The cost of health care—and consequently, employee benefits—has been steadily climbing in recent years, creating challenges for businesses and employees alike. Projections for 2025 suggest that health care spending will continue this upward trend, mirroring the increases seen in 2024. Experts predict that employers could see health care expenses rise between 7% and 8%, leading to higher premiums, deductibles, and copayments for employees.
For most businesses, employee benefits represent the second-largest expense after employee wages. This makes understanding and managing these rising costs critical for maintaining financial health and supporting employees.
Let’s take a closer look at the primary factors fueling these cost increases.
Widespread Use of GLP-1 Medications
Medications known as glucagon-like peptide-1 (GLP-1) drugs, commonly prescribed for weight loss and diabetes, are gaining significant traction—including for new indications such as Substance Use Disorder (SUD). According to industry data, approximately 1 in 8 Americans have tried these drugs, with usage expected to climb in the coming years.
These medications are costly, averaging over $1,000 per month, and are often not fully covered by health plans unless prescribed for diabetes management. Because these treatments are intended for long-term use, their growing popularity is expected to contribute substantially to rising health care costs.
While debate exists around the implication that use of GLP-1’s for weight loss reduces associated spend for comorbid conditions, studies are showing that this therapeutic class is contributing to waste in the system. One recent study illustrated many patients revolve in/out of use with 10%-30% discontinuing use within the first two months and 40%-60% of members discontinuing therapy at one year. Some industry insiders believe that ROI for a weight-loss indication will occur when the average cost of these medications reaches $300/month.
Rising Drug Prices
Several commonly used medications are experiencing price hikes in 2025. Treatments for conditions such as osteoporosis, cancer, Type 2 diabetes, and atopic dermatitis are anticipated to increase in cost by 4% to 10% or more. These rising drug prices are placing additional pressure on health care spending.
High-Cost Cell and Gene Therapies
Innovative treatments like cell and gene therapies (CGTs) represent groundbreaking advances in medicine. These therapies address severe conditions such as certain cancers, sickle cell anemia, and spinal muscular atrophy, but they come with hefty price tags—ranging from thousands of dollars per week to millions for a single dose.
As more of these treatments gain FDA approval and become available, the costs associated with their use are expected to climb. By 2025, approximately 100,000 patients in the U.S. could be eligible for CGTs, potentially driving $25 billion in health care spending.
Increased Use of Biologics
Biologic drugs, which are derived from living organisms, are another significant factor contributing to rising health care costs. These treatments are effective for managing complex conditions like cancer, rheumatoid arthritis, and inflammatory bowel diseases, but their high costs make them a substantial expense.
Many times these medications are infused, and site of care makes all the difference. A recent study highlighted that isolating ingredient cost alone (i.e. the price of the medication itself, not the clinician’s skill-level associated with the cost of administering the infusion), on average the cost for a single treatment for drugs administered within a health system was $8,200 more than home-infusion; on average, physician offices charged $1,500 more for the drug than when the drug was dispensed and administered via a home-infusion vendor.
On the brighter side, biosimilars—more affordable alternatives to biologics—are becoming increasingly available. These drugs offer similar effectiveness at a lower price, potentially helping to ease some of the financial burden in the years ahead.
Health Care Labor Shortages
The growing demand for health care services, paired with a limited supply of workers, is driving up labor costs in the industry. Factors such as an aging population, workforce retirements, and a lack of new talent entering the field are exacerbating the issue. Unfortunately, these higher labor costs often trickle down to employers and employees through increased health care expenses.
Chronic Health Conditions
Managing chronic conditions continues to account for the majority of health care spending in the U.S., with about 90% of the nation’s health care dollars going toward people with chronic or mental health issues. As the prevalence of chronic conditions like heart disease, diabetes, and obesity grows, so does the associated cost burden.
An Aging Population
America’s aging population is another key driver of health care cost increases. With over 55 million people aged 65 or older and that number projected to reach nearly 80 million by 2040, the need for health care services is only intensifying. Older adults typically incur significantly higher health care costs than younger individuals, further straining the system.
What Can You Do?
With employee benefits representing a significant portion of your business expenses, managing health care costs effectively is more important than ever. Effective advisors work alongside clients to curate a leading-edge portfolio of employee benefits and human resource solutions—built to empower a healthy, productive, and secure workforce—while delivering an enhanced opportunity for clients to attract and retain desirable talent. It’s not enough for organizations to simply offer the latest employee benefits product, those firms succeeding in the war for talent build holistic strategies to optimize employee health and wellbeing—engineering a curated benefits offering focused on keeping employees healthy to work, focused at home, and prepared to retire. We’re excited to be incubating meaningful change with our client-partners to successfully navigate the challenges ahead.
