August 20, 2024

Key Takeaways

• Health care trend is projected to rise 7.8% in 2025; plan design changes will bring the increase down to 6.6%. This is the highest projection seen by this survey in 15+ years. At that rate of increase, health care costs in 2025 will be more than 50% of 2017 levels.
• Pharmacy costs are rapidly consuming a greater portion of employers’ health care budgets, climbing from a median of 21% to 27% of health care dollars spent on pharmacy alone in just 2 years. Some employers are turning to alternatives such as moving to fully transparent PBM arrangements.
• Many employers are grappling with coverage of expensive therapies like GLP-1s, with some considering various initiatives such as prior authorization and stronger eligibility requirements for coverage.
• Cancer continues to lead as the top condition driving health care costs, but more employers have included cardiovascular disease among their top three conditions driving costs.

Health Care Costs Continue to Rise

In looking back on 2023, a rare occurrence took place: The median increase in health care trend came in higher than employers (and their partners) originally projected. Aside from the anomaly of the pandemic era, employers’ actual costs have typically been at or below their projections. Actual costs ending higher than the trend projections signals the growing unpredictability of health care costs, which is driven by numerous forces described later in the report.

When looking forward to 2025, the cost story becomes more dire. Employers are projecting a median increase of over 7% in both 2024 and 2025 (before plan design changes are made) (Figure 2.1). As mentioned in Part 1, many employers may consider various tactics to reduce expenses (Figure 1.3).

While no single year’s increase creates a cost crisis unto itself, the compounding effect of sustained increases poses great challenges for employers. Given forecasts for increases for 2024 and 2025, even net of plan changes, employers will be experiencing health care costs that are more than 50% higher than 2017 levels (Figure 2.2).

The median percentage of health care spent on pharmacy in 2023 was 27% - a dramatic 6 percentage point increase over the last 2 years (Figure 2.4). This sharp rise may be attributed to the growing number of specialty therapies, overall drug prices, cell and gene therapies and the demand for newly approved obesity medications (GLP-1s). Interestingly, there is a connection between pharmacy benefits and costs and the top conditions driving costs – specifically, cancer and cardiac care, which both generally involve medication as a standard course of treatment. Given the growing size of the pharmacy slice of the overall health care cost pie, many employers are looking to deploy different tactics to address high-cost therapies like delaying the inclusion of coverage of new treatments at launch, as discussed in Part 5 (Figure 5.1).

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Our employee health ”moonshot” is addressing affordability in our plans. How will we get there? By providing a high-value plan that directs employees to the best providers but at a lower cost. It may not have as flexible of a network as other plans, but it will ease the out-of-pocket burden for our employees.”

- Kristen Putnam, Linde

When examined on a per capita, total dollar basis, the cost picture doesn’t improve. Total estimated health care costs (employee out-of-pocket costs + employer contributions to health account and premiums + employee contribution to premium) increased by $1,438 between 2023 and 2024. Employers absorbed nearly 90% of that increase, primarily through their contribution to the premium.

These estimates show employers' resolve to refrain from passing on costs to employees and instead absorbing the brunt of the cost increases themselves, in most part, by paying more of employees’ premiums. For 2024, employers have largely avoided raising costs for employees, but if trends continue on an upward trajectory, many organizations may find it challenging to continue to do so (Figure 2.5).

Health Cost Drivers of 2024

GLP-1 medications and high-cost therapies are impacting many employers’ health care costs and likely are contributing heavily to the increased percentage of health care costs spent on pharmacy (see Figure 2.4). Fifty-six percent of respondents say that GLP-1s are impacting their 2024 health care costs to a very great/great extent, a higher percentage than those who associated cost increases with poor quality care and a fragmented health care experience (Figure 2.6).

Similar conditions or disease categories were responsible for increases in trend and health care costs in 2023 and 2024. Cancer, musculoskeletal and cardiovascular conditions continue to be the top three conditions driving cost. Notably, 40% of employers recognized cardiovascular conditions as a top cost driver in 2024 compared to 30% in 2023. This 10-percentage point increase solidifies these conditions as the #3 driver of costs. (Figure 2.7). This change potentially points to the growing number of employers who will cover GLP-1s for cardiovascular conditions.

Mental health conditions continue to be part of the top five conditions impacting organizational health costs. Since mental health isn’t traditionally associated with high-cost therapies or high levels of hospital costs, this trend points to the high utilization and demand for mental health services.

Related Business Group on Health Resources

• An Employer's Practical Playbook for Treating Obesity
• Emerging Trends in Cancer Care
• Follow the Heart: Supporting Employees in Achieving Better Cardiovascular Health
• Managing Blockbuster GLP-1 Medications: What Employers Need to Know and What They Can Do

More Topics

Resource Pharmacy Cost Management Health Conditions and Risk Factors