Employer-sponsored health care costs are expected to surge 9%, surpassing $16,000 per employee in 2025, according to Aon, a leading global professional services firm. This is a greater increase than the 6.5% rise from 2023 to 2024. The rising cost is causing concern among employers and employees alike as they brace for higher premiums and health care expenses.

While inflation is slowing down across some areas of the economy, there has been a delay in the health care sector. 

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Debbie Ashford, the North America chief actuary for Health Solutions at Aon, said in a news release, "While the rest of the economy experienced high inflation over the last few years – which is now coming down – the impact on the health care sector was delayed due to the multiyear nature of medical provider contracts with insurers and payers. As those contracts get renegotiated, providers will aim to earn more for the services they provide to pay higher labor and medical supply costs."

One of the major drivers behind this spike in employer health care costs is the increasing costs of prescription drugs. Prescription drug costs are rising due to increased utilization of specialty drugs and GLP-1 medications for diabetes and obesity. 

Ashford said that specialty drugs are the leading factor in prescription drug spending and that the demand for GLP-1 medications has skyrocketed. While this factor alone is only a small fraction of the prescription drug sector, it has added 1% to the aggregate health care cost increase. 

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While the prices of these specialty drugs have spiked, prescription drug prices have grown at astronomical rates over the past decade, easily outpacing inflation by increasing nearly 40% over that time. 

Beyond prescription drugs, Ashford also stated that rising employment and wage increases resulting from inflation have increased health care costs. Health care costs are negotiated at higher prices to keep up with inflation, leading to higher medical trends. 

Even though employees will feel the impact, employers will still be burdened with rising costs in employer-based health care plans. 

Farheen Dam, North American Health Solutions lead at Aon, said, "Employers continue to bear the brunt of rising health care costs. Plan sponsors are wary of passing significant expenses onto plan participants, striving to keep benefits affordable."

In 2024, the employer subsidy for health care plans was about 80.7%. Employees contributed 19.3% through their paychecks to cover premiums and other features like deductibles, copays, and coinsurance. 

As employer-sponsored health care plans rise, it may become more difficult for smaller companies to offer these benefits to their employees in the future. According to NFIB, only about 56% of small business owners currently offer health insurance to employees. 

"Health Insurance has been a continuous challenge for small business owners," said Holly Wade, Executive Director of NFIB's Research Center. "The cost of health insurance is by far the biggest challenge for employers who offer health insurance and for those who do not offer it. Small employers compete for talent in filling open positions and are aware that health insurance is an important benefit for many employees and job seekers." 

Employers and employees alike will continue to feel the impacts of rising health care costs, whether they have employer-sponsored plans or have to shop the market if employers can't afford to offer these benefits to their workers. 

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