sharing strategies.
Conclusion
Mercer’s 2025 survey paints a concerning picture for both employers and employees as health benefit costs continue to rise for the third consecutive year. While employers are doing their best to manage costs through initiatives and cost-sharing mechanisms, the burden on employees is likely to grow. Factors such as healthcare worker shortages, consolidation among providers, and rising prescription drug costs are driving this upward trend, leaving employers and employees alike to navigate an increasingly complex healthcare landscape.
As organizations prepare for 2025, finding a balance between affordable healthcare coverage and sustainable spending will be a key challenge. Employers must continue exploring innovative ways to manage healthcare costs while ensuring that employees can access the care they need without excessive financial strain.
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Frequently Asked Questions (FAQs)
1. Why are health benefit costs expected to rise in 2025?
The rise in healthcare costs is driven by several factors, including healthcare worker shortages, consolidation among healthcare providers, and increasing prescription drug prices.
2. How much will health benefit costs increase in 2025?
According to Mercer’s survey, health benefit costs for individual employees are expected to increase by 5.8% in 2025. Without cost-reduction initiatives, costs could rise by 7%.
3. What can employers do to manage rising healthcare costs?
Employers are implementing cost-reduction strategies such as raising deductibles and co-pays, promoting wellness programs, and using high-deductible health plans to manage rising healthcare expenses.
4. How will employees be affected by the cost increases?
Employees will continue to pay 21% of their healthcare costs, but as overall healthcare expenses rise, they may face higher out-of-pocket costs, particularly for prescription drugs.
