Health care costs are expected to significantly increase in 2025, with employer health care expenditures projected to rise by 9% to over $16,000 per employee. This increase is notably higher than the 6.5% growth observed from 2023 to 2024.
This surge follows a period of slower growth in employer-sponsored health care spending during the pandemic. The anticipated rise in costs is partly due to the delayed impact of inflation on the health care sector, as medical provider contracts are renegotiated to reflect higher labor and medical supply costs.
The study attributes the expected cost increase to the continuous rise in medical claims and the growing expenditure on specialty prescription drugs, particularly GLP-1 drugs like Ozempic and Wegovy, which are used to treat obesity and diabetes.
These drugs, although representing a small fraction of overall drug use, have seen a significant increase in demand, driving up costs. The popularity of GLP-1 medications has surged, with usage increasing by 87% in 2023 alone, contributing significantly to the overall rise in health care expenses.
Prescription drug costs have been a long-standing issue, with prices increasing nearly 40% over the past decade, outpacing general inflation. Although the rate of price increases has slowed this year, the cost of prescription drugs continues to be a major financial burden for consumers.
This ongoing trend is expected to contribute to the overall rise in health care costs that employers and individuals will face in the coming years.
In addition to employers, retirees are also expected to experience higher health care expenses. A report from Fidelity indicates that a 65-year-olds retiring today will likely spend $165,000 on health care throughout their retirement, marking a 5% increase from last year.
This figure is more than double the estimated costs from 2002, highlighting the growing financial challenge of managing health care expenses in retirement.
While inflation in the broader economy may be easing, the health care sector is poised for significant cost increases due to factors such as rising medical claims, specialty drug expenditures, and delayed inflation impacts on provider contracts.
Both employers and retirees are likely to face substantial financial pressures from these escalating health care costs.
