Health benefit costs expected to jump 7% in 2025

The cost of health benefits on a per-employee basis is expected to increase between 5.8% and 7% next year, the third straight year health benefit costs have risen by more than 5%. 

Employers estimated that their health care benefit costs would increase 7% in 2025 on average if they do not take any steps to lower costs. Those that plan to implement cost-cutting measures are expecting health care benefits costs to go up 5.8%, according to preliminary results of Mercer’s national survey of employer-sponsored health plans. 

Smaller employers – those with between 50 and 499 employees – are likely to be hit the hardest with an increase of 9% on health benefit costs if they have taken no action to lower costs. In the past, increases of around 3% annually have been typical, Mercer said. 

About half of employers (53%) indicated they will make cost-cutting changes to their plans in 2025, an increase from 44% in 2024.

Inflation is one factor in rising health care benefit costs, as health care providers typically have multi-year contracts with health plans and inflation-driven cost increases are phasing in as contracts are renewed. 

However, health benefits costs continue to rise despite cooling inflation, noted Mercer. Prescription drug costs are the primary factor driving prices up in the health benefits space. In 2024, prescription drug costs per employee are projected to increase 7% and last year they increased by 8.4%. Much of this increase is attributable to new and ongoing developments in the pharmaceutical market that will likely have a long-term impact on prices, said Mercer.

Read more: Group medical cost trend to hit 8% in 2025: PwC

The average per-employee cost of employee-sponsored health insurance reached $15,797 in 2024, an annual increase of 5.2%. For smaller employers, per-employee costs average $16,464, while larger companies pay about $15,640 per employee, benefiting from the ability to self fund their medical plans and avoid insurance company risk charges. In addition, large companies have been able to avoid shifting cost increases to employees through higher deductibles or increased out-of-pocket maximums. They have done so with plan options such as free employee-only coverage or no/low deductibles. 

“Employers are still concerned about health care affordability and ensuring that employees can afford the out-of-pocket costs when they seek care. But they also need to manage the overall cost of health care coverage to achieve a sustainable level of spending for the organization,” said Tracy Watts, Mercer’s national leader of US health policy. “Balancing these competing priorities will be a challenge over the next few years.”