Health Benefit Costs to Rise More Than 5% for Third Consecutive Year

U.S. employers are planning for a 5.8% increase in health benefit costs in 2025, even after accounting for planned cost-reduction measures, according to new estimates.

That figure comes from preliminary survey results from Mercer, which analyzed responses from more than 1,800 U.S. employers. The expected rise marks the third consecutive year with health benefit costs increasing more than 5%. This is after a decade of cost increases averaging a mere 3%, according to the report.

Employers estimated that their health benefit costs would rise by an average of about 7% if they took no action to lower costs. Smaller employers (those with 50-499 employees), which typically have fully insured health plans, will likely be hit the hardest. They reported that their costs would rise by about 9% on average if they took no action to lower them.

The share of health insurance premiums paid by employees in 2024—an average of 21%—is expected to remain about the same in 2025, according to Mercer.

Mercer’s findings align with other reports providing estimates for health care costs in 2025. A recent survey from the International Foundation of Employee Benefit Plans (IFEBP) found that U.S. employers project a median health care plan cost increase of 8%, while an analysis from Aon found that the average cost of employer-sponsored health care coverage in the U.S. is expected to increase by 9% in 2025.

Those figures came in higher than Mercer’s 5.8% estimate but did not account for any cost-cutting measures that might be taken by employers.

As was the case with the other 2025 health cost estimates, employers in the Mercer survey reported that use of pricey GLP-1 (glucagon-like peptide-1) drugs, such as Ozempic and Wegovy, are driving some of the increases. Although the drugs have been in high demand from employees and have shown promise in treating obesity, their high cost—typically between $1,000 and $1,500 a month per patient—is a considerable issue for employers. Earlier this year, IFEBP found that employer coverage of GLP-1 drugs is up 8 percentage points since last fall.

Overall, spending on prescription drugs remains the fastest-growing component of health benefit costs, Mercer found. Employers reported that drug benefit costs per employee rose 7.2% in 2024, and the ongoing introduction of very high-cost gene and cellular therapies is also adding to these higher costs.

Another contributing factor is the continued shortage of health care workers, which Mercer said is linked to providers raising prices due to supply and staffing shortages.

“While we’ve seen significant increases in utilization in a few areas, such as for behavioral health care and GLP-1 medications, overall utilization has had a relatively modest impact on trend this year,” said Sunit Patel, Mercer’s chief actuary for U.S. health and benefits. “The biggest driver of higher costs is price dynamics, some of which are macro in nature.”

Employer Response

Mercer found that roughly half of employers (53%) plan to make cost-cutting changes to their plans in 2025, a rise from 44% in 2024.

Those strategies include raising deductibles and implementing other cost-sharing provisions that result in higher out-of-pocket costs for plan members when they seek care. Although many employers have avoided making these types of changes, said Tracy Watts, Mercer’s national leader for U.S. health care policy, doing so becomes more difficult in a period of sustained increased cost growth.

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