Health care costs continue to climb, impacting both employers and employees. Projections indicate that health care spending will increase by 7% to 8% in 2025, continuing the trend of rising expenses. This means higher premiums, deductibles, and out-of-pocket costs for employees.
Several factors are driving these increases, including new medications, specialty treatments, labor shortages, and an aging population. Here’s what’s behind the rising costs:
The Growing Impact of GLP-1 Drugs
Medications like GLP-1s, commonly prescribed for weight loss and diabetes, are becoming more popular. According to KFF data, 1 in 8 Americans have used a GLP-1 drug, and 6% are currently taking one. That number is expected to grow significantly. JP Morgan projects 9% of the U.S. population could be on GLP-1s by 2030.
These medications cost about $1,000 per month and often require lifelong use to maintain their benefits. While some health plans cover GLP-1s for diabetes, many do not cover them for weight loss, leading to higher costs for employers and employees.
Rising Prescription Drug Costs
The cost of many commonly used prescription drugs is increasing. Health care services company Vizient forecasts price hikes of 4% to 10% or more for medications treating:
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Osteoporosis
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Cancer
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Atopic dermatitis
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Type 2 diabetes
The Cost of Advanced Cell and Gene Therapies (CGT)
New treatments for conditions like cancer, sickle cell anemia, and spinal muscular atrophy are advancing rapidly, but they come with staggering costs. Some cost thousands per week, while others range from $250,000 to $4.25 million for a single dose.
By 2025, nearly 100,000 patients in the U.S. could be eligible for CGT, with total costs projected to reach $25 billion. Even if only a small percentage of health plan participants require these treatments, it can have a major financial impact.
The Role of Biologics in Rising Costs
Specialty drugs, particularly biologics, are among the fastest-growing pharmacy expenses. These treatments, derived from living organisms, help manage cancer, psoriasis, rheumatoid arthritis, and inflammatory bowel diseases.
While effective, biologics are expensive. However, biosimilars—lower-cost alternatives to biologics—are entering the market. These FDA-approved drugs offer the same safety and effectiveness as the original biologic, making them a more affordable option for patients.
Health Care Labor Shortages Drive Costs
The demand for health care services is growing, but the supply of health care workers isn’t keeping up. Factors like an aging workforce, increasing retirements, and a shortage of new professionals entering the field are driving labor costs higher. These costs are passed down to employers and employees through higher health care prices and premiums.
Chronic Conditions Continue to Strain the System
Approximately 90% of all U.S. health care spending goes toward chronic and mental health conditions such as:
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Heart disease
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Stroke
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Cancer
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Diabetes
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Arthritis
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Obesity
As chronic illnesses become more common, health care costs will continue to rise.
Aging Population and Increased Health Care Spending
The U.S. population is aging, with over 55 million Americans aged 65 or older. By 2040, that number is expected to reach almost 80 million.
Older adults require more medical care, leading to significantly higher costs:
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Health care spending for seniors is nearly five times higher than for children
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It’s about 2.5 times higher than for working-age adults
What You Can Do
While you can’t control these rising costs, you can take steps to manage your health care spending:
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Understand what your health plan covers to make informed choices.
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Explore cost-effective treatment options, such as biosimilars.
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Take advantage of preventive care to manage chronic conditions early.
If you have questions about your health benefits, reach out to your HR representative for guidance.
