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Area companies' increase in health insurance costs could range as high as 40% next year. See what factors are behind the jump and how employers can respond.
Many Kansas City businesses probably will see health insurance premiums climb in 2025, partly due to rising health care costs and demand for specialty drugs.
Some area employers Lockton Cos. works with expect to see health insurance costs increase anywhere from 0% to 40% in 2025, said Mark Seely, senior vice president and health and welfare practice leader at Lockton. The open enrollment period begins in November, when employers can renew or change plans.
That tracks an anticipated overall increase in health insurance costs for U.S. businesses next year. Employers could see total health insurance costs rise 5.8% on average in 2025, according to a report on premiums from consulting firm Mercer.
Those increases would mark 2025 as the third straight year that costs have jumped more than 5%, according to Mercer’s findings, published in mid-September. Before this three-year period, premiums averaged about 3% annual increases for a decade.
Across the board, inflation is a factor in costlier health care, which is in turn is driving up insurance costs, Seely said.
But inflation alone doesn’t warrant all the blame. Lingering workforce shortages in health care and a growing number of health system consolidations are pushing up the cost of services, according to Mercer.
Many employees who delayed care during the pandemic now are using outpatient services, which includes clinics and elective surgeries, Seely said. Hospital stays also are rising — another key factor driving up premiums.
Expensive drugs inevitably raise costs for employers. Such is the case with in-demand GLP-1s, which include popular weight-loss drugs like Ozempic and Wegovy. These two medications are used to treat obesity and Type 2 diabetes. Mercer attributed greater demand for behavioral health services and GLP-1s as contributing to higher premiums.
“You see averages of $18,000 a year for some of the GLP-1s,” Seely said. “That’s a pretty expensive add to the employers’ spend as well.”
Emerging gene and cellular therapies and cancer treatments, which can come with multimillion-dollar price tags, are emerging as costly coverage concerns for employers. Prescription drug spending rose 7.2% in 2024, the fastest-growing cost for employers, Mercer reports.
“The price tag of what you would consider to be a specialty drug is always going up,” said Jeff Long, Lockton vice president of actuarial health services. “One component of that is in the marketplace right now, there are a lot of exciting and interesting drugs in the cancer therapy market. But those drugs are expensive.”
To address these increases, companies need to have a strong strategy in place, Seely said. More employers are implementing cost-reduction strategies in 2025: 53% of employers plan to implement cost-cutting changes in 2025, up from 44% in 2024, Mercer found.
“There is a spectrum of different ways [for employers] to finance the health care, from fully insured plans to more of the bleeding edge, which is going to be reference-based pricing and ICHRAs, or individual coverage health reimbursement arrangements,” Seely said.
More employers are interested in offering ICHRAs, especially smaller companies, he said. These plans, an alternative to group health plans, involve employers providing a specific subsidy to employees for them to essentially buy their health care.
Some employers also could take a self-funded approach, which involves an employer paying employees’ claims rather than using an insurance provider, which can tack on premiums. Although this approach carries more risk for employers, it gives them more control of costs than with preset fully insured plans, Long said.
Employers are trying to absorb as much of the increase as possible to avoid passing the cost burden to employees, Long said. In 2025, employees will pay for 21% of premiums through paycheck deductions in 2025, unchanged from 2024, according to Mercer.
“It’s been a very serious year, and you’re seeing more employers willing to do some of the more bleeding-edge concepts to get at this cost because they can’t continue to hit the employee paychecks with an increase,” Seely said.
Lockton has been seeing metro area employees spending 5% to 8% of their paychecks to cover premium costs, leaving the rest for employers to pick up, Seely said. But if costs keep going up, employers could reach a tipping point.
“Every year clients say they can’t continue to afford this, so when is that breaking point?” Seely said.
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