Employers expect healthcare costs to continue to rise and will have to make difficult decisions

America is facing a healthcare affordability crisis, and depending on how government and corporations respond, things could only get worse.

U.S. employers are predicting the total cost of health benefits per employee will rise 5.8% in 2025, even after factoring in cost-cutting measures, according to a new report from human resources consulting firm Mercer. This is the third consecutive year that business leaders expect prices to rise by about 5% — significantly higher than the average annual increase of 3% that has characterized most of the past decade.

If employers do nothing to cut spending, they expect to see their health benefit increases increase by about 7%. Small businesses with 50 to 499 employees could have an even tougher time, with such employers expecting a 9% increase if they do nothing to cut spending.

A significant factor in rising costs is the current state of the healthcare industry—healthcare workers are burned out, stretched by staffing shortages and working longer hours. The U.S. could face a shortage of 450,000 nurses by 2025, according to a 2022 McKinsey report.

America’s rapidly aging population is another factor contributing to rising costs, according to the Mercer report, along with the consolidation of health care systems across the U.S. A separate 2024 study from the Harris School of Public Policy at the University of Chicago found that hospital mergers between 2010 and 2015 led to a 5% increase in prices.

“Consolidation has the potential to deliver future cost savings through increased efficiency and better integration, but there is evidence that it is putting pressure on pricing because larger health systems have more negotiating power than smaller systems,” Sunit Patel, chief actuary of U.S. health and benefits at Mercer, said in a statement.

About 53% of employers will make changes to their health benefit plans to cut costs in 2025, the report said. That’s a big increase from the 44% of companies that did so in 2024. The study notes that these reductions include raising deductibles and other co-pay provisions, which cause plan members to face higher out-of-pocket costs.

While employers have historically shied away from such changes, they are changing their approach in the face of three years of price increases.

“Employers continue to be concerned about health care affordability and ensuring that employees can afford their out-of-pocket costs when they seek care,” Tracy Watts, national leader of U.S. health policy at Mercer, said in a statement. “However, they also must manage the total cost of health care to achieve a sustainable level of spending for the organization. Balancing these competing priorities will be a challenge over the next few years.”

Emma Burleigh
emma.burleigh@fortune.com

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