Employers expect health care benefit costs to keep rising—and they’re going to have to make some tough choices

Good morning!

America has a health care accessibility crisis—and depending on how the government and corporations step in, things could only get worse.

U.S. employers anticipate their total health benefit cost per employee will rise 5.8% in 2025, even after factoring in cost-reduction measures, according to a new report from Mercer , an HR consulting firm. This is the third year in a row that business leaders expect these prices to increase by around 5%—far higher than the average 3% annual bump that has characterized most of the past decade.

If employers take no action to lower expenses, they expect their health benefit hike to increase by about 7%. Small businesses with 50 to 499 workers could have an even tougher time, and those employers expect a 9% increase if they take no initiative to shave expenses.

A significant factor for rising costs is the current state of the health care industry—medical professionals are burnt out, stretched thin by understaffing and longer working hours. By 2025, the U.S. could have a nurse staffing shortfall of 450,000, according to a 2022 report from McKinsey.

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

“Consolidation may generate savings in the future through increased efficiency and improved integration, but there is evidence it is putting pressure on pricing, as larger health systems have greater negotiating power than smaller systems,” Sunit Patel, Mercer’s U.S. chief actuary for health and benefits, wrote in a statement.

About 53% of employers will make cost-cutting changes to their health benefit plans in 2025, according to the report. That’s a big jump from the 44% of companies that did so in 2024. The study notes that these reductions involve raising deductibles and other cost-sharing provisions, which shove higher out-of-pocket costs onto plan members.

While employers have avoided these adjustments in the past, they’re changing their tune amid a three-year growth in prices.

“Employers are still concerned about health care affordability and ensuring that employees can afford the out-of-pocket costs when they seek care,” Tracy Watts, national leader of U.S. health policy for Mercer, wrote in a statement. “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.”

Emma Burleigh
emma.burleigh@fortune.com

This story was originally featured on Fortune.com