By Large employers are bracing for a significant increase in healthcare costs in 2025, prompting them to explore innovative strategies to control expenses and enhance the value of their health benefit plans. According to a recent report by the Business Group on Health, these rising costs are expected to be the highest in a decade, driving companies to reevaluate their current healthcare spending and vendor relationships.
Surge in Healthcare Costs
The Business Group on Health, a trade organization representing large employers on health policy issues, released its 2025 projections earlier this week. The report highlights that businesses are experiencing healthcare cost increases driven by chronic conditions such as cancer, heart disease, autoimmune diseases, and mental health issues.
“These higher costs are putting pressure on how employers manage their overall health and well-being programs,” said Ellen Kelsay, President and CEO of the Business Group on Health. “Employers are facing a tipping point that may compel them to adopt strategies previously considered too disruptive.”
Reevaluating Health Benefit Plans
In response to escalating costs, businesses are likely to scrutinize their health benefit plans more closely. The report suggests that employers may consider options previously deemed too disruptive, such as changing long-standing vendor partnerships or adopting alternative plan designs to achieve better value and cost efficiency.
Key Strategies Employers May Adopt:
- Leveraging New Vendors: Exploring newer entrants in the health plan and pharmacy benefit manager (PBM) space that are viewed as more agile and disruptive.
- Alternative Plan Designs: Implementing creative network management and more predictable out-of-pocket costs to enhance value.
- Pharmacy Cost Management: Reassessing relationships with PBMs and seeking better deals or different partners to curb rising pharmacy expenses.
Focus on Pharmacy Benefit Managers (PBMs)
The report emphasizes that employers must address rising pharmacy costs to effectively manage overall healthcare expenses. A survey indicated that one-third of employers plan to reassess their PBMs, potentially seeking new partnerships or negotiating better terms with existing providers.
Impact on Prescription Coverage:
- GLP-1 Drugs: Employers may consider limiting coverage of high-priced weight loss medications, such as GLP-1 drugs, to employees with type 2 diabetes. Additionally, companies might impose requirements like lifestyle management programs or sourcing medications from specific partners.
- Long-Term Savings: While restricting certain drug coverages may reduce immediate costs, employers are encouraged to consider the long-term savings from preventing more serious health conditions through effective medication management.
Enhancing Mental Health Services
Mental health has emerged as one of the top five conditions driving healthcare costs for companies. Although employers are making strides in providing better access to mental health services, the report suggests that businesses will need to further develop their mental health benefits and workplace policies to support employee well-being.
Recommendations for Mental Health Support:
- New Mental Health Benefits: Introducing innovative mental health programs and benefits tailored to employee needs.
- Workplace Policies: Revising workplace policies to create a supportive environment that promotes mental health and reduces stigma.
Balancing Cost and Employee Experience
As employers seek to control rising healthcare costs, they must balance cost-saving measures with maintaining a positive employee experience. The report warns that some strategies, such as disengaging from long-standing partnerships, could disrupt the employee experience if not managed carefully.
Potential Challenges:
- Disruptive Changes: Implementing significant changes to health benefit plans can lead to employee dissatisfaction if not communicated effectively.
- Maintaining Trust: Employers need to ensure that cost-saving measures do not compromise the quality of care or employee trust in the organization’s health benefits.
Preparing for the Future
The Business Group on Health underscores the importance of proactive planning and strategic decision-making to navigate the challenges of rising healthcare costs. Employers are encouraged to engage in comprehensive reviews of their health benefit plans, explore innovative solutions, and foster strong relationships with healthcare vendors to ensure sustainable and effective healthcare management.
Final Thoughts from Ellen Kelsay:
“As employers head into the new year, they face formidable challenges stemming from climbing healthcare costs. It’s crucial for businesses to adopt well-thought-out strategies that not only control expenses but also enhance the overall value and effectiveness of their health benefit plans.”