Employers are bracing for healthcare costs to spike yet again in 2025, and that’s likely to push firms to pursue significant changes, experts said.
The Business Group on Health’s annual look at trends to watch notes that healthcare costs are set to increase next year by the largest margin in a decade. And a survey released in September from Mercer found that employers expect costs to go up by 5.8% in 2025, the third straight year with an increase of at least 5%.
Ellen Kelsay, CEO of the Business Group, told Fierce Healthcare that while employers have plenty of concerns to focus on, “costs are growing at really unsustainable and impractical levels.”
“First and foremost, it’s a healthcare cost story, and it has always been a healthcare cost story, but it’s unusually alarming and concerning this year,” she said. “So I have to lead with that being the most top of mind issue.”
Vindell Washington, M.D., chief clinical officer and head of the Health Equity Center of Excellence at Verily, told Fierce that rising costs are forcing employers to look across their enterprise to identify “what is being squeezed out” to make up for healthcare expenses.
“What are the other elements of a business person’s span of control that are getting pressured as healthcare costs increase, both in terms of how they can support their employees, but also what they can invest in their products and research and development and those other elements?” he said. “I think it’s a big enough number that people are concerned about just that item.”
There is a slew of factors impacting the cost equation, Kelsay said. For one, the number of chronic conditions and the expenses associated with them are on the rise. Particularly costly are cancer, diabetes and musculoskeletal needs, the Business Group’s members have reported.
Kelsay said that in addition to the number of diagnoses for chronic conditions rising, the acuity is also higher, making the cost pressures even more challenging.
“The array of conditions are expanding, the patient population with these conditions are expanding, and the conditions themselves are worsening,” she said. “They’re not getting better.”
“So that is all just a recipe for a lot of concern related to general wellbeing and the focus on prevention,” Kelsay said.
Another major element at play is pharmacy costs, Kelsay said. That’s a trend the Business Group and its members have had a close eye on for nearly a decade, including both everyday prescriptions and high-price specialty pharmacy costs.
There is a lack of transparency in this space that alarms employers, she said, and they have concerns about “dysfunction within the pharmacy supply chain.”
The continued interest in and demand for GLP-1s is emblematic of the broader ecosystem at large, she said, but isn’t a one-off challenge. Obesity and diabetes are major cost drivers for employers, and these treatments are difficult to obtain and frequently come at a high cost.
“I would say the pharmacy issue is not a GLP-1 issue, because these issues and concerns were there long before GLP-1s,” Kelsay said.
Washington said part of the challenge around GLP-1s in particular is that these drugs already have potential to reach a large population, and they’re gaining additional indications over time that can expand that patient pool even further.
Concern in the pharmacy space has led plan sponsors to take a hard look at their pharmacy benefit management contracts and other solutions to see where they could trim the fat a bit. A prime example of this is the team at Blue Shield of California, which is fully launching its new Pharmacy Care Reimagined model in January.
The model sheds a traditional PBM relationship and instead leans on five different companies, a mix of legacy PBMs and disrupters, to manage different elements of the pharmacy benefit package. Angie Kalousek Ebrahimi, senior director for lifestyle medicine at Blue Shield, told Fierce that the response to the program has been positive.
“I think people are applauding the chutzpah of the health plan for moving forward without the PBMs and dramatically reducing cost that way,” she said.
Challenges with PBMs are a microcosm of a broader issue facing employers: solution fatigue and the struggle to find the vendors and partners that will truly address the needs of their workers. Ebrahimi said drilling down to the most effective programs is critical as these are what will support members between visits to the doctor.
It also gets at the cost challenges, she said, as identifying what’s working the most effectively will help eliminate unneeded costs.
Employers are “bombarded” with different point solutions, and sifting through those offerings is a time-consuming challenge.
“Certainly, one of the trends in 2025 is that healthcare costs are increasing, so we need to be a lot smarter about how we are deploying targeted programs for people that actually make a difference,” Ebrahimi said.
Washington said employers look for expert feedback on which vendors to lean on as they may not necessarily feel qualified in many industries to determine the efficacy of healthcare services.
But they also see the clear need for change and the fact that other industries are far better at designing consumer-friendly experiences. For instance, a patient who may have elevated cholesterol and prediabetes could have access to high-functioning solutions for cholesterol management, diabetes and weight loss—all which ping them with duplicative alerts and information.
“Does any individual want three nudges at noon to make sure they consider a salad for lunch?” he said.
So they’re looking for more comprehensive programs that cover more ground, which is where companies like Verily can really find a win, he said.
“Businesses are smart. They wouldn’t be buying this if they didn’t feel like there was some value,” he said. “So they think that the system is not delivering all it should.”