Multiple reports indicate that employers can expect rising healthcare costs in 2025. To address these costs, employers are holding their vendor partners accountable and evaluating their health plan and PBM partners.
The post How Can Employers Manage Rising Healthcare Costs In 2025? appeared first on Above the Law.
The Business Group on Health, an employer advocacy organization, projects that healthcare costs will rise by 7.8% in 2025, the highest rate of increase in more than a decade.
Consulting firm Mercer expects total health benefit costs per employee to rise 5.8% in 2025, even after planned measures to reduce costs.
Consulting firm WTW, meanwhile, projects that global medical costs will grow by 10.4% in 2025.
Whatever the number, one thing is clear: Rising healthcare costs is a significant challenge that employers must contend with.Faced with these cost pressures, employers are trying to hold their vendor partners accountable and are evaluating their health plan and pharmacy benefit manager partners, experts say. They’re looking to conduct more requests for proposals, invest in well-being and gain access to medical claims data from their health plans. They are trying out these strategies as employers increasingly feel sidelined by their insurance carriers and PBMs who they believe aren’t always looking out for their needs.
“There are a lot of things out there that [are making]employers say, ‘Something has gotta give,’” said Cheryl Larson, president and CEO of the Midwest Business Group on Health, in an interview.
While they can take some actions, ultimately, employers can’t fix healthcare prices by themselves. Policy changes at the state and federal levels are needed.
What’s contributing to rising costs?
Several things are contributing to increasing healthcare costs, but one of the biggest factors is pharmacy costs. According to the Business Group on Health, pharmacy costs accounted for more than a quarter of healthcare costs in 2023. Rising drug costs are largely driven by expensive specialty medications, cell and gene therapies and GLP-1s, said Ellen Kelsay, president and CEO of the organization.
A survey by the National Alliance of Healthcare Purchaser Coalitions, an advocacy organization for employers and purchasers, backs this up. About 99% of respondents listed drug prices as a significant threat to affordability. Following drug prices, 84% of respondents listed high-cost claims and 79% listed hospital prices. A high-cost claim is generally a claim from an individual that is at least $250,000 and can result from several different conditions like cancer or neo-natal care. According to the Business Group on Health, there is an increase of costly conditions like cancer, cardiovascular disease and musculoskeletal conditionsthat employers are having to cover.
“The underlying problem is distorted and broken markets,” said Shawn Gremminger, president and CEO of the National Alliance of Healthcare Purchaser Coalitions. “For hospitals and insurers it’s largely due to consolidation and anti-competitive practices, for PBMs it’s vertical integration and opaque practices, and for drug manufacturers it’s patent gaming. Until fixed, these problems will remain and the cycle of higher prices each year will continue.”
Not only are there more high-cost claimants, there are also more people using their health benefits now, according to Regina Ihrke, senior director and health, equity & wellbeing leader for North America at WTW.
“Usually we see 20 to 30% of any employer population that doesn’t use the plan at all. We have fewer people not using the plan over this last year than we’ve seen,” Ihrke said in an interview.
While all employers are facing increasing healthcare costs, small employers and their employees are struggling more acutely. A report recently released by the Commonwealth Fund found that in 2023, small business employees paid an average of $7,529 per year for family premiums, which is $733 more than employees at large firms, and also faced deductibles that were over $1,500 higher. This trend is likely to continue.
“If anything, small firms have less leverage than large firms do. They are somewhat more at the mercy of the market, given their smaller size,” said Sara Collins, senior scholar and vice president for health care coverage and access and tracking health system performance at the Commonwealth Fund. She noted that because small businesses have fewer employees covered in their plan, they don’t have the bargaining power that larger companies have with their rate negotiations with insurers.
What can employers do to manage costs in 2025?
In order to manage these rising healthcare costs, employers are increasingly starting to hold their vendor partners accountable for high quality care and are asking for evidence of improved outcomes, experience and lower costs.
“Employers will conduct increased [request for proposal] activities in the year/s ahead as they assess partnerships, leveraging current partners for enhanced pricing, reporting and accountability,” Kelsay stated. “They also will closely review new health plans and PBM partners, which are more agile and which may offer alternative network models and greater price and quality transparency. Employers will also invest in well-being, with a focus on prevention and immunizations, primary care, chronic disease management and on achieving provider quality.”
The National Alliance of Healthcare Purchaser Coalitions survey also showed that employers aren’t happy with their PBMs: 52% are considering changing their PBM in the next one to three years.According to Gremminger, PBMs use “opaque business practices” that allow them to change the status of a drug from generic to specialty to name brand without the employer’s consent. The big three PBMs — CVS Caremark, Express Scripts and Optum Rx — also all own their own specialty, retail and mail order pharmacies and “strategically price drugs to maximize revenue to their internal pharmacy chains,” he declared.
Larson of Midwest Business Group on Health also noted that employers shouldn’t be solely relying on their brokers and consultants for guidance. Employers aren’t healthcare experts, so veryoften they lean on brokers and consultants. But sometimes PBMs and third party administrators give consultants and brokers financial incentives to direct employers to themselves, experts previously told MedCity News.
Aside from reviewing their PBM relationships and demanding changes, employers are also looking to understand their healthcare costs better. Many employers believe that gettingaccess to their medical claims data can ensure they’re fulfilling their fiduciary responsibilities of getting the best health benefits for the best cost. Some have taken to suing their insurance carriers, alleging that they aren’t providing full access to their data, according to Larson. This includes the Kraft Heinz/Aetna case which went into arbitration. W.W. Grainger also sued Aetna in May for not giving access to data.
Gremminger echoed this, noting that employers “need to focus on their fiduciary responsibility and play hardball in negotiating with plans and hospitals, establish narrower networks focused on cost and value, and eliminate conflicts of interest in contracts.”
According to Ihrke of WTW, employers’ strategies depend on how much risk they want to retain. Some employers may be considering Individual Coverage Health Reimbursement Arrangements, in which they give employees a monthly allowance of tax-free money to buy healthcare services for their own specific needs. Others may be looking at plan design and cost sharing.
“We haven’t really looked at plan design and cost sharing since like 2011 after Obamacare was passed. It’s time to really look at those and say, ‘Does my strategy before still make sense? Am I solving for the affordability of a health plan for my low wage workers? Are they in the right plans? Are they over-insured or under-insured?’” she said.
Ultimately, however, addressing costs “requires public policy fixes at both the state and federal levels to drive market competition, transparency, fair pricing and affordability,” Gremminger argued. This includes banning anti-competitive contract provisions between hospitals and health plans, requiring health plans to provide full disclosure of claims data to employers “without restrictions or additional costs,” and more price transparency for PBMs.
However, only time will tell if these strategies and policy fixes will be enough to curb future medical costs.
Photo: santima.studio, Getty Images
