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Benefits Strategy

Taking Action on Health Care Costs: A Business Group on Health Viewpoint

In an increasingly challenging cost environment, employers must strike a strategic balance between managing short-term trend increases and driving long-term value.

March 14, 2025

Introduction

Health care costs are reaching a critical inflection point. While the top conditions driving this trend remain consistent (i.e., cancer, musculoskeletal, cardiovascular, etc.), their economic impact is intensifying. This is due to increasing disease prevalence—particularly among younger generations—an aging workforce and the related costs of medical and pharmaceutical therapies.

According to findings from Business Group on Health’s 2025 Employer Health Care Strategy Survey, health care costs in the U.S. are expected to increase almost 8% in 2025 before plan design changes, the highest rate forecasted in more than a decade.1 What’s more, costs have climbed by more than 50% since 2017, placing a heightened strain on employer-sponsored health coverage. Multinational employers face similar challenges as health care costs continue to increase globally, with 45% of surveyed employers indicating that management of health care costs is a top objective of their global well-being programs. Ultimately, medical inflation, worsening population health and rising health care and medication costs are putting financial pressure on public health systems, resulting in downstream cost shifting onto private payers.

An ever-changing macroeconomic environment further complicates the payment landscape, as each day, the U.S. sees 10,000 people becoming Medicare eligible and 10,000 individuals being born, nearly half of whom qualify for Medicaid.2,3 This U.S. demographic shift toward publicly funded health programs consumes much of the focus of providers, insurers, third-party administrators (TPAs) and other key stakeholders in the health care industry—exacerbating the cost shift headwinds for employers.

While annual cost increases are nothing new, the unprecedented rate of these increases signals a turning point that demands attention and presents a call to action for employers. Furthermore, this cost trend shows no signs of slowing down given a robust drug pipeline (e.g., specialty medications, cell and gene therapies, GLP-1s). As a result, more costs are expected to shift to employers. Rather than shifting costs to employees, employers have largely absorbed these cost increases (Figure 1). This approach, however, is becoming increasingly untenable, squeezing organizational budgets. The question now is not whether action is needed, but rather how employers will address these short-term demands while protecting the longer-term sustainability of their programs and meeting the health care needs of employees.

Figure 1. Estimated Health Care Costs
Figure 1. Estimated Health Care Costs, 2019-2024

As we explored in Taking Action on Pharmacy: A Business Group on Health Viewpoint, the growing impact of pharmacy as a cost driver is top of mind for employers. Pharmacy costs in 2023 account for 27% of surveyed employers’ overall health care spend, up from 21% just 2 years prior.1 While specialty medications like GLP-1s have fueled a sizable portion of that growth, the increasing prevalence of conditions such as cancer, cardiovascular, musculoskeletal and mental health are also contributing to increases in pharmacy spend. An overall rise in chronic conditions and a growing portion of costs attributable to high-cost, complex patient cases further exacerbate a difficult situation. All these factors combined present a challenging mix of problems for employers to tackle.


Cost Management Calls to Action

Employers will need to balance tactical short-term trend management, long-term strategic planning and enhanced employee experience as they address this challenging cost environment. To create a more sustainable path forward, employers must take a more proactive and strategic approach to managing health care costs while still providing comprehensive benefits to meet growing employee needs.

Listed below are some key actions for employers to take in these efforts:

  • Holding vendor partners accountable: Consider putting in place more robust accountability measures to ensure that vendor partnerships deliver value and cost efficiency. Actions may include data-driven analyses of program/solution effectiveness and engagement; increased transparency into cost drivers, reimbursement and payment systems; and use of claims data as well as more stringent request for proposal (RFP) processes outlining explicitly the goals of each program and how vendors will be held accountable for closing the gaps. It’s incumbent upon employers to negotiate strong performance guarantees with both “traditional” carriers and newer partners to ensure they are delivering on promises that meet the employer’s goals. Keep in mind that a diligent RFP process can take significant time, so adequate planning and support are key to identifying the right vendor partners. Nevertheless, employers need to balance the urgency of the cost problem with taking thoughtful action as multiyear RFPs are more likely to have longer-term, rather than near-term, impact. Furthermore, employers should remove solutions with little engagement or that don’t appear to be delivering value. Increasingly, employers are considering alternatives to long-standing vendor relationships for pharmacy, medical and navigation services. In addition, third-party data analytics can help employers identify cases where medications or treatments could be administered more affordably at another site of care or by another provider without compromising quality. Employers can also identify opportunities to raise awareness and leverage any in-network point solution providers available through their existing health carrier(s). Another approach employers are using outside the U.S. to enable greater vendor accountability and allow for more timely data insights and analysis involves deploying a multinational captive for employee benefits.
  • Lean more purposefully into value: Relying more on value-based network designs, such as centers of excellence (COEs), high-performance networks (HPNs), advanced primary care and other value-based offerings, can drive better health outcomes while controlling costs. In fact, a point-in-time review of the 2025 survey results comparing those employers with high trend to those with low trend suggests that the lower trend companies are more likely to deploy value-based approaches.1 Elevating value-based strategies within program and network design and making them more attractive and accessible to members can lower cost and improve employee experience and health outcomes by shifting care toward high-quality providers and programs.
  • Encourage employees to be more proactive: Addressing key risk factors through targeted programming and incentive design can help mitigate costs over the long term. Employers should consider designing benefits that motivate employees to proactively engage in their own health and leverage preventive health screenings/services, primary care, holistic well-being programs and other high-value offerings. Employers and their many partners should utilize available data and navigation support to proactively nudge employees toward the right preventive care and wellness programs.
  • Reassess strategies to manage pharmacy costs: Active management of prescription drug costs, especially for high-cost therapies such as GLP-1s and other specialty drugs, through utilization management and behavior-change initiatives is a must. Employers should also demand greater transparency in pricing, PBM practices and fiduciary models in order to break away from rebate-driven formularies that don’t necessarily result in the lowest net cost. While looking for lower cost, clinically effective alternatives, employers should challenge their partners to prioritize specialty generics as well as biosimilar options in formulary and utilization management strategies.
  • Prioritize long-term success as well as short-term savings: To effectively manage rising health care costs, employers should consider taking a long-term approach by investing in initiatives that address disparities and gaps in health access and support, increase access to mental health care and take a whole-person approach to well-being. While removing such programs may seem like an immediate way to manage costs in the short term, this approach can ultimately lead to suboptimal long-term outcomes.

Conclusion

Although employers have always focused on managing health care costs, the current circumstances have created heightened urgency for action and broader accountability. As employers pursue more holistic and increasingly targeted approaches to address the drivers of health care costs both in the near and longer term, careful consideration of how any changes may ultimately affect member health and experience is crucial. Holding vendor partners to a higher level of accountability through transparency and value-based payment and performance outcomes is a vital strategic imperative.

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TABLE OF CONTENTS

  1. Introduction
  2. Cost Management Calls to Action
  3. Conclusion