Health care costs are projected to increase substantially in 2025. Estimates show a similar growth in spending to 2024, marking multiple years of compounding costs.
Several industry surveys and reports reveal that employers anticipate health care costs to grow between 7% and 8% in 2025.
Here are seven key factors impacting rising health care costs this year:
1. Glucagon-like peptide-1 (GLP-1) Drugs
GLP-1 drug use is already widespread but is expected to increase in popularity. According to KFF data, around 1 in 8 Americans have already used a GLP-1 drug, while 6% are currently taking one. However, this number is projected to rise in the coming years. JP Morgan estimates that 9% of the U.S. population could be on GLP-1s by 2030.
GLP-1 medications typically cost around $1,000 per month. These costly medications are intended to be taken in perpetuity to achieve their benefits. This means that GLP-1 users may experience health benefits but will be required to use these high-cost treatments on an ongoing basis.
2. Drug Cost Increases
A number of commonly used drugs are expected to have price increases this year. Drugs used to treat osteoporosis, cancer, atopic dermatitis and Type 2 diabetes are expected to rise anywhere from 4% to 10% or more. In addition, increased utilization of these drugs could drive spending even higher.
3. Cell and Gene Therapies (CGTs)
Advanced treatments, such as CGTs, are designed to treat conditions like blood and lung cancer, sickle cell anemia and spinal muscular atrophy. These therapies demonstrate significant medical advancement, but they come with a high price tag. Some of these treatments may cost thousands of dollars per week; others can cost between $250,000 and $4.25 million for a single dose. Given the massive price tag, if only a small number of plan participants use these expensive prescriptions, it can significantly raise health care spending.
Many of these treatments have recently been approved, and hundreds more are currently in clinical trials and could be available in the coming years. By 2025, it’s estimated that nearly 100,000 patients in the United States will be eligible for CGT, which could cost $25 billion.
4. Biologics
Specialty drugs, including biological drugs, are one the fastest growing categories of pharmacy spending. Biologics are medications that come from living organisms, such as sugars, proteins and DNA. Biologics treat a range of conditions, such as cancer, psoriasis, rheumatoid arthritis and inflammatory bowel diseases. Even though these drugs are effective at treating complex health conditions, they carry a high cost. According to a report published in medical journal JAMA, biologics make up only 2% of prescriptions but account for 37% of net drug spending.
Biosimilars are an emerging category of biological medications. These treatments are similar to a reference drug, which is an existing biologic that was previously approved by the Food and Drug Administration (FDA). For a biosimilar to be approved, there must be no meaningful differences in safety and effectiveness from the original biologic. Compared with original biologics, biosimilars are lower-cost drugs that allow for greater access to more patients. New biosimilars are gaining FDA approval and entering the market each year.
5. Health Care Labor Costs
The current supply of health care workers does not meet the growing demand for utilization. This shortage is due to factors such as rising health care demands, an aging population, retiring workforces and not enough talent entering the health care industry. When key players in the health care industry are required to spend more on labor, those expenses are often passed on to both employers and users of the health care benefit: employees and their dependents.
6. Chronic Health Conditions
Around 90% of U.S. health care spend is for people with chronic and mental health conditions. Chronic conditions include heart disease, stroke, cancer, diabetes, arthritis and obesity. In general, chronic disease is increasing in prevalence in the United States and is projected to continue to do so in 2025 and the upcoming years.
7. Aging Populations
The percentage of the U.S. population that is 65 or older continues to rise, with over 55 million Americans over the age of 65. Estimates show that there will be almost 80 million people aged 65 and older in the United States by 2040. Per-person personal health care spending for the 65 and older population is around five times higher than spending per child and almost 2.5 times the spending per working-age person.
Employer Takeaway
Offering quality health care to employees carries a significant financial cost for organizations, comprising a substantial part of an overall budget. It’s more than just organizations that pay the price for growing health care costs; such expenses are often shared between employers and employees. Rising health care costs may be unavoidable, but informed employers can better understand these trends and act appropriately.
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