It’s a tale as old as time: Healthcare costs are rising faster than inflation, and employers are struggling to manage them as they eat up a larger and larger share of their budgets.
Healthcare costs are expected to rise by nearly 8% in 2025, according to a report by the Business Group on Health, contributing to a more than 50% increase since 2017.
“We are now experiencing the highest year-over-year increase in more than a decade,” Jim Winkler, chief strategy officer at the Business Group on Health, said in an email. “Employers have absorbed the majority of cost increases over the past four years, and they likely cannot continue to do so.”
Pharmacy expenses are primarily responsible for recent increases in healthcare costs. From 2021 to 2023, the median percentage of healthcare spending on pharmacy rose from 21% to 27%, according to the Business Group on Health. As a result, 3 in 4 employers say they are “very concerned” about total pharmacy costs, the report says.
In addition, more people are using GLP-1 weight loss drugs, including Ozempic, Wegovy, Zepbound and Mounjaro, to treat diabetes, obesity and other conditions.
However, while the drugs are clinically effective, they’re expensive at a price tag of about $700 to $800 per month. More than 2 in 5 adults under age 65 with private insurance — about 57.4 million people — may be eligible for GLP-1s, which could accelerate healthcare spending.
“GLP-1s are a major contributor to pharmacy cost overall, especially as utilization extends to medical conditions beyond diabetes and weight management,” Winkler said.
Higher rates of chronic conditions, including cancer, cardiovascular conditions, diabetes and mental health conditions, also contribute significantly to rising healthcare expenses for employers. While much of those costs are attributable to an aging workforce, initial cancer diagnoses have grown more severe among young people who deferred or delayed care during the COVID-19 pandemic, Winkler said.
Consolidation and reduced competition among healthcare providers also contribute to rising costs, especially for inpatient care.
Below are six key strategies employers can use to manage healthcare costs in 2025.
1. Hold vendors accountable for clinical outcomes and financial results.
More than 8 in 10 employers are implementing or strongly considering using the request for proposal process to secure better pricing from vendors, according to the Business Group on Health.
Employers should rigorously assess the ROI associated with vendors’ solutions, use shared performance metrics that align with the organization’s clinical and financial goals, and replace underperforming partners as needed, Winkler said.
However, demonstrating the ROI for “wellness or other cost-containment measures can be challenging,” said Jennifer Chang, HR knowledge advisor at the Society for Human Resource Management.
2. Lean into programs that align with value-based care models, including in-network providers that encourage cost-effective, high-quality outcomes.
Using centers of excellence — select providers that deliver specialized medical care that meet specific cost and quality benchmarks — can help lower costs for behavioral health and other services, Chang and Winkler said.
High-performance network models that encourage more cost-effective care through greater provider-payer collaboration and value-based payment, as well as advanced primary care programs that tie reimbursement to managing specific chronic conditions, such as diabetes, can also help employers lower healthcare spending, Chang and Winkler said.
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“Employers have absorbed the majority of cost increases over the past four years, and they likely cannot continue to do so,” one expert said