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Employers have been put on notice. Health care costs are expected to climb considerably in 2025. Experts predict a 9% increase in employer health plan expenses, up from last year’s 6% hike. While rising costs are concerning, there’s good news -- 84% of employers’ health plan spend is tied to areas can be managed strategically to reduce costs without compromising care.
So, how can employers balance rising expenses with providing competitive benefits? The answer is simple: focus on what you can control. Rather than stressing over external factors like inflation and regulatory changes, employers should concentrate on controllable cost drivers that directly impact their bottom line.
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Here are four strategies to take control of health plan spending:
1) Understand and address key cost drivers
Did you know that 83.6¢ of every health care dollar is spent on prescription drugs, health care providers and services? These are controllable expenses that, with the right strategies, can be optimized. Every employer’s cost drivers are unique—whether it’s specialty drug costs, chronic disease, high-cost claims, hospitalizations, or out-of-network care. Understanding where dollars are going is the first step toward meaningful cost control.
Employers who self-fund their health plans have the flexibility to address these cost drivers through custom plan designs, preventive care initiatives, and medical management programs. A trusted third-party administrator (TPA) can help analyze claims data and develop tailored cost-containment strategies.
2) Review claims & analyze trends
Reducing unnecessary spending starts with efficient claims processing and utilization management to prevent waste, fraud, and overutilization. Common reasons for claim denials include:
- Missing or invalid data
- Ineligible services or providers
- Medical coding errors
- Untimely filing
3) Optimize pharmacy benefits
Prescription drug costs remain one of the fastest growing health care expenses - 92% of employers are worried about high-cost drugs, with 91% reporting concern about overall pharmacy costs. Employers can take proactive steps to manage pharmacy costs, including:
- Formulary management: Encouraging cost-effective medication choices
- Step therapy: Requiring lower-cost alternatives before approving expensive drugs
- Promoting generics & biosimilars: Reducing reliance on costly brand-name prescriptions
Related: Employee benefits: Multigenerational workforces, AI, Rx costs, and rising health care costs
4) Implement wellness & preventive care initiatives
Long-term cost savings require proactive health management, not just reactive care. Wellness and preventive care programs help reduce high-cost claims and improve employee health outcomes. Effective initiatives include:
- Chronic disease management programs (e.g., diabetes, hypertension)
- Biometric screenings & preventive care incentives
- Mental health support & stress management resources
Engagement is key. Employers can boost participation by:
- Communicating the value of wellness programs regularly
- Offering incentives for preventive screenings and participation
- Encouraging leadership involvement in health initiatives
- Providing healthy workplace perks (e.g., nutritious snacks, step challenges)
The bottom line: Control what you can control
Managing health care spend is no small task, but focusing on controllable expenses can make a significant impact. By understanding cost drivers, optimizing claims and pharmacy benefits, and implementing strategic wellness programs, employers can take charge of their health plan costs—without sacrificing quality care for employees.
At the end of the day, the key to cost control is proactive management. With the right strategies and TPA partnership, employers can navigate rising costs, enhance employee wellbeing, and maintain financial stability in the evolving health benefits landscape.
Todd Martin is Chief Sales Officer at Nova Healthcare Administrators, Inc. He joined Nova in 2010 as the only sales executive and has helped Nova expand into new markets and grow in membership.
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